MINING INDABA
governments a better-perceived or actual bargaining position,
where there are options waiting in the wings.
Resource nationalism is likely to continue as a trend in Africa
in 2020 and may impact on investment decisions. There is
also a trend towards cautious investment from all investors,
including China, but the risk appetite varies, with China and
Russia seemingly having a greater appetite for risk, probably
to support the strategic intent to control the full value chain
(in the case of minerals, this control would be from extraction
and beneficiation, all the way to marketing and end use) and to
develop geopolitical influence.
Resource nationalism is of course, not the only trend, but it
remains, probably, the most important driver of recent changes
to the mining and mineral laws. With resource nationalism being
a populist concept, over-enthusiastic implementation by African
governments could backfire not only because this could impact on
investment decisions, but also because the expectations that are
created may not be met, and this could result in disruptive activism.
Implementation of resource nationalism could also be impacted
by poor governance and corruption, which, ultimately, contributes
to the undesirable cycle of demand for resource nationalism,
unfulfilled promises, and disruptive activism in support of further or
more stringent resource nationalism measures.
In Zimbabwe, for example, it has been reported that
approximately USD15-billion has been unaccounted for at the
Chidzwa Diamond Mine, a mine run by Mbada Diamonds, linked
to the Zimbabwean government and defence force.
Africa however remains attractive as an investment destination,
to appropriate investors, and the investment patterns are likely
to continue, particularly in those jurisdictions which support the
global move to a ‘green economy’ and those countries which
have available reserves of the ‘battery minerals’.
What, in your opinion, are the main concerns in terms of
regulations (in Africa) that mining companies need to be
aware of in future?
The cautious approach adopted by investors seems to be
predominantly influenced by regulatory and policy uncertainty,
security threats, political instability, increasing royalties and other
taxes, increased costs associated with employment, commodity
cycles and uncertainty and political instability and risk. However,
by far, one of the biggest factors has been the threat of
enforcement (or actual enforcement) of environmental laws, and
the environmental liabilities (rehabilitation and remediation). The
associated reputational risk also plays a huge role.
The recent claims by Zambian communities against mining
companies, including Vedanta, and the court cases in multiple
jurisdictions (Zambia, South Africa and the United Kingdom),
will have a sobering effect on mining companies, and could add
to the cautious approach to investment.
There are several common themes and concerns regarding
recent changes to the Mining Laws and the potential landscape
in various African countries. These common themes include: (a)
stabilisation arrangements which are generally put in place to
attract investments and, theoretically, to support such investment,
until the mine becomes profitable, (b) indigenisation laws,
particularly where specific indigenisation levels are required
in relation to strategic minerals (which often require higher
investments), (c) increased royalties, (d) exchange control and
the impacts that this has on procurement, particularly imported
goods, and (e) currency fluctuation and the uncertainty that this
brings to investment decisions.
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One of the primary concerns faced by investors is the uncertainty
which results from regular changes to mining laws and
regulations, often, because of the particular political climate
and socio-economic drivers. Often, regardless of the wording
of a particular mining law or regulation, governments and the
relevant ministries such as the Ministry of Mines, interpret and
apply the mining laws and regulations to suit the political climate
at that time and socio-economic demands at a particular time.
It is extremely difficult, in these circumstances, to do business,
because often, by challenging the interpretation and application
of the mining laws and regulations, this creates an adversarial
relationship between the miner and government. The reality is
that the relevant governments hold the power and this power
can be used to disrupt mining operations, impact export of the
minerals, and repatriation of funds.
Indigenisation laws, which are often linked to resource
nationalism, remain a concern, because of the regular changes
that are made – if they remain stable (no ‘moving of the goal
posts’), investors can factor the requirements into the feasibility
studies, and investment decisions. While there has been a
generally positive response to the changes in the indigenisation
laws in Zimbabwe (including in respect of diamonds and
platinum), the concern is that positive changes may be short-
lived, as demands are placed on the government of the day. This
creates an extremely uncertain investment environment.
The global move towards a greener economy has started
impacting on South Africa, particularly in relation to South Africa’s
coal subsector. Conscientious investing typically means that
certain investors, have taken the decision to divest from so called
dirty commodities, and not to make any new investments in
these commodities. This, together with increased environmental
compliance and enforcement is of concern to certain investors.
The global developing trend of enforcing the polluter pays
principle may also be of concern. The most recent example is of
the reported USD4.5-billion spend, to date, by Vale, following
the tailings dam collapse at Brumadinho.
What have African governments done wrong (in terms of
mining regulations) in the past? What have they done right?
In a perfect world, what should they do in terms of legislation
and regulations to attract more mining investment? (If possible,
could you illustrate this with examples of countries or regions?).
Historically, investors have required higher levels of certainty
in relation to the various factors that are taken into account to
determine the feasibility of a proposed investment, and whether
to continue investing in a particular project or operation.
While certain investors still require high levels of certainty, there
is a growing group of investors that are prepared to invest,
despite uncertainty regarding certain investment criteria.
However, most, if not all investors require specific levels of
certainty in relation to criteria such as the required levels of
indigenisation, security of tenure, and a legal system which gives
the investor an opportunity to challenge any adverse decisions
of the government, in a fair, reasonable and transparent manner.
Regular changes to the mining laws and those laws which
impact materially, such as exchange control, are probably
where governments go wrong, particularly where changes to
the mining laws and related laws, are made with little or no
consultation or in complete disregard to bilateral or multilateral
treaties, and without having regard to international conventions.
Investors cannot of course expect indefinite consultation,
particularly in those African countries where governments are
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