End of the supercycle is also spelling the end of radical resource nationalism | #MINING.com

End of the supercycle is also spelling the end of radical resource nationalism

Frik Els | June 17, 2012
Last year according to an Ernst & Young survey of the world's 30 largest miners, resource nationalism jumped to the top of the risk list after 25 countries announced their intentions to increase their take of the mining industry’s profits and others contemplate outright nationalization.

A growing list of nations – and not just radical fringe territories such as Zimbabwe or Venezuela – but stable jurisdictions including Poland, Ghana and Botswana have been pushing for greater control and ownership of the resource sector on top of higher taxes and royalties as cash-rich mining companies become easy targets for politicians.

South Africa recently stepped back from nationalization, but is nevertheless tightening its grip on the industry.  Although it has since backtracked in the run-up to elections in Mongolia set for the end of the month draft legislation put forward new provisions to cap foreign ownership of domestic companies at 49%.

Zambia has publicly acknowledged that the period of state-controlled copper mining was disastrous, but is also looking at ways to increase state ownership and intervention in its resource industry.

Indonesia surprised the global mining community in March after a new rule – Government Regulation No. 24 of 2012 – was quietly announced on the mining ministry's website which requires all foreign mining companies to sell majority stakes in their mining operations to locals. That news was in addition to  new export duties levied on minerals.

The tide of resource nationalism may now be turning however argues the Financial