Monday, 28 March 2011

New boom in resources ‘may bypass SA mining’

Chamber of Mines warns MPs on red tape and talk of nationalisation
Published: 2011/03/28 06:34:45 AM

CAPE TOWN — Rigid mining regulation could see SA missing out on the next commodities boom and "kill the goose that lays the golden egg", the Chamber of Mines has warned MPs.

While other global commodities giants such as Australia have experienced mining sector growth of extraordinary numbers, SA’s mining output has been growing at only 3%-4% a year, and spending on exploration has fallen to just 3% of the world total.

Uncertainty brought about mainly by persistent talk of nationalisation had also substantially affected investment.

Chamber of Mines CE Bheki Sibiya told Parliament’s mining portfolio committee on Friday that the level of regulation in the industry was flying "very close to the wind" on a number of issues, raising the spectre that the goose that laid the golden egg would be killed rather than nurtured.

The constraints on the industry had to be addressed if it was to generate growth and jobs, and a reliable, certain policy environment had to be created, Mr Sibiya said, warning that the carbon tax proposed by the Treasury would add about R500m to the industry’s tax bill.

The industry conservatively estimates it can achieve growth of 3%-4% between 2010 and 2020, creating 100000 direct mining jobs, but only on condition that the regulatory constraints are removed. More optimistically, consultants McKinsey has suggested 200000 could be created in this period.

"This is not a sunset industry, it is very much a sunrise industry," the chamber’s economist Roger Baxter told the committee during a briefing by the chamber on the state of the industry and the key issues confronting it.

But he noted that the South African industry was "massively underperforming" its peers in exploration expenditure which had declined from 6% to 3% of the global share between 2003 and 2008. A significant constraint on future growth could be the severe shortage of mining engineers.

Democratic Alliance (DA) MP and spokesman on mining Hendrik Schmidt said: "T here is a second commodity boom starting" and "if we do not get rid of the impediments in the regulatory environment we will miss this one as well".

"The repeated calls for nationalisation also remain a concern because they cloud the sector with uncertainty.

"There are a lot of issues including perceptions of corruption which need attention and the minister must sit down and remove the uncertainties," Mr Schmidt said.

He said the growth in the mining industry was not enough and warned that the legislative changes that are coming should create a fixed regulatory environment that limited ministerial discretion as a way of providing more legal certainty.

Mineral resources ministerial spokesman Musa Zondi, commenting on the Chamber of Mines presentation, said Mr Sibiya knew that the minister understood that the regulatory environment needed to be updated and the ambiguities removed.

He said all the hard lessons learnt in the past would be fed into changes to the law which would be coming later in the year.

On the state-owned mining company, the chamber’s senior executive Frans Barker said the industry supported the idea as long as there was a level playing field and the state did not act as both player and referee.

It therefore welcomed the withdrawal of the special exemptions that had been granted to the state-owned African Exploration Mining and Finance Company. The state should not be seen to be above the law, he said.

There was a danger that the state owned mining company would see itself as a "risk free" operation and rely on the state as the guarantor of last resort.

This would mean taxpayers would have to fork out for its inefficiencies and losses.

Mr Barker also warned against unrealistic expectations as about 89% of mining was already captured locally and the net return on capital could fall dramatically in lean years. He said a state-owned company could play an important role as an incubator for small mining companies, fund exploration and contribute to a sovereign wealth fund to smooth out the volatility in commodity prices.

Mr Schmidt said it was things such as a state-owned mining company and whether or not it would get preferential treatment in the market that were causing so much uncertainty and constraining growth in the mining industry. He said the DA supported the creation of an independent regulatory authority so that the government could not be player and referee at the same time.

The chamber also expressed concern over the reversal in the first two months of this year of the downward trend in the number of mine fatalities. The industry has a vision of zero harm but suffered 128 fatalities last year (down from 168 in 2009), which Mr Barker said was "unacceptably high" and should be addressed urgently.

Mining CEOs are to have a summit on the issue of safety later this year ahead of a tripartite summit with the government and labour on safety. The signing of a tripartite agreement in 2003 led to a sharp decline in fatality rates.

The committee is to embark on a review of the Mining Charter, and will be meeting communities in North West and Gauteng in the next few weeks, as well as mining houses. The revised charter, which laid down more specific targets for transformation, came into effect in September last year.

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