Guinea adopts new mining code boosting state share

Sep11, 2011

By Saliou Samb

CONAKRY (Reuters) - Guinea's parliament adopted a new mining code that more than doubles the share the West African state can take in mining projects to 35 percent and toughens procedures for acquiring development permits, the government said on Saturday.

The changes, detailed in a February draft of the code published by Reuters in April, are aimed at boosting the country's share of its vast minerals wealth while providing clarity on the country's laws to investors.

But mining companies lobbied hard against the changes arguing they would undercut their profitability and lead to reduced investment.

"The National Transitional Council (Guinea's interim parliament) made these changes in the interests of the country," Mines Minister Mohamed Lamine Fofana said in a radio broadcast on Saturday. "The new mining code will allow future investors in Guinea to work in transparency."

An NTC official said the code had been adopted unanimously by lawmakers on Friday.

Guinea is the world's top exporter of the aluminum ore bauxite and holds some of the world's biggest unexploited reserves of iron ore that have drawn billions of dollars in planned investment from miner Rio Tinto and Vale.

The West African country held its first free elections since independence in late 2010, ending nearly two years of junta rule that were punctuated by a stadium massacre and widespread reports of corruption.

The new code would give the Guinean state a free 15 percent of mining projects along with the option to purchase an additional 20 percent, bringing total potential share in projects to 35 percent.

That more than doubles the 15 percent share stipulated by the old mining code written in the 1990s, and has drawn protests from mining companies that argue it will cut into their revenues without reducing capital outlay.

The code also toughens up procedures for companies seeking to get a mining permit, requiring them to complete a feasibility study and environmental and social impact studies beforehand.

sourced Reuters

South Africa mining sector two biggest risks

Wednesday, 07 Sep 2011

Many governments are looking at ways to get more money from miners as companies report record profits. The higher the returns and the higher the profits, the greedier governments become. As commodity prices rise governments try to boost their share of the proceeds from their countries energy and mining sectors.

Country risk
Where the political and economic stability of the host country is questionable and abrupt changes in the business environment could adversely affect profits or the value of the company’s assets.

Resource nationalism
The tendency of people and governments to assert control, for strategic and economic reasons, over natural resources located on their territory.

The major benefit for developing countries from natural resource development comes in the form of:
1. Employment/wages
2. Government revenues - taxes, royalties or dividends

There can also be indirect benefits such as knowledge and technology transfers. Foreign investments can also involve infrastructure investments, sometimes on a massive scale, like electricity, water supplies, roads, railways, bridges and ports.

The PricewaterhouseCoopers Mine 2011 survey highlights what governments across the globe are looking at in regards to the world’s top 40 miners:

1. Achieved net profits of USD 110 billion last year
2. Halved their debt
3. Built cash reserves of USD 105 billion
4. Announced capital programs of USD 300 billion for 2011

In 2011, resource nationalism became the number one risk for mining companies.

Miners are an easy target as mining is a long term investment and one that is especially capital intensive mines are also immobile, so miners are at the mercy of the countries in which they operate. Outright seizure of assets happens using the twin excuses of historical injustice and environmental/contractual misdeeds. There is no compensation offered and no recourse.

Mr Mike Elliott Ernst & Young Global Mining & Metals Leader said that “Resource nationalism is taking other forms as well, including greater controls on foreign participation, mandated beneficiation, use it or lose it demands and mandated government participation.”

The result is a spate of recent news regarding resource nationalism:

1. A government backed ouster of Brazilian mining giant Vale SA’s CEO, Roger Agnelli. Brazil’s government is considering a proposal that would make it easier to raise or lower mining royalties depending on economic conditions and minerals prices as part of a broad overhaul in Brazil’s mining sector which includes revamping the licensing process and boosting state income from mining companies.

2. Panamarecently repealed part of its mining code allowing investments from foreign governments.

3. A handful of African countries have also increased tax revenue from miners in recent years ie Ghana plans to double royalties on mining to increase government revenues.

4. South Africa is pushing to nationalize its mines and banks. The Youth League wants the government to take 60% of private mining assets without compensation to distribute wealth and create jobs. As part of an empowerment driveSouth Africa’s mining charter already calls for 26% of the mining industry in Africa’s largest economy to be transferred to black owners by 2014.

