JOHANNESBURG (miningweekly.com) – Mining group Anglo American says the State Intervention in the Minerals Sector (Sims) report, which was commissioned by the African National Congress (ANC) in 2010 following strong calls for mine nationalisation, relies “fundamentally on the wrong approach to achieve some laudable goals” and would harm investment prospects.

In a 70-page response to the Sims document – the themes of which were broadly accepted by ANC delegates at a party policy conference in late June, but which are still to be debated and adapted ahead of the ANC's upcoming National Conference in December – Anglo welcomes the rejection of blanket nationalisation.

However, it also argues that the Sims proposals, if adopted, will harm the industry without securing the envisaged benefits.

Sims is premised on capturing a greater share of the ‘rents’ associated with mining in the interests of the country’s growth, development and employment objectives.

On the fiscal front, it proposes a 50% resource rent tax, targeting earnings achieved over and above that which would have been possible through the ‘normal’ application of capital, labour and innovation.

A consolidation of the ‘knowledge linkage’ to develop the human resources and technological capacity required to maximise mining’s spinoffs are also proposed, along with ‘backward linkages’ (which relate to the upscaled development of indigenous capital goods, services and consumables sectors associated with mining), as well as the ‘forward’, or beneficiation, linkages. The proposal is also keen to foster spatial linkages that encourage the creation of infrastructure that offers ‘life beyond the mine’ and opens up regional integration opportunities.

HARMFUL EFFECTS

But Anglo submits that a number of the proposals would be harmful to the mining industry and would undermine investment in the sector.

“The imposition on private miners of mandatory supply arrangements, regulated price caps, higher taxes, export taxes, export restrictions and local content quotas will reduce competitiveness and increase uncertainty,” the London- and Johannesburg-listed miner avers.

“Less investment means less mining; less mining means fewer minerals, less revenues for the State, less jobs in supply industries, less energy security, and paradoxically, higher prices of minerals for downstream industries,” it cautions.

Anglo also strongly opposes what it describes as the pursuance of a “coercive” industrial policy, underpinned by the institution of constraints on the sale of ‘strategic’ commodities, such as iron-ore, coal and platinum. Sims proposes the insertion of pricing and supply conditions into the licensing of mines producing such strategic minerals so as to guarantee a cost-plus, or export parity pricing (EPP), domestic sales arrangement.

POSSIBLE RISKS

Anglo says a 10% blanket discount to EPP would compromise the viability of about 90% of its planned iron-ore expansion projects in South Africa, while forcing noncompetitive platinum beneficiation would be counter-productive.

Any move to curtail coal exports, meanwhile, could threaten domestic supply, as there would be little incentive to invest. The report notes that about $400-million of Anglo American Thermal Coal’s yearly profits of around $500-million are derived from exports.

The focus should instead be on “a growing mining industry”, Anglo states. “Anglo American, thus, respectfully requests that the ANC proceed with caution . . . Any gains from the Sims approach must be netted against the damage to the mining industry,” it warns.

The response also describes as “incorrect” the assumption that much of the value from private mining is lost to South Africa. It quotes a 2008 report, commissioned by Anglo, which shows that between 71% and 89% of the value from minerals mined by the group is captured within South Africa.

The miner’s “alternative path” is premised on policies that would focus on the growth of the mining industry and the simultaneous expansion of value-add and upstream manufacturing. “We believe there is no conflict between expanding mining production for export and simultaneously channelling mining feedstocks for local beneficiation, while also expanding other linkages from mining to the rest of the economy.”

WORLD LEADER

Such a policy intervention would be premised on turning South Africa “into the number-one mining country in the world” by incentivising investment and growth in the mining industry – in other words, avoiding policies that might persuade miners to favour other mining jurisdictions over South Africa.

“Anglo American’s favoured route is to grow mining in order to grow the rest of the economy, and not to grow the rest of the economy at mining’s expense.”

To achieve the objective, South Africa should deal with its policy uncertainty, regulatory inefficiencies and infrastructure bottlenecks, as well as its skills deficiencies.

However, the miner adds that it is willing to enter into partnerships with government and others to explore linkages to other parts of the economy, including minerals beneficiation where a sound “business case” exists.

It would also support research and development initiatives to develop fuel cells and other platinum-group-metals-linked technologies, as well as “nascent steel mill technologies”.

Leveraging its procurement systems in support of the expansion of the domestic capital equipment sector is also highlighted, as is Anglo’s in-principle support for a sovereign wealth fund.

The miner is also prepared to support the State mining company in the context of a “level playing field” and assist in finding solutions to the country’s prevailing power shortages.

Anglo also commits itself to cooperating with Eskom to “safeguard national power security” and ensuring that “multigrade products from new coal mines are spilt between Eskom and the export market”.

The report concludes by calling for a “structured dialogue”, while emphasising Anglo’s commitment to finding solutions that “sensibly harness the power of the mining sector for maximum benefit of the nation”.