September’s issue of EFIC’s newsletter, World Risk Developments focuses on resource nationalism, wherein Governments across the world are examining options to gain a greater share of the windfall profits flowing from strong commodity prices.
Greater taxes and royalties, state ownership stakes in ventures, use of state-owned mining firms, and contract revisions are some of the options available to these Governments. While the moves are consistent with healthy private investment and production in some countries, in others they threaten profitability and could force mine closures.
According to EFIC chief economist Roger Donnelly, Venezuela is causing the most investor alarm, but industry is also watching South Africa and Zimbabwe closely.
Venezuelan President Hugo Chavez signed a decree last month to nationalise the gold mining industry, as part of a wider nationalisation push against electricity, telecoms, energy, cement, metal smelting, food, beverages, dairy and supermarket chains.
Commenting on South Africa, Donnelly says that there have also been calls for mine nationalisation by the ANC Youth League, but the government has dismissed them, preferring instead to promote ‘black empowerment’ through a revised Mining Charter that encourages firms to achieve 26% black equity by 2014.
Peru on the other hand has introduced a new windfall profits tax after negotiation with industry, which not only brings comfort for industry but also keeps the country competitive with Chile.
Guinea is attracting strong investor interest thanks to massive bauxite and iron ore reserves, and where the new government led by President Alpha Conde also seems to be taking a measured approach including conducting a review of existing mining contracts and also announcing a new mining code.
According to Donnelly, the contract review looks set to confirm concessions held by Rio Tinto and Vale in the giant Simandou iron ore deposit as well as approve Rio's ‘Simfer’ joint venture with Chinese state-owned mining company Chinalco.
The government is also revising the mining code in Mozambique against a background of criticism of the tax take from mines. It reportedly favours increased royalties and taxes on new mines, a 10-20% stake in 'strategic' projects for the state mining firm, and licence cancellation for firms that fall behind with their agreed development schedule.
The September newsletter also looks at India's supply side challenges, rising rice prices, and emerging market FDI.
Export Finance and Insurance Corporation (EFIC) is the Australian Government’s export credit agency that helps Australian exporters grow their business in overseas markets through finance and insurance solutions including loans, guarantees, bonds and insurance products.