Bloomberg News

ANC Mulls Law to Supersede Mining Contracts, Godongwana Says

September 12, 2011

(Updates with investor comment in 14th paragraph.)

Sept. 12 (Bloomberg) -- South Africa’s national needs should take precedence over mining companies’ desire to export and a law to overrule mine contracts may be considered, the head of the ruling party’s task team formed to study a proposal to nationalize mines said.

The country’s coal, iron ore and other mineral reserves should benefit the continent’s biggest economy, the African National Congress’s Enoch Godongwana said in an interview in Johannesburg on Sept. 8.

South Africa’s policies should be guided by “to what extent we can utilize our resources to achieve a number of goals, among them growth and redistribution,” Godongwana, 54, said. “Legislation that supersedes any contract you have” to ensure the assets meet the country’s needs is an option, he said. “In certain circumstances, national interest must prevail.”

Citigroup Inc. last year valued the country’s mineral resources at $2.5 trillion, the most of any nation. Leaders of companies including AngloGold Ashanti Ltd., Africa’s biggest gold producer, and Standard Bank Group, the continent’s largest lender, have said nationalizing mines will curb growth and hinder job creation in a country where one in four is unemployed.

South Africa has the world’s largest reserves of platinum, 30 percent of the world’s gold and supplies coal to Indian and European power stations. Anglo American Plc, Rio Tinto Group and BHP Billiton Ltd. have assets in the country, which is also home to two of the world’s four biggest gold miners and the two largest platinum producers.

‘Insulting the Intelligence’

The ANC’s Youth League and the Congress of South African Trade Unions, the country’s largest labor grouping and a party ally, say that the ANC will adopt nationalization as a policy at its national conference next year, and is only looking into the details of how best to do it. The study was agreed to after repeated demands by the youth wing, which is led by the 30-year old Julius Malema.

“If there are some people who say we’re going to nationalize and we’re just looking at the modalities, I’d suggest that that person is insulting the intelligence of ANC delegates,” said Godongwana, who opposes state control of industry. “I don’t believe we should take on managing more than we can.”

November Report

As a motivation for such a law Godongwana, who is also the country’s deputy minister of economic development, cited the example of a coal mine that lies next to a state-owned power plant yet focuses on exports while the fuel needed to generate electricity is brought in from another mine. He also criticized the level of South African steel prices even though the country has abundant deposits of iron ore.

The ANC will in November publish a report on findings by an independent task team that is examining models of nationalization or increased state participation in mining around the world, he said. Those findings, based on visits by the team to countries including Chile and Botswana, will be made available for public comment.

With a jobless rate of 25.7 percent, South Africa’s government is aiming at the 7 percent annual economic growth that it says it needs to create 5 million jobs by 2020. The economy expanded 1.3 percent in the second quarter, its slowest pace in two years, according to the Pretoria-based national statistics office.

Government companies already run a coal mine and a diamond operation, while the Public Investment Corp., which manages pension funds for state workers, and Industrial Development Corp. hold stakes in mining companies.

Investor Concern

Kumba Iron Ore Ltd., which owns the country’s largest iron- ore mine, is 17 percent held by the two state-owned companies and coal producer Exxaro Resources Ltd. is 5.3 percent held by the PIC, according to data compiled by Bloomberg.

The ANC Youth League’s campaign to wrest mine ownership from what it calls a white capitalist elite, has caused “an uneasiness from investors particularly from outside South Africa” who don’t understand that the discussion is at a party rather than government level, Godongwana said. Sixty-six percent of South African lawmakers are representatives of the ANC.

“While its being debated all the investment is on hold and thats not helping anybody,” Peter Major, head of Cadiz Corporate Solutions’ mining and resources unit, said in in an interview from Cape Town today. “Nobody is putting new money into anything here. We have foreign investment but they are buying our bonds and our shares but bricks and mortar is very negligible. It’s not really creating jobs.”

Urgency, Inequality

Still, the youth league has raised issues that South African society needs to tackle, Godongwana said.

“One thing positive is that it’s introduced a sense of urgency on some of the social ills engulfing our society,” referring to the Youth League’s lobbying.

South Africa’s Gini coefficient, a measure of income inequality, is 0.68, according to the South African Treasury, one of the highest in the world and higher than in 1994, when the country held its first all-race elections and ended the apartheid system of institutionalized racial discrimination. A reading of zero means complete equality, while a reading of one means complete inequality.

--With assistance from Carli Lourens in Johannesburg. Editors: Antony Sguazzin, Alastair Reed

To contact the reporters on this story: Franz Wild in Johannesburg at fwild@bloomberg.net; Nasreen Seria in Johannesburg at nseria@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net


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