Mining shaky ground:"Shades of Zimbabwe"

South Africa might well have said goodbye to significant new foreign investment in its mining industry. Foreigners can be unforgiving when they see what they believe are attempts to grab their assets. Which is precisely what they believe is happening with the recent, though quickly rescinded, ban by the Department of Mineral Resources of normal by-product metals sales by London-registered platinum miner Lonmin.

Understandably, politically connected opportunists were seen as being actively helped by the department in their attempts to acquire mining assets cheaply and beyond the legal requirement that 25% ownership of mines be transferred to BEE interests by 2014.

"Shades of Zimbabwe," fund managers muttered. An earlier, similar stratagem directed at an Anglo American subsidiary, Kumba's Sishen Iron Ore, was initially largely overlooked as being an aberration. Now, the word "greenmail" is commonly heard in London. Kumba felt it had adhered strictly to the rules. When global steelmaker ArcelorMittal missed the April 2009 deadline to convert its prospecting rights - a preliminary to granting mining rights - over 21.4% of Sishen's Northern Cape mine, Kumba itself applied to the department for the rights.

Strangely, before it had considered Kumba's legitimate application, the department awarded the Sishen prospecting rights to the hitherto little-known Imperial Crown Trading - which is closely linked to the presidency and ANC top brass. That effectively sterilises part of Sishen, where mining goes back decades. Imperial has no mining skills, credentials or even visible cash - just political connections. Reportedly, it somehow got its hands on Kumba's application documentation and put in a later bid. The Department of Mineral Resources's first-come-first-served rule was ignored. When challenged earlier this year, mines minister Susan Shabangu blustered that she saw nothing sinister in granting rights to people with affiliations to the ruling party. That was just after she and Anglo CEO Cynthia Carroll had been cosying up to each other at a Cape Town mining conference at which all was sweetness and light. Shabangu was touting SA's mining investment merits and Carroll was making emollient statements about Anglo's commitment to South Africa.

Kumba is mounting a legal challenge to the Imperial award. But, in a new twist this past week, Imperial struck an R800-million deal to be taken over by ArcelorMittal, sweetened by a share in a R9-billion 26% stake in the steelmaker's South African mills - all provided that Imperial can deliver the Sishen rights to the steel company. Some favoured individuals are hoping to make quick fortunes, and they are not the ordinary South Africans BEE is supposed to benefit. Wheels within political wheels. If this deal goes through, a good part of the steel mill's stake will be owned by the Gupta Group, controlled by the Indian Gupta family, which finances the ANC and the party's new daily newspaper - set to hit the streets next month. Gupta has Jacob Zuma's son, Duduzane, on one of its boards. Neighbours say that Duduzane occupies a house provided by the Guptas in Saxonwold. How much closer can one get?

The Lonmin imbroglio was strikingly similar. The platinum miner's application to convert old-order to new-order mining rights has been grinding its way through the Department of Mineral Resources's sluggish approval process for months. But Lonmin had temporarily excluded from its application a tiny piece of ground over which rights were subject to negotiation. Prospecting rights on that area were rapidly granted by the department to the mysterious HolGoun group, controlled by Sivi Gounden. Gounden is reputedly a BEE-enriched individual believed to contribute anonymously to ANC coffers. He is, crucially, also a former director of Lonmin and a former director-general of public enterprises under the ANC government. In October, Gounden abruptly resigned his Lonmin directorship, citing pressure of other business. In Lonmin's last annual report he was dutifully praised by chairman Roger Phillimore for his insights. That sort of encomium is often par for the course, irrespective of the real reasons for a departure.

Lonmin is challenging the HolGoun claim. Lonmin might have preferred to keep the matter private while negotiating, but the department's ban would have had a potentially material effect on the company and it had to be disclosed in terms of stock exchange rules and corporate legislation. After one abortive start, Lonmin is now fully BEE-compliant, moored to Cyril Ramaphosa's unlisted Shanduka investment company, which holds indirect stakes in Lonmin's two mines and its smelter.

Why, fund managers ask, should there have been a total ban on established, normal by-product sales, particularly as HolGoun's prospecting claims cover only a tiny part of Lonmin's property? Was it "greenmail", or a crude attempt to induce Lonmin to transfer more to other BEE wannabes? Certainly, there is a lacuna in South Africa's current mining legislation. But Londoners, with Kumba in mind, believe the Lonmin ban represented another example of official processes being abused to enrich ruling-party stalwarts, or, at least, of incompetence in the Department of Mineral Resources. That might be insulting to the independence of our government departments but, unfortunately for us, the belief is a reality to fund managers, who are increasingly questioning this country's investment merits.

It is, perhaps, telling that the latest international investment climate rankings by Canada's authoritative Fraser Institute downgraded South Africa to a level below the Democratic Republic of the Congo. Miners must go where minerals - particularly the platinum mined by Lonmin and Anglo's Anglo Platinum - are found. Auto plants can be moved elsewhere, mines can't. Nonetheless, there are many new mining opportunities around the globe. It's all a deterrent to new investment crucial to the development of an emerging economy such as South Africa's. As one mining executive put it: "The ANC needs to wake up to reality."

Source: Times Live