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Lord Renwick on Mining Indaba: It’s not about the num...

Business Maverick

Business Maverick

Lord Renwick on Mining Indaba: It’s not about the numbers – it’s about the real deals

While a reported 7,000 people attended the Investing In Africa Mining Indaba in Cape Town this week, those in the know say those with the money are “sitting on their hands” and taking a “wait-and-see approach” to government policy on key issues such as beneficiation, strategic minerals, re-empowerment and developmental pricing. By MARIANNE THAMM.

Many of the key influencers in terms of where financiers seek to invest and sink their money were milling around the iconic Mount Nelson Hotel in Cape Town this week. High-powered meetings, breakfasts and lunches, involving some of the most influential people in local politics, international finance and investment (including American financier, Robin Saunders), took place in and around the hotel’s various terraces and restaurants.

Government officials who are in Cape Town and who have attended meetings are Deputy President Cyril Ramaphosa and ANC Treasurer-General Zweli Mkhize.

Someone who has a deep and abiding relationship with South Africa and who is keenly interested in promoting investment in the country is Lord Robin Renwick, former British ambassador to South Africa and later to the United States.

Renwick has a metaphorical black book of anyone who’s anyone in the international arena and who can make a difference, and uses his considerable diplomatic charm, to persuade or convince those he hopes to influence.

Renwick is also in Cape Town promoting his most recent book, Mission to South Africa – Diary of a Revolution. It is also somewhat synchronous that Renwick finds himself in Cape Town on 11 February, on the anniversary of the delivery of Nelson Mandela’s speech at the City Hall. Renwick developed a close relationship with Mandela who often confided in and “used” him. Renwick’s book provides an insider’s account of the behind-the-scenes negotiations and meetings in the run-up to Mandela’s release as well as events shortly afterwards.

But Renwick says the most pressing concern at present for investors as well as the Chamber of Mines after the third day of the Indaba currently taking place at the Cape Town Conference Centre, is the uncertainly created after Minister of Mineral Resources, Ngoako Ramathlodi’s official welcoming address on Tuesday.

The minister’s comments that the issue of developmental pricing as contained in the current draft of the Mineral and Petroleum Resources Development Amendment Bill, would be re-opened – which has been referred back to parliament in order to address constitutional concerns – has unsettled the Chamber of Mines as well as investors.

Ramathlodi this week said that while in the current draft, the developmental price is set at the mine gate price, this was being “contested vigorously”. Government would prefer developmental pricing, which is lower than mine gate. This would result in producers of precious metals selling at reduced prices, a situation, Renwick sternly warned, that would simply “switch off investment in South African mining.”

Renwick said that the Department of Trade and Industry had put pressure on the Department of Mineral Resources to alter the wording of the bill.

“This is a real worry to investors and it is very important that it gets worked out in a sensible way. Of the 7,000 people attending this conference in Cape Town, not a lot of them are looking to invest in South Africa. Most of them are looking for investments in other African jurisdictions that are less complicated. We have to get clarity,’ said Renwick.

Another issue was Ramathlodi’s comments that his department had wanted the bill to be tested in the Constitutional Court to determine if provisions with regard to mineral beneficiation violated the country’s treaties under the World Trade Organisation.

Of concern also to investors was Ramathlodi’s hint that government would declare certain minerals as “strategic” – a matter President Zuma will address in his SONA on Thursday. This would provide for these minerals to be sold at set prices.

“Look, government is sovereign and can enact what it likes but the point is investors vote with their feet. They decide ‘are we going to invest here or in Mozambique or Namibia?’ That you can simply declare a mineral strategic at a Minister’s discretion is a worrying proposition to the mining companies. It is related to a very strong push from the DTI about beneficiation.”

The argument from the industry is that beneficiation is costly and energy intensive and would require subsidies.

“How does that work? If the government wishes to encourage beneficiation it should be introducing tax breaks rather than by other means. There is not enough energy and that is a worry. It means you will get beneficiation but you will lose jobs.”

Despite these concerns Renwick said his “job” was to promote investment in South Africa.

“I keep saying these investors are wrong to prefer the rest of Africa right now because there is here, a much stronger financial system than any other African country.”

Renwick said that government had been in a continuous dialogue with industry players about mining in South Africa about what needs to be accomplished.

“The government itself says it has lost out on a decade of strong mineral prices. In other mining jurisdictions employment increased while in SA it decreased. The reason for that is partly declining grades and damaging strikes as well as the power crisis.”

He said, however, that investors had been encouraged by Ramathlodi, who was viewed as an “energetic” Minister who clearly understood the industry and “the importance of keeping it in a healthy state from an investment and job creation point of view.”

The department’s announcement that the granting of permits to new mines had been overhauled to facilitate the simultaneous processing of permits – from the Departments of Environment and Water Affairs – was also welcome and “a big step forward”. This would cut the process down from a three-year wait to 12 months and needed to be speedily implemented.

Government also deserved praise, he said, for separating oil and gas from minerals in the bill, as well as removing requirements that would have discouraged investment in off-shore and on-shore oil and gas developments.

“This, if it had continued, would have been an absolute tragedy because there are huge oil and gas developments off the East Coast of Africa these days and the amount that will be going into Mozambique oil companies may be around $50 billion dollars over next ten years. SA would have lost out completely,” said Renwick.

It was thanks to Minister in the Presidency, Jeff Radebe, that industry arguments had been heeded, he added.

The terms of the new regulations for oil and gas exploration and development needed to be something that the world’s four biggest investors – Andarko, Exxon, Shell and Total – could live with, he said.

“If 50 percent of your export earnings come from minerals export and a huge amount of balance of payments is badly affected by imported energy costs, this could be game changer for South Africa if you encourage these companies to invest and explore.”

How government intended to implement its new policy of “re-empowerment” so that it not only benefitted a few individuals also needed more clarity.

“I firmly agree with government that there has to be a better distribution of resources. Re-empowerment is a very specific issue. Having delivered 26 percent of the stakes to a whole array of entities…if you actually say to mining company you have to do it all over again, in the end it is 52 percent. And if you say that the deal has to be vendor financed, then that regime becomes unattractive to the investor. I am being told the idea would be to say 26 percent must still be achieved but it can be done so by the purchasing of the shares. Financing is a critical issue.”

Renwick said he hoped to see more deals like SABMiller’s 2009 R6 billion empowerment deal – a deal that President Zuma had said should serve as a future model – and that was truly broad-based.

The next legislative cycle in parliament in relation to mining, he said, would be “make or break” for the industry.

“If we get a pretty balanced outcome which balances empowerment with greater benefits for a much larger number of people as well as growth and jobs by June, we will have a much more successful Indaba next year”.

The test of a successful Indaba was just not the numbers who enjoy coming to Cape Town in February anyway, but how much investment flowed into the country as a result of the gathering

“At the moment it is ‘wait and see’. All these investors are sitting on their hands waiting to see how this legislation turns out.” DM

Photo: Lord Robin Renwick.

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