SOUTH AFRICAN SUPPLIERS
RSA mining in crisis?
South African suppliers will be exhibiting at the Mining
Indaba in Cape Town, looking to sell equipment and
services into the great marketplace of African mining,
John Chadwick looks at some current developments
he political environment in Africa has
stabilised meaning sovereign risk linked to
mining investment in the continent has
reduced. That is the view of PwC Partner, Ben
Gargett, speaking at the Paydirt 2017 Africa Down
Under mining conference in Perth. Gargett said the
timing of this improvement was ideal – coinciding
with the resurgence of the mining sector, which
has been a key driver of economic growth on the
continent.
“Africa is changing. The political environment
has stabilised,” he said. “Despite the challenges
the mining industry has faced in recent years,
increasing commodity prices, the levels of global
investment pouring back into resource projects,
and the market rebound for mining services
companies, shows positivity has clearly returned
to the sector. Against this increasingly positive
backdrop, opportunities abound for African
countries to capitalise on this market environment
and attract the capital to develop the resources of
their continent. However, we are seeing African
governments increasingly looking for larger
returns from mining operations in their country
through increased taxes, royalties and/or
increased free-carry stakes in the mines
themselves. Whilst African governments are
grappling with the challenges of a lagging fiscal
return to current positive market conditions, are
they really taking ‘two steps forward and one step
back’?”
Gargett used the conference to unveil PwC’s
latest report, Two steps forward, one step back –
the African tax landscape – an economic analysis
of a standard gold mine operating under the same
conditions, with the same assumed capital and
operating costs, across four different African
countries – Tanzania, Namibia, Ghana and Egypt.
He said the question remained – how do African
countries capitalise on the positive market
T
48 International Mining | JANUARY 2018
conditions to strike the right balance between tax
and revenue measures, while still allowing
sufficient return on the capital invested by miners
to allow these investments to occur in the first
place?
He said analysis by PwC shows that Namibia
continues to be the only country which generates
a sufficient Internal Rate of Return (IRR) to allow a
clear decision for the mine to go ahead. The same
analysis shows no mining project would be viable
in Tanzania given its recent changes to its tax laws.
“The current fiscal regime makes the project
marginal in Ghana where the IRR threshold is just
below the target threshold of 25%,” he said.
“Whereas significant changes to the tax regime in
Tanzania have resulted in Tanzania having an IRR
of just 18.3% – which would mean there would be
no viable project in Tanzania. “Egypt (on the face
of it) also has an IRR below the required
investment threshold of 25%. Namibia has
maintained its status as the most attractive
destination of our sample countries for foreign
mining investment capital,” he said. “For Namibia,
this means the generation of government
revenues of $435 million over the life of the mine
and foreign direct investment of $200 million
spent constructing the mine. Over the life of its
operations expenditure of $1.1 billion and
sustaining capital of $150 million are spent in
country. The mine has ongoing employment of
1,100 people.”
Gargett pointed out that while the mineral
resources in the ground are not mobile, the capital
that funds the development of those resources is.
“So the race is on between nations to attract the
investment dollar.”
However, South Africa Minister for Mineral
Resources, the Hon Mosebenzi Zwane, also spoke
at the conference in Perth. He appears to live in
cloud cuckoo land. The country’s new Mining
SGS Bateman‘s Modular Plants division
continues to be a leading supplier of cost
effective, robust, easy to erect plants for the
gold and diamond industries
Charter has been heavily criticised and is
considered bad for the industry, but his main
points were:
n “South Africa remains a stable, vibrant
democracy, reinforced by prudent monetary
and fiscal policy, and respect for the rule of
law. However, vast economic imbalances
remain a challenge, and are characteried by
inequality, poverty and unemployment. If these
are left unattended to, they have th