LONDON – High raw materials prices are emboldening resource-rich African states to drive harder bargains with investors, but governments will not hold the whip hand until they are less dependent on foreign money.
“Resource nationalism is exactly what is happening,” Tim Williams, Director of Metals and Mining at Ernst & Young, said. “A lot of countries are seeing super profits and they’re trying to change the rules.The problem with that is, it discourages now capital expenditure, and the high-risk money for new exploration.”Zimbabwe’s government said this month it would take control of uranium, coal and methane projects; the Democratic Republic of Congo is reviewing mining contracts and Tanzania has agreed new mining deals with two firms.The moves come against a backdrop of record profits for big mining companies, the darlings of equities markets.With demand for metal soaring, largely to stoke Chinese industry, mining stocks are way up and the sector is awash with merger activity.Impoverished African countries, traditionally exporters of raw materials that are refined or turned into manufactured goods elsewhere, see a chance to get back a bit of their own.African Eagle, developing Zambian copper and gold projects costing up to US$70 million, got a fright when there was talk of boosting the royalty tax on minerals to 10 from 0.6 per cent.”When the 10 per cent was mentioned, alarm bells started ringing,” Operations Director Chris Davies said.”At that level, any marginal operation wouldn’t have gone ahead.”In fact, Zambia ended up proposing a 3 per cent royalty tax, which miners say they can live with.”You can understand the Zambian government.Copper prices are robust and they want to benefit from that,” Davies said.”You want a fiscal code that encourages investment, but on the other hand, the government wants to benefit from it.”GOVERNMENTS EMBOLDENED The knowledge that they have what the world wants gives African states the strength to ask for more in return, Alex Gorbansky, Managing Director of advisory firm Frontier Strategy Group, said.”Governments are behaving in a way they couldn’t when commodities prices weren’t what they are today,” he said.African governments would like to wield even more power, but they still need the money and the expertise Western mining companies bring.Unless they can take advantage of many years of high resources prices – as Russia has benefited from oil – African countries can only dictate terms to a certain extent.”Compared to Russia and Venezuela, Nigeria and Angola are not quite the same because they don’t have the kind of domestic companies that can do the actual production on their own,” Charles Esser, energy analyst at Brussels-based advisory Crisis Group, said.”There is still a certain kind of resource nationalism as they look to grab a larger share from oil producers, but it’s not quite the same as in Russia and Venezuela.”One way governments have been attracting money is by doing deals with China.”If you find yourself going head to head with China, they will invariably pay more,” Michael Lynch-Bell, Partner in Charge of Global Mining and Metals at Ernst & Young.Lynch-Bell said.Although China may have the edge by being able to offer cheap loans and aid as part of a resources package, Western companies have the advantage when it comes to knowledge and experience of running mining projects, he argued.CONTRACT IS KING Investors are always concerned about the possibility of government interference in resources projects, said Marcus Edwards-Jones, Founding Partner at financial advisers Lloyd Edwards-Jones.His company helped raised money for Range Resources, a firm looking for oil in Somalia.With Congo due to finish reviewing contracts by the end of August, the relationship between state and company is paramount.”Mining companies don’t own minerals virtually anywhere in the world,” Ernst & Young’s Williams said.”The assets of a mining company are its agreements with the state.”In the main, companies and investors in Africa know they are dealing with governments prone to re-writing the rules.”You will get periodic changes in the tax regime in lots of these places,” Edwards-Jones said.Nampa-Reuters”A lot of countries are seeing super profits and they’re trying to change the rules.The problem with that is, it discourages now capital expenditure, and the high-risk money for new exploration.”Zimbabwe’s government said this month it would take control of uranium, coal and methane projects; the Democratic Republic of Congo is reviewing mining contracts and Tanzania has agreed new mining deals with two firms.The moves come against a backdrop of record profits for big mining companies, the darlings of equities markets.With demand for metal soaring, largely to stoke Chinese industry, mining stocks are way up and the sector is awash with merger activity.Impoverished African countries, traditionally exporters of raw materials that are refined or turned into manufactured goods elsewhere, see a chance to get back a bit of their own.African Eagle, developing Zambian copper and gold projects costing up to US$70 million, got a fright when there was talk of boosting the royalty tax on minerals to 10 from 0.6 per cent.”When the 10 per cent was mentioned, alarm bells started ringing,” Operations Director Chris Davies said.”At that level, any marginal operation wouldn’t have gone ahead.”In fact, Zambia ended up proposing a 3 per cent royalty tax, which miners say they can live with.”You can understand the Zambian government.Copper prices are robust and they want to benefit from that,” Davies said.”You want a fiscal code that encourages investment, but on the other hand, the government wants to benefit from it.” GOVERNMENTS EMBOLDENED The knowledge that they have what the world wants gives African states the strength to ask for more in return, Alex Gorbansky, Managing Director of advisory firm Frontier Strategy Group, said.”Governments are behaving in a way they couldn’t when commodities prices weren’t what they are today,” he said.African governments would like to wield even more power, but they still need the money and the expertise Western mining companies bring.Unless they can take advantage of many years of high resources prices – as Russia has benefited from oil – African countries can only dictate terms to a certain extent.”Compared to Russia and Venezuela, Nigeria and Angola are not quite the same because they don’t have the kind of domestic companies that can do the actual production on their own,” Charles Esser, energy analyst at Brussels-based advisory Crisis Group, said.”There is still a certain kind of resource nationalism as they look to grab a larger share from oil producers, but it’s not quite the same as in Russia and Venezuela.”One way governments have been attracting money is by doing deals with China.”If you find yourself going head to head with China, they will invariably pay more,” Michael Lynch-Bell, Partner in Charge of Global Mining and Metals at Ernst & Young.Lynch-Bell said.Although China may have the edge by being able to offer cheap loans and aid as part of a resources package, Western companies have the advantage when it comes to knowledge and experience of running mining projects, he argued. CONTRACT IS KING Investors are always concerned about the possibility of government interference in resources projects, said Marcus Edwards-Jones, Founding Partner at financial advisers Lloyd Edwards-Jones.His company helped raised money for Range Resources, a firm looking for oil in Somalia.With Congo due to finish reviewing contracts by the end of August, the relationship between state and company is paramount.”Mining companies don’t own minerals virtually anywhere in the world,” Ernst & Young’s Williams said.”The assets of a mining company are its agreements with the state.”In the main, companies and investors in Africa know they are dealing with governments prone to re-writing the rules.”You will get periodic changes in the tax regime in lots of these places,” Edwards-Jones said.Nampa-Reuters
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