Resource nationalism stokes miners’ fears

The growing global threat of resource nationalism has been rated as the number one fear for miners in a new Ernest & Young report.

In its report entitled Business risks facing mining and metals 2012-2013, global mining and metals leader for Ernest & Young, Mike Elliot, said "resource nationalism retains the number one risk ranking as governments seek to transfer even more value from the mining and metals sector".

Elliot said that resource nationalism is now more a challenge than it was a year ago.

"Many governments around the world have now gone beyond taxation in seeking a great take from the sector, with a wave of requirements introduced such as mandated benefication, export levies, and limits on foreign ownerships."

This has been a huge rise of the factor in the last five years, after it was only ranked number eight on the top ten risks list, and is only one of five risks that have remained in the list during this time.

 

The Global minerals grab

The study comes only weeks after the Australian government released it the Mineral Resources Rent Tax (MRRT), a move which has already seen it dragged into the High Court by both the Queensland State Government and mining magnate Andrew 'Twiggy' Forrest, and South America and South Africa continue to look at nationalising resources and mining operations, while Zimbabwe gets tough on foreign miners and takes more than 51% of operations while still demanding a greater share.

However, AngloGold Ashanti CEO stated that rising resource nationalism in Africa was still less worrying than Australia's mining tax.

Ernest & Young's Elliot said while the MRRT is now better understood than before, the industry is still concerned about the potential for additional government take, which has been seen through states raising their minerals royalty rates.

 

Threat upon threat

Australian Mining has previously spoken to Grant Thornton on this issue of rising resources nationalism and indigenisation.

At the time they explained that "increasing and unpredictable government intervention across the globe is adding further complexity to a sector that is already heavily laden with risk.

"The shadow of higher taxes, restrictive regulation and indigenisation looms large of an industry already grappling with the risks normally associated with exploration and extraction,” the company stated in its report Facing an uncertain future: Government intervention threatens the global mining sector.

Rio Tinto chief Tom Albanese has also spoken out against nationalisation, encouraging governments to look towards royalty schemes instead.

He said there is a massive debate on whether it is best for governments to gain their revenues via taxation and royalties, through partial operational ownership, or a combination of both.

His comments came on the back of increased pushes from South Africa’s ruling party, the African National Congress (ANC), to bring in legislation forcing miners to give more than half of their operations to the state; echoing the recent legislation changes in Zimbabwe.

Grant Thornton stated that “nationalisation is arguably the number one issue affecting the mining industry in South Africa”, which is causing serious concern amongst miners and investors.

“With the ruling ANC party debating state participation, analysts agree that reform of some sort is needed, but most argue that full-blown nationalisation will be detrimental.”

In Zimbabwe the country has just run wholesale over foreign miners, and not only take the majority share of their operations, but is also increased licence costs by up to 5000% in some cases, while also declaring that no new foreign miners will be granted licences to operate in the country.

 

The aftermath

According to Ernest & Young's Mike Elliot "there is no doubt projects around the world have been deferred and delayed, and in some cases investment withdrawn altogether, because of the degraded risk/reward equation.

"The uncertainty and destruction of value caused by sudden changes in policy by the governments of resource-rich nations cannot be understated."

 

The Top Ten

  1. Resource Nationalism
  2. Skills Shortage
  3. Infrastructure Access
  4. Cost Inflation
  5. Capital Project Execution
  6. Maintaining a Social License to Operate
  7. Price and Currency Volatility
  8. Capital Management and Access
  9. Sharing the Benefits
  10. Fraud and Corruption

 

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