Gold Fields
CEO Nick
Cape Town, South Africa — 07 February 2013 – The South African government faces a dilemma: how to help mining companies weather surging costs and depressed commodity prices as the ruling African National Congress seeks more revenue from the industry, reports Bloomberg News.

Upheaval has plagued platinum and gold producers since August last year, when thousands of workers staged a series of illegal strikes, winning pay increases of as much as 22%. Adding to mining costs, Eskom Holdings Limited, which supplies about 95% of South Africa’s power, is seeking 16% average annual tariff increases until 2018 to fund expansion.

“I’m quite worried,” Nick Holland, CEO of Gold Fields Limited, Africa’s No. 2 gold producer, said in an interview African Mining Indaba here. “We can ill afford to accept any taxes beyond what we have. It’s just going to increase the speed of the decline of the mining industry.”

Mining output slumped 11 percent on a seasonally adjusted basis in the three months through November from the prior three months, government data shows. Nine loss-making platinum-mine shafts were shut in the second half of 2012, according to the Department of Mineral Resources, while Anglo American Platinum Limited,  the largest producer, last month announced plans to idle four shafts, which may result in as many as 14,000 job losses.

The government needs “to more get involved in discussions with mining on what we do, how we’re doing it, without jumping to conclusions,” Harmony Gold Mining Company CEO Graham Briggs said in an interview. “If you meet and you understand and you’re not on opposing sides of the table, you can be quite successful.”

Platinum has fallen 26% since reaching a record high of US$2,301.50 in March 2008 as a global economic slowdown crimped demand from carmakers, the biggest consumer of the metal. Platinum has gained 11% this year while gold has advanced 0.1 percent, insufficient to compensate for rising input costs.

“We have seen several years in which levels of demand for platinum have fallen significantly short of the industry’s expectations,” Cynthia Carroll, the departing CEO of Anglo American, which controls Anglo American Platinum, told the conference. “At the same time, costs have continued to rise relentlessly. This is an industry in crisis. And the near-term future shows no sign of respite.”

South Africa has the world’s largest known reserves of platinum and chrome, and is the continent’s biggest gold producer. The mining industry directly employs about 500,000 people, makes up about 9% of gross domestic product and accounts for two-thirds of exports.

At its national conference in December, the ANC rejected proposals to nationalize mines in favor of a tax review. “There will be tax; what form it will take is a matter for the administration,” Enoch Godongwana, head of the party’s economic transformation committee, said at the time.

Since March 2010, mining companies have paid royalties tax based on sales in addition to income tax, with the rate varying depending on the type of mineral.

“We have got a very efficient tax regime here,” Peter Major, head of mining at Cape Town-based Cadiz Corporate Solutions, said in an interview yesterday. “I just don’t understand why the government would want to change that. The problem here is they are just not getting enough from taxes because the companies aren’t making enough money.”

The National Treasury will ultimately determine what taxes the mining industry should pay, said mining minister Susan Shabangu.

“It can’t be a given that taxes will go up,” she added. “We will come up with a tax dispensation that will work for the country. If we are unable to apply our minds and make sure that our tax regime becomes a successful and thriving regime, in allowing and attracting investment in South Africa, then the same ANC will say we have acted in an irresponsible way.”

Source: Bloomberg News. For more information, click here.