EXPERTS NOW WARN NATIONALISTIC POLICIES ARE HURTING MINING BUSINESSES

A commodity price downturn has sparked a wave of resource nationalism in East Africa, with governments seeking to maximise returns from mining operations.

Governments are looking to extract a greater share of the value from mining, increasing taxes and royalties; requiring in-country processing or beneficiation prior to export; imposing export restrictions, raising export levies on unrefined ores; and restricting foreign ownership.

Mining companies in East Africa are therefore facing challenges of operating profitably as prices of iron ore, coal, copper and other minerals declined in 2014. Gold prices have been volatile but remain relatively steady compared with prior years.

PricewaterhouseCoopers (PwC), a consulting company, says lower commodity prices are impacting negatively on the operations of mining firms and the levies the extractive industry pays governments.

“It will be interesting to see whether there will be a softer stance in future around resource nationalism and domestic protectionism,” said PwC’s global mining leader John Gravelle.

The growth of the extractive industry in the region will depend on mineral demand in Europe and Asia.

Mining costs increase relative to taxation and increased environmental regulations and firms are facing export limitation policies due to growing government pressure and shareholders’ expectations.

Uganda, in 2012, resolved to stop the export of iron ore extracted from Kanungu district to produce steel products for the domestic and regional market.

The decision was preceded by President Yoweri Museveni’s directive in November 2011 forbidding miners from exporting unprocessed minerals such as cobalt, copper, nickel, coltan and phosphates.

In 2013, Kenya increased royalty rates for niobium, rare earths and titanium to 10 per cent, from 3 per cent. The royalty rate for diamonds went up to 12 per cent, that of coal to 8 per cent, gold and gemstones to 5 per cent. Kenya has also reduced to 2 per cent the levy payable from July 1, 2013 until June 30, 2015 for diatomite used in the manufacture of toothpaste, paints, plastics and absorbents.

Royalty paid

Tanzania’s parliament, in 2010, passed a new mining law that increased the rate of the royalty paid on gold from 3 per cent to 4 per cent and directed that the government own shares in future mining projects.

PwC’s mine project leader Stuart Absolom said governments are entering the ring to ensure mining revenues support local economies but the aggressive resource nationalism policies are making countries less attractive to investors.

“Some countries appear to understand this better and are changing regulations to attract mining investments. Others are implementing measures to protect domestic industries and production,” he said.

Zambia recently increased the royalty rate to 20 per cent, from 6 per cent, for open-pit mining; underground mines rate to 8 per cent, from 6 per cent; and introduced 30 per cent corporate processing and smelting tax.

The East African