* Top miners' capex to fall by 65 pct in three years to 2015
* Zimbabwe takes the hard line on minerals beneficiation
* DRC, Zambia want to tax copper concentrate exports
* Boosting local mining services could be more effective
By Silvia Antonioli
LONDON, March 6 African government efforts to
force mining companies to process minerals before export may
backfire as they come up against weakening commodity prices and
investor demands that firms reduce risky investments.
In the last year alone, Zimbabwe, Zambia, Democratic
Republic of Congo (DRC), Namibia, South Africa and others have
hinted at, announced or put in place measures aimed at adding
value to minerals exports, which would boost tax revenue,
encourage formation of new businesses and add jobs.
But with falling metal prices and a drastic reduction in the
capital available for the mining industry, wary companies are
increasingly shying away from investment in countries where the
rules of the game can change quickly.
"Investment sentiment in the last year has moved against the
mining sector, but the governments tend to have a lagging view
of how this is going to affect investment in their countries,"
said Mike Elliott, global mining and metals leader at Ernst &
"They continue to argue that mining needs to make a bigger
contribution to their economies, but you'll have to see
investment severely tail off to make them think they need to
attract investment rather that scare it away."
Consultants say governments could find more targeted and
effective ways of adding value to local economies.
For example, they could push local companies that provide
services for the mining industry such as logistics, security,
catering and construction to become more competitive and then
tighten regulation around the procurement of such services,
consultant Tom Wilson at Africa Practice suggested.
"Ultimately you can't turn market forces on their head. You
have to figure out where the country has the capacity to fill
the need for goods and services and provide some structures that
actually help indigenize some businesses," Wilson said.
The top five mining companies are slashing total capital
spending from a peak of about $70 billion in 2012 to an expected
$46 billion in 2015, according to Reuters I/B/E/S.
Mining firms have been taking costly writedowns following
years of risky bets to pursue growth, and they now need to prove
to shareholders they can use their cash more wisely.
"Companies need to decide whether they wish to continue
mining in these countries and face what the governments want to
do in terms of beneficiation or pull out. And in some cases it
will be a pull-out strategy," said Kevin Goodrem, vice president
of beneficiation for De Beers Group.
THE HARD LINE
Zimbabwe, which holds the world's second-largest platinum
reserves after South Africa, has taken a hard line. President
Robert Mugabe late last year threatened to stop exports of raw
platinum in a bid to force mining firms to process the metal
The government said last month it had short-listed two
companies to build a refinery by 2016, but industry players
expect the project will take much longer than two
A source at a mining company operating in southern Africa
said the volumes mined in Zimbabwe are not enough to make
construction of a $2-$3 billion refinery economically viable,
and he was sceptical that the energy supply would be sufficient
to run it.
But companies operating in Zimbabwe, which include top world
platinum producers Anglo American Platinum and Impala
Platinum Holdings, have to remain engaged with the
government to avoid losing assets.
"For the platinum miners who operate in Zimbabwe, it is a
very concerning time. And it is a bit of a tragedy for Zimbabwe,
because they are a very significant producer, but no global
capital is going to go there today with that policy
uncertainty," Elliott said.
The DRC and Zambia, Africa's largest copper producers, are
also trying to boost downstream investment.
Kinshasa is trying to implement a ban on exports of copper
and cobalt concentrates but has so far encountered the
resistance of the powerful governor of Congo's copper-producing
Many in the industry say the ban is unrealistic as acute
electricity shortages hamper processing activities in Congo.
In Zambia, President Michael Sata in October revoked a law
that had suspended a 10 percent duty on exports of unprocessed
minerals including copper, iron, cobalt and nickel.
Miners say that although some plants are being built, Zambia
does not have enough smelting capacity to process all its
copper, so they are accumulating high stocks of concentrate.
"Some of these countries are trying to run before they can
walk," Deutsche Bank analyst Robert Clifford said.
"I understand why they want to do it, but they have to
provide some assurance to companies that they are not going to
pull the rug out from under their feet and change the rules once
they have spent billions of dollars."
Also new smelters and plants may not make sense if their
products are expensive and uncompetitive in global markets.
Mining experts say governments should avoid blanket policies
and instead target parts of the industry that will actually
benefit from downstream investment.
They cite Indonesia's controversial ban on exports of
unprocessed mineral exports as an example.
The ban is expected to boost downstream processing
investment in the next few years in nickel, where the country is
competitive. But in copper, it is expected to achieve little
besides souring the relationship between the government and
Wary of the risks, Namibia seems to have taken a softer
approach so far. The government has commissioned a study to
identify the commodities it would be more beneficial to process.
"You have to be careful with value-addition policy, because
the risk is that it could be value disruptive," said Magnus
Ericsson, founder of the Raw Materials Group, a consultancy that
advices governments and companies on mining issues.
"One policy doesn't fit all. That's a recipe for disaster."
(Editing by Jane Baird)