Bloomberg News

South African Demands on Mining Threaten Output, Impala Says

June 29, 2011

(Updates with closing shares in penultimate paragraph.)

June 29 (Bloomberg) -- South Africa risks cutting the mine output that contributes 8.8 percent of the economy as calls from within the governing political party for a state takeover of the industry deter investors, Impala Platinum Holdings Ltd. said.

“Investors, the traditional suppliers of risk capital to this industry, are getting cold feet,” David Brown, 48, chief executive officer of Impala, said yesterday in a speech in Johannesburg. “The risk associated with future investment in South African mining has increased considerably as seen from the outside world” because of dangers including nationalization.

Impala, based in the city, is the second-largest platinum producer, accounting for a quarter of global output.

The African National Congress agreed in September to study nationalization to meet demands from Julius Malema, head of its youth arm. Sandile Nogxina, outgoing director-general of the Department of Mineral Resources, told Business Day today that companies forced the debate by failing to offer sufficient stakes to black investors, or to develop workers and communities around mines. South Africa is the biggest producer of platinum.

Mine operators in South Africa are compelled by law to sell 26 percent of their assets to black investors by 2014 and boost numbers of black managers to help make up for discrimination during apartheid. Some companies had missed targets for 2009, the mines minister said at the time, adding that the industry had “not lived up to the spirit and intent” of the law.

Severe Reduction

While mining hadn’t done all it could, “nationalization is not the answer,” Brown said. “If we’re going to start impacting the flow of investment, then I think we’ll see some significant issues around declining output.”

“Wholesale nationalization would certainly undermine the country’s economic base, especially if banks and land are next,” he said, adding that even a partial nationalization would threaten “a severe reduction in output.”

Malema, 30, said last week the government should also take control of lenders such as Standard Bank Group Ltd. and Nedbank Group Ltd. He wants to increase the role of the state in the economy to combat youth unemployment, poverty and inequality.

“What undermines confidence is if debate is suppressed,” Deputy Finance Minister Nhlanhla Nene told reporters in Cape Town today. “We are able to engage in robust debates on very sensitive matters, but come out with an outcome at the end of the day that spells stability as we move forward.”

Speaking Out

Businesses should have spoken out on the issue sooner, Bobby Godsell, AngloGold Ashanti Ltd.’s former CEO, said last week, according to a June 26 report by Sake24.com. The Chamber of Mines, representing the country’s biggest mining companies, has begun lobbying ANC members, Business Day said yesterday.

“Not only will foreigners not want to bring money in but domestic investors will start looking to move their investment out of the country as well,” said Rudi van der Merwe, chief investment officer at Standard Private Bank Equity Advisory Services. “It’s slowly starting to happen.”

Impala rose 1.7 percent to 184 rand by the 5 p.m. close in Johannesburg. Anglo American Platinum Ltd., which is based in the city, is the world’s largest producer of the metal.

Mining accounts for about 8.8 percent of economic production, according the website of the state-backed International Marketing Council of South Africa.

--With assistance from Mike Cohen in Cape Town. Editors: Tony Barrett, Reed Landberg

To contact the reporter on this story: Carli Lourens in Johannesburg at clourens@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net


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