5. Papua New Guinea introduced a plan to hand state ownership of mineral and energy resources to landowners a move that may prove disastrous to foreign miners and their shareholders.

6. President Hugo Chavez nationalized Venezuela’s gold industry.

7. Peruvian president Humala (recently elected) promised, during his election campaign, to initiate windfall taxes on mine profits and to harden tax and royalty regimes.

8. AustraliaandChileare proposing fresh tax or royalty regimes.

9. In the past 12 to 18 months at least 25 countries have increased or announced intentions to increase their government take from resources via taxes or royalties.

10. Zimbabwenow requires foreign owned companies indigenize their operations in the country by transferring at least 51% ownership to locals. Youth Development, Indigenisation and Empowerment Minister Saviour Kasukuwere rejected a number of foreign companies plans and set a 14 day ultimatum for the submission of what he considers acceptable plans.

Mr Scott Jobin-Bevans president of Prospectors and Developers Association of Canada said that “We know it’s tempting, at a time when government debt is mounting and metal prices are rising, for some governments to try to grab an even higher proportion of the revenue from mining. But we urge governments to remember that the cumulative effect of these unreasonable tax hikes will be to push up world prices and slow global growth.”

(sourced from Resource Investor)

S.Africa tumbles as mining investment destination

New Fraser Institute survey puts Zimbabwe just four places lower

Mar03, 2011
By Allan Seccombe, Business Day

SA SLID further down the country rankings in the prestigious Fraser Institute’s latest survey measuring the attractiveness of governments’ mining policies.

The Department of Mineral Resources has set its sights on correcting perceptions about SA as an investment destination. But the country’s rankings in the survey published yesterday dropped to 67 out of 79 countries from last year’s position of 61 out of 72 .

SA was ranked this year only four places higher than Zimbabwe. In 2008, SA ranked 49 out of 71 countries.

The Vancouver-based institute based its findings on responses from 494 exploration, development and mining-related companies around the world .

While a surge in metal prices has made miners optimistic about business prospects, many respondents are concerned about a growing trend of resource nationalism and new mining taxes .

The institute described its policy index as a "report card to governments on how attractive their policies are from the point of view of an exploration manager".

"For virtually every jurisdiction there is a feeling that things are getting worse, as opposed to better," said Fred McMahon, co- author of the report.

In June, Mineral Resources Minister Susan Shabangu said: "We have set a target for SA to improve the negative perceptions of its regulatory framework, from the current Fraser Institute level of 61 out of 72 countries to feature within the top quartile by 2014."

The Department of Mineral Resources yesterday declined to comment on the latest survey.

"We’ve not seen the complete report and we need to analyse it before we can comment," said department spokeswoman Zingaphi Jakuja. "We are not privy to their methodology."

In June, the government, labour and mining companies agreed on a strategy to grow and transform the mining sector.

They set up the Mining Industry Growth, Development and Employment Task Team (Migdett) to identify the bottlenecks that caused SA to miss out on the commodity boom that ended in late 2008 and to devise strategies to ensure it does not miss the next boom.

The strategy has begun unfolding, with the department ending a moratorium it placed on accepting prospecting rights until it completed an audit of licences granted since May 2004 and cleaned up its database.

An online system to lodge and monitor mining and prospecting rights was unveiled last month and Ms Shabangu said amendments to the Mineral and Petroleum Resources Development Act aimed at weeding out ambiguities would be finalised this year.

The mining sector grew 6% last year, albeit off a low base set in 2008, when electricity constraints battered the industry, and 2009, when the effects of the global financial crisis were felt.

"I think there is a very definite timing mismatch between the survey and the things that are taking place in the Migdett process," said Roger Baxter, chief economist at the Chamber of Mines and a member of the task team.

"The survey has come at a time when a lot of work is being done to turn the sector around. There’s constructive discussion going on to resolve constraints.

"We’ll start seeing some good progress in the next six months to a year. Hopefully in the next Fraser rankings we’ll be a bit higher up the pecking order."