EDITORIAL PAGE — Uncertainty in South Africa

In a few weeks, South Africa will stage the first multi-racial election in its history. At this point, it would seem Nelson Mandela and his black African National Congress (ANC) party are headed for victory (if, indeed, the recent violence in Johannesburg doesn’t escalate into civil war).

Beyond the obvious economic and social implications of an ANC victory, the impact on the future of the South African mining industry is just as immense. Under apartheid, South Africa has become the world’s largest gold producer, mining just over 600 tonnes annually (or almost 30% of world production). Recent ANC policy statements, however, threaten to change the future of mining in the country. For example, according to Rhona O’Connell, an analyst with London-based T. Hoare & Co., “the South African mining industry is currently fighting what it hopes will not turn into a rearguard action against ANC policy.”

O’Connell notes the ANC is determined to increase industry participation by both blacks and small companies. Paul Jourdan, who drew up the ANC’s policy, told a conference recently that “the country should aim for more added-value products to be manufactured in the country (there has been a lobby for a local jewelry industry, for example, for some time), but also that the ANC’s plan implies the creation of conditions allowing majority participation in mineral resource development.”

O’Connell says Jourdan expects to have to use “pro-active intervention through incentives and disincentives . . .” Among the suggestions, she says, is the exchange of mineral rights for comparatively short-term licences, to be subject to tax.

While the existing industry may share some of the sentiments of the ANC, it likely finds unpalatable the ANC’s strong hints at the prospect of state intervention in the minerals industry.

According to O’Connell, the Chamber of Mines responded to the draft ANC minerals policy with a series of recommendations of its own, but, so far, little common ground has been found. “The response has been clear from Anglo American, at the very least. Clem Sunter, head of the gold division, has taken issue with the concept of having to hand back properties, which remain undeveloped for a period of time.”

Basically, Sunter argues that companies should be allowed to hang on to properties where deep, expensive exploration holes have turned up sub-economic mineralization that may, in future, become economic. He also said small companies are theoretically a great idea, “but the big ones have already worked all the shallow deposits so there may be little left for them!” (We can’t help but wonder how Sunter views the highly successful junior-senior mix here in Canada.)

Amplifying the theme, O’Conell continues, Sunter has pointed out that in Anglo’s gold mine annual reports this year “private ownership is central to the development of world-class, deep-level mines, because of the need not only for risk management but for large, up-front investments. The industry also takes the view that the existing legal framework already offers the scope for accelerating black participation in the industry’s ownership structure, especially since the state is the country’s largest land owner.” O’Connell concludes that “the outlook for South African mining is certainly for sustained support in principle from the government, but as yet it remains unclear whether state intervention will be on the agenda.”