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South African Mining Investment Risk grows as Anglo, Lonmin Lose Rights
Anglo American Plc and Lonmin Plc, who employ 100,000 people in South Africa, say the government has deprived them of mine rights, threatening investment and job creation in the country’s biggest export industry.
The disputes over the rights, some of which are now in the hands of
former government officials, add to investor concern that their
investments in South Africa aren’t safe. The ruling African National
Congress is preparing to discuss mine nationalization at a September
congress.
“These could be the first indications of a worrying trend,” said Chris
Melville, an analyst at London’s Menas Associates. “The key question is
whether the government looks to resolve this uncertainty and close the
loopholes or whether we begin to see politically connected individuals
and companies systematically exploiting them.”
South Africa, which boasts the world’s biggest platinum and chrome
deposits, is already struggling to attract foreign investment as laws to
redress the inequalities of apartheid compel the sale of stakes in
mines to black South Africans, increasing investment costs. Canada’s
Fraser Institute, a research agency, ranks the country ahead of only the
Democratic Republic of Congo and Zimbabwe in terms of the ease of
mining exploration investment in Africa.
The ANC’s youth wing and labor unions, the groups that propelled Jacob
Zuma to the presidency last year, are calling for the country’s citizens
to benefit more from mineral resources, valued by Citigroup Inc. at
more than $2.5 trillion. At stake is investment in an industry that
employs 491,000 people and accounts for 5.2 percent of the country’s
gross domestic product, according to Statistics South Africa.
Employing Black Managers
The disputes have arisen as companies renew mining rights to comply with
laws that stipulate targets for black ownership, the employment of
black managers and women, and the economic development of communities
near their operations. They form part of legislation designed to make up
for the use of cheap black labor during white rule in the country’s
mining industry.
“It’s a piece of legislation that’s still being tested in application,”
said Sandile Nogxina, director general of the government’s Department of
Mineral Resources, in an interview. “I don’t believe it should frighten
investors away as we have courts of law in the country to deal with
disputes.”
Anglo and Lonmin say they have been wronged.
Prospecting Rights
In March, the department awarded a fifth of the prospecting rights in
London-based Anglo’s Sishen iron ore mine to Imperial Crown Trading,
prompting a lawsuit from Anglo subsidiary, Kumba Iron Ore Ltd.
Imperial’s biggest shareholder, Jagdish Parekh, has been involved in
contract mining and uranium investment with Zuma’s son, Duduzane. The
other five shareholders include ANC members and a former ANC employee.
While Pretoria-based Kumba said in an e-mail that “it is the only
company that should be granted these rights,” Imperial maintains it has
done nothing wrong. Jacinto Rocha, a former department official, said
Kumba’s application was improperly submitted.
In May, London-based Lonmin lost the prospecting rights to some of the
metals mined alongside platinum to a unit of HolGoun Group, led by a
former Public Enterprises Ministry director general and Lonmin director,
Sivi Gounden, his wife, Vanessa, and Miriam Sekati, an official in
South Africa’s Security Ministry. Lonmin said the award of the rights
was “wrong.” Vanessa Gounden said by e-mail the company had acted “with
integrity and within the ambit of the law.”
No History in Mining
Both Imperial and HolGoun are closely held, partly black- owned, and don’t control any operating mines in South Africa.
The new holders aren’t well known because black South Africans were
barred from investing during apartheid. The fact that some are followers
of the ANC is irrelevant because many people belong to the party, said
Nogxina of the government’s Department of Mineral Resources.
“South Africa is trying to promote the entry of historically
disadvantaged people into the economy,” he said. “Of course, they will
have no history in mining.”
Already the new owners are benefiting. Last week, Imperial agreed to
sell its Sishen rights to ArcelorMittal South Africa Ltd., which
previously lost the rights after failing to renew them on time, for 800
million rand ($110 million). At the same time ArcelorMittal South Africa
agreed to sell a stake to black investors including a group lead by
Duduzane Zuma.
“Why should someone benefit to the tune of 800 million Rand because of
the exploitation of an oversight?” said Peter Davey, head of mining
research at London’s Ambrian Capital Plc. “That there are similar names
that keep appearing is worrying.”
‘Terrible Message’
Lonmin was also temporarily banned from selling byproducts from all of
its platinum mines after the department said it missed a deadline to
renew some of its rights. Platinum group metals are mined from the same
orebody as gold, nickel, chrome and copper.
Lonmin shares fell 5.1 percent in London on Aug. 6, the biggest decline
in five weeks, in the first trading session after the announcement.
“It sends a terrible message to investors,” Peter Leon, chairman of the
London-based International Bar Association’s Mining Law Committee, said
from Johannesburg. It says “political connectivity trumps good
commercial sense.”
Source: Bloomberg
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