Miners grapple with resource nationalism

LONDON Thu Mar 11, 2010 3:47pm EST

South Africa's Minister of Mineral Resources, Susan Shabangu, smiles during an interview at the Reuters Global Mining and Steel Summit in New York, March 10, 2010. REUTERS/Brendan McDermid

South Africa's Minister of Mineral Resources, Susan Shabangu, smiles during an interview at the Reuters Global Mining and Steel Summit in New York, March 10, 2010.

Credit: Reuters/Brendan McDermid

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LONDON (Reuters) - Miners expect no respite from a surge of resource nationalism as shortages of commodities loom and emboldened governments demand more returns from mining.

Executives speaking at Reuters Global Mining and Steel Summit this week said most politicians had learnt that out-and-out nationalization was not productive, but would press on with other strategies such as royalties and supertaxes.

In Africa, a campaign launched in South Africa to give local Africans more involvement in mining is set to spread, according to Kalaa Mpinga, chief executive of Mwana Africa Plc (MWA.L).

"Indigenisation will take place, and I'm saying to everybody in the industry, don't worry, it will spread like wildfire throughout the continent. We're only seeing the beginning of it," he told the summit in London.

South Africa's Black Economic Empowerment program was mainly meant to redress the injustices of apartheid, but other nations unhappy with the legacy of colonialism, such as Tanzania and Cameroon, are considering following suit, he added.

Mpinga, a national of the Democratic Republic of Congo, empathizes with the movement and was confident that a compromise would be reached about a controversial local ownership law in Zimbabwe where his company operates.

A wave of nationalizations in Africa in the 1960s failed, and many Africans still fail to see benefits from mining, he said.

"As an African, you say to yourself, since companies or institutions are not going to voluntarily assist us in becoming more active in our economy, then let's use the only thing we have, and that is our legislative ability."

South Africa's Mining Minister Susan Shabangu reassured investors at the mining summit in New York that the government had no plans to nationalize mines, but said much more work was needed so that mining benefited the black majority there.

SHORTAGES SPUR MOVEMENT

A root cause of resource nationalism is a shortage of raw materials, but when nations made rash decisions it became a vicious circle, said Mark Cutifani, chief executive of South Africa's AngloGold Ashanti (ANGJ.J)(AU.N).

"The problem with resource nationalism is it exacerbates the problem. Because once a country is trying to constrain or restrict the market in terms of how we're operating, it adds another level of complexity and cost," he said.

"In many ways governments are actually doing their best to make it worse, which is certainly a worrying feature from my perspective," he said, citing a move in Australia to impose a "supertax" on mining as an example of the trend.

Countries such as Zambia that imposed windfall taxes during the late years of the commodities boom then repealed them when hit by the downturn, may have drawn some lessons, said Marcelo Awad, CEO of Chilean copper producer Antofagasta (ANTO.L).

"If they have learned from the recent experience that the commodities are always within cycles, they perform in cycles, they should avoid it (radical moves)," he said in London.

Awad hoped that nations would seek more stable means of taxing mines to last through the ups and downs of market cycles.

"I think they have learned that this is a cyclical market, so they may find a different way to tax the companies."

A good way of dealing with resource nationalism was to make sure that mining companies were contributing to the communities in which they operated, said Harry Kenyon-Slaney, chief executive of Rio Tinto's (RIO.L)(RIO.AX) diamond and minerals division.

"I think mining companies who have strong reputations, who go about their business in a professional and reliable manner can demonstrate that they are good stewards of resources in the ground," he said. "You could look at Madagascar and say, well, here's a country that's ripe for some sort of resource nationalization ... (but) we will have left a legacy, a sustainable development legacy worth about $350 million."

Rio's minerals sands operation in Madagascar, launched last year, has continued production despite political instability and a coup early last year.

(Reporting by Eric Onstad, editing by Will Waterman)