Monday, September 20, 2010

Mining Code Troubles South African Investors

Mining code troubles South Africa investors
By Christopher Thompson
Published: September 19 2010 20:58 | Last updated: September 19 2010 20:58
South Africa’s new mining code is causing concern among London-listed miners ahead of a government conference this week that is likely to address the issue of nationalisation.

A review of the mining code – published last week by Susan Shabangu, the mining minister – gives the ministry new powers to withdraw mining licences from companies judged to be non-compliant.

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“What was previously an advisory document is now a rules and regulations one,” said Leon Coetzer, chief executive of AIM-listed Jubilee Platinum, which has a mine in the north of the country.

The amended code was released after an extensive period of consultation with miners. The government said it would improve transparency and help redress stark racial imbalances in the sector.

However, Alison Turner, a mining analyst at Panmure Gordon, said it was likely to damp foreign investment.

“The legal position related to the security of tenure is weakened by this new charter. The ministry can amend the charter as and when the need arises – so in a sense your mining licence is contingent upon the whims of the minister,” said Mrs Turner.

Last month, several foreign miners voiced concerns after the country’s mining department issued a letter ordering London-listed Lonmin to stop selling by-product metals from its platinum mine, a standard industry practice.

The order was quickly revoked but it set nerves jangling among foreign miners in particular.

Johan Dippenaar, chief executive of Petra Diamonds, the largest diamond producer on AIM and owner of six South African mines, said the new charter could provoke fresh angst.

“There’s more power concentrated in the minister’s office [and] it does appear like that would concern people,” he said.

In a separate but related issue, Mrs Shabangu said the pace of increasing black ownership within the South African mining industry was “disappointingly slow”, noting that by 2009 it stood at 8.9 per cent against a 15 per cent black economic empowerment target.

The government has said it wants all mining companies to have 26 per cent of their equity held by black South Africans by 2014.

Members from the ruling African National Congress party will gather in coastal Durban for a five-day policy review on Monday which will address the thorny issue of economic nationalisation.

Kgalema Motlanthe, South African deputy president and deputy leader of the ANC, last week told the FT that the government would resist pressure to nationalise mines.

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