Commodity prices are down, demand for commodities is for the most part down, and finance is that much harder to obtain than a year ago. In these times the mining industry is understandably subdued. Developments that generate optimistic excitement become scarce, but they do exist. And, amazingly, the one area that leaps out at the moment, while other projects in other parts have been falling away, is Zimbabwe; Zimbabwe’s gold mining sector in particular.
By the end of last year Zimbabwe’s gold mining industry had shut down as it was obliged to sell its gold via state mechanisms and no payment was being received. Since then a scheme has been evolved whereby the gold miners are able to sell gold to refiners of their choice and keep the proceeds in foreign currency accounts.
This has led to the restart of a number of gold mining operations, including those of New Dawn, Mwana Africa, and Caledonia. The political situation in Zimbabwe remains very iffy, but the revival of the gold mining sector in that country demonstrates a few things. Mining, if treated right, can survive in harsh places.
The CEO and president of Caledonia Mining Corporation, which owns the Blanket mine in Zimbabwe, says; “We’re a mining company and we are not political. We adopt the pragmatic point of view that we don’t mind who the government is as long as it is stable, and gives us a set of legislation that enables us to look after our people and to operate for the benefit of our shareholders.”
That sums it up. From a government perspective, assuming the geology, infrastructure and market permits, it is not too difficult to ensure the survival, let alone the success, of a country’s mining sector, with all the well known concomitant benefits to the population and the economy.
Yet, many governments pursue what are essentially self destructive policies. Poupak Bahamin, a partner at Heenan Blaikie, LLP, says in an article that will appear in the print edition of Mining Review Africa on the topic of taxation and mineral policy regimes, that taxation brought into being supposedly to give the government more benefit from high commodity prices (windfall taxes, for example) is often unsuccessful and ultimately detrimental to the host country.
Thus the adoption of short term populist tax and legislative policies, is not just harmful to the mining companies and their shareholders, and ultimately consumers, they fail to increase governments’ overall tax take from the countries’ minerals industries. Bahamin says this lack of success may partly relate to the cyclical nature of the mineral industry and the need for mineral companies to fully benefit from high commodity prices during price peaks to cover their costs during downturns. Many mining operations, as the past few months have demonstrated, are not fully profitable during every stage of volatile price cycles.
The lesson is really a simple one, and some governments, like that of Botswana, at least are aware of it. It is one country that resisted the temptation to fiddle with its fiscal mining legislation during the time of commodities upsurge, and consequently will retain the confidence of international investors. It means someone may be willing to invest money on possibly more marginal projects, which would almost certainly remain untouched were they elsewhere.
But, as gold mining in Zimbabwe illustrates, mining can also survive where other businesses give up the ghost. Part of mining’s bad reputation is its association with dubious regimes, and that is because it is often the only industry that survives in such places.
The mining industry is often accused of propping up foul regimes, even if only inadvertently; however, conversely, it also sows seeds of broader prosperity that ultimately makes the perpetuation of such and similar regimes into the future less viable.
A mine in a particular location is neither an endorsement nor a rejection of that government’s social policies, never has been and never will be.
To some it might make mining seem to be a cynical and hard nosed business, but actually it is a refreshingly honest business. In fact it is the opposite of cynical and manipulative. It is not about brands and images, and linking of products to human aspirations and emotions – well other than perhaps the downstream diamond sector and to a lesser degree some precious metals – but it is about simple supply and demand and mineral economics.
Reputation as an honest broker (and that applies to both the host countries and the mining companies) is important of course, but mining companies don’t and shouldn’t have to manipulate emotions.