Cape Town once again hosted a busy Mining Indaba. This year’s Indaba was the largest held to date and reflects the level of interest in Africa’s mineral resources.
What emerged from this gathering was an underlying sense of distrust between many African governments and those who would invest in mining the continent’s resources. Also there is a lack of trust between employers and employees. There seems to be a feeling that mining companies are somehow getting more than their fair share of the profits.
To illustrate: I stopped by the stand of an Australian company that has been working for some years to bring a North African potash project into production. Already, this company has made a very substantial investment in proving up the resource and researching the best metallurgical processes for this orebody.
After some small talk, the company’s representative dropped a bombshell. He explained that the government of the country had demanded a 50% stake in the potential potash miner. This transfer of ownership would be for free. When I expressed my astonishment, the company spokesperson agreed: “If we give away 50% of the company, then the project is quite simply not worth the effort.”
He added that the company was in talks with the government to resolve this issue. What I found surprising is that the government could have made such a demand in the first place. An exploration/mining company is no different to any other company in that it is not in a position to give 50% of its equity away.
In business, even though it is not defined in writing, or drafted in any contract, the concept of fairness is vital. It is possible to retain teams of highpriced lawyers, and draft contracts that cover every eventuality, but if there is not some form of commitment to fairness from all the parties involved in a deal, then the business will founder. In South Africa’s labour unrest, one can understand the frustration of employers that have to deal with unions that often have no intention of upholding their end of any agreement.
Likewise, the mining investment market is understandably wary when being asked to invest in countries where the regulatory set up is open to alteration, and the terms laid down by government change from time to time.
Unless there is commitment to fair dealing, many African countries may well find themselves struggling to attract foreign direct investment. The depth of finance and the time needed to establish a world class mining operation mean that investors in this sector need better than average returns on investment and a very good measure of certainly of their investments realising their promise.
Speaking at the Indaba, Cynthia Carroll emphasised the fact that without fair dealing, progress in business is not possible. “The first truth is that there is no future for any society without law and order. Public order is the bedrock without which civilization collapses. Last year in South Africa we saw violence and unrest across the mining industry and also in other sectors.
Violence and criminality are always unacceptable and they must never be tolerated by society,” Carroll emphasised.
One hopes that against calls for resource nationalization and sweeping new taxes and royalties, that good sense will be forthcoming from governments of Africa. While mining companies seek to maximise profits, their managements are usually not unreasonable. It is now time that governments of countries such as Zimbabwe and Guinea commit themselves to fair dealing and create a mining friendly investor climate for the long term benefit of their peoples.