Mining companies must add value to their minerals or leave SA, says Paul Jourdan, a senior adviser to the government on minerals policies and co-author of the controversial State Intervention in the Minerals Sector (Sims) study.
One of the key issues to be discussed at the African National Congress (ANC) policy conference starting on Tuesday is the role of the state in SA’s mineral resources. An integral part of that discussion is the Sims document.
SA’s mining sector has taken a hammering this year as a result of above-inflation electricity and labour costs, and stagnant prices in an oversupplied market.
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If mining companies were unwilling to participate in adding value to the minerals they mine, they should leave them in the ground and look elsewhere to set up their operations, Mr Jourdan told a Mining for Change seminar in Johannesburg yesterday.
The sector had to factor in linkages that entailed generating money for the state, he argued.
Miners had to create an industrial base to make downstream products and upstream products like mining equipment; increase research capacity and development expertise; and expand SA’s infrastructure.
"If you can’t make those linkages, leave the minerals in the ground until you can make the linkages. Don’t think you’ll do it quickly for the quick cash and the few mining jobs you’ll get.
"We need to clearly say a condition of getting a permit to mine the nation’s minerals is making the linkages. If you say you’re just a dirt digger and that’s your core competency, then fine, go to Australia," Mr Jourdan said.
"I’m not sure that we want companies that are just going to dig holes. We want companies that are going to make those linkages and build our economy for the future, post-mining."
Mr Jourdan’s comments come as the platinum sector suspends mines because costs have overtaken the stagnant rand price of the metal they produce, and the ferrochrome industry has ground to a halt because of tight electricity supplies. SA is the largest supplier of platinum and chrome.
Gold miners are increasingly looking to expand their exposure to projects overseas to reduce the risk of operating in SA.
Mining companies have long raised concern that the government will increasingly expect them to move outside their core operations of mineral extraction into an industrial role. They have consistently argued that there are other companies better placed to fill that role.
However, Mineral Resources Minister Susan Shabangu said recently the government was not expecting mining companies to become involved in downstream production.
The government was seeking to ensure minerals were available at "developmental prices" to companies involved in downstream production and to people who wanted to start new businesses.
"I must reiterate that it is not the policy of government to dictate to entrepreneurs what enterprise they should engage in," Ms Shabangu said last Friday at the opening of Kumba Iron Ore’s Kolomela mine, in the Northern Cape.
"Where it makes economic sense, we, of course, welcome vertical integration of beneficiation activities, but we are not demanding that miners become beneficiators - rather that they contribute to local beneficiation."
The Sims document was drawn up ahead of the ANC policy conference to clarify, among other things, policy on the state’s role in the mineral sector.
At the ANC’s national general council in Durban in 2010, the issue of the nationalisation of mines and other strategic sectors of the economy was raised but not resolved.
The party leadership was tasked with commissioning research and study tours to advise this year’s policy conference whether mines should be nationalised.
The resulting Sims document controversially proposes a 50% mineral resources rent tax on profits above 15% on a "normal return", and greater state participation in and regulation of the mining sector.
The document assumes the super-profit tax would net the government R40-bn, a figure Mr Jourdan conceded would not apply today, given that the platinum sector is largely operating at a loss.
No gold mines would be affected by the tax and it would mainly be levied on the iron-ore and coal sectors, he said.
Mzukisi Qobo, who lectures on international political economy at the University of Pretoria, told yesterday’s seminar that mining was already heavily taxed, if one included indirect taxes.
"The priority should be to build confidence in the sector and evolve a long-term growth and development strategy to place it on a strong and competitive footing," he said.
"The ambiguities in the Sims report around the resource rent tax, the function of the state mining company, strategic minerals and a slew of regulations, do not inspire confidence. Instead they compound confusion."
Gavin Keeton, professor in economics at Rhodes University, said in a column in yesterday’s Business Day: "It would be foolish to embark upon a policy direction that further ratchets up costs and commits the government to spending premised on a shaky belief that profits and taxes from mining will remain exceptionally high forever."