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Feb. 3 (Bloomberg) -- A study into mine nationalization ordered by South Africa’s ruling African National Congress proposes a 50 percent resource-rent tax rather than taking over operations, a party official who has seen the document said.
Previous ANC discussion documents defined resource-rent taxes as a levy triggered once the expected rate of return had been attained on an asset. Nationalizing the country’s mines would be too expensive for the government because it would cost almost 1 trillion rand ($131 billion), according to the study, the official, who declined to be identified because the document hasn’t been made public, said yesterday.
The party instituted the study after its youth wing leader, Julius Malema, proposed that the government take over mines and banks because the black majority isn’t deriving enough benefit from them. South Africa is the world’s biggest producer of platinum, chrome and manganese and supplies coal to power plants in Europe and India. In April 2010, Citigroup Inc. valued the country’s mineral resources at $2.5 trillion, the most of any nation.
“There is a growing belief that the mining industry has not delivered what people thought it would deliver, such as a wider distribution of the country’s wealth,” Niall Carroll, the chief executive officer of Royal Bafokeng Holdings Ltd., which manages the holdings of the 300,000-strong Bafokeng community, said in an interview from Johannesburg today. “It is going to result in change.”
The study also proposes a 50 percent capital gains tax on the sale of mineral rights before the start of mining to discourage speculators, said the official. The tax would also apply if a company changed ownership before a mine had been dug.
If adopted by ANC leaders the study will influence policy documents to be discussed at a party conference in June. Final decisions on economic policy will be made at its national conference in December.
Keith Khoza, a party spokesman, didn’t immediately respond to a message left on his his mobile phone by Bloomberg. Earlier he confirmed that the ANC has received the report and said its decision-making body could discuss it at a five-day meeting that began yesterday. All discussion papers need to be presented to the National Executive Committee before being distributed to the ANC’s other structures, Khoza said.
The ANC’s youth wing has also called for the seizure of land in South Africa, where more than a quarter of the population is unemployed. The ANC, led by President Jacob Zuma, has said mine nationalization isn’t government policy. The report, which was written by three economists, is aimed at guiding the ANC’s nationalization debate.
Paul Jordaan is an independent mining consultant who has worked for the government and has previously argued against nationalization. Pundy Pillay is a researcher at Johannesburg’s University of The Witwatersrand while Margaret Chitiga-Mabugu is an economist at the Pretoria-based Human Sciences Research Council.
Leaders of the largest companies operating in South Africa, including Anglo American Plc and AngloGold Ashanti Ltd., have said Malema’s nationalization drive is deterring investment and curbing growth in Africa’s biggest economy. Malema is appealing against his suspension from the ANC following a disciplinary hearing for ill discipline.
BHP Billiton Ltd., Xstrata Plc and Lonmin Plc also operate mines in South Africa, which depends on mining for half of its export earnings.
While nationalizing mines “could have extremely negative impacts on growth and development in our country,” South Africa can boost its revenue, spur industrialization and create jobs by replacing its first-come-first-served approach to issuing mining licenses with “competitive concessioning,” Jordaan argued in the second quarter of 2010 edition of Umrabulo, an ANC magazine.
This would allow the government to ensure companies meet the country’s national priorities, Jordaan said. He proposed introducing laws “obligating the operator to sell all products into the domestic market at competitive prices, to facilitate beneficiation and to underpin the competitiveness of our manufacturing and agricultural sectors.” Beneficiation is a local term for mineral processing.
A separate report by the ANC’s economic transformation committee, which also opposes nationalization and calls for greater processing of minerals, will be discussed by the national executive committee, the official said.
“These other suggestions are going to get talked about a bit, but there’ll only be a tweak here or there in terms of policy,” Paul Theron, managing director of Johannesburg-based Vestact Pty Ltd., which manages more than 1 billion rand of assets, said in an interview. “The industry is very powerful and has vast influence. It will see where it goes and then they’ll start up the lobbying machine.”
Malema’s suspension from the ANC has taken the steam out of the nationalization drive, Theron said. “The momentum behind nationalization has slipped away,” he said.
Frans Barker, senior executive at the Johannesburg-based Chamber of Mines, which represents most mining companies operating in South Africa, declined to comment when contacted today.
Xstrata will make its views known on the ANC’s report through the chamber once it has seen the study, the Zug, Switzerland-based company’s South African unit said in an e- mail. AngloGold and Gold Fields Ltd., both based in Johannesburg, declined to comment.
The study also suggested moving mine assets held by the government’s Industrial Development Corp., a development bank, into a state mining company, the official said.
The Johannesburg-based IDC owns 7.9 percent of ArcelorMittal South Africa Ltd., a 21.9 percent stake in Merafe Resources Ltd. and 7.9 percent of Sasol Ltd., according to data compiled by Bloomberg.
Other proposals include the development of an iron and steel plant at Ngqura in the Eastern Cape province, investment in infrastructure related to mining exports and industrial development zones focused on mineral processing, the official said.
The mining industry “can prepare for a growing regulatory burden, including changes to the tax regime, beneficiation, black economic empowerment laws and participation by the state mining company,” Anne Fruhauf, an analyst at New York-based Eurasia Group, said in an e-mailed response to questions.
The rand gained 1.2 percent to 7.5592 per dollar as of 5:17 p.m. in Johannesburg. An index of 21 mining companies traded on the city’s stock exchange fell for the first time in three days, declining 0.3 percent to 36,402.90.
“The status quo is unsustainable,” Royal Bafokeng’s Carroll said. State and society demands for a larger slice of mining profits are a global phenomenon, he said.
--With assistance from Carli Lourens and Sikonathi Mantshantsha in Johannesburg. Editors: Antony Sguazzin, Vernon Wessels, Karl Maier
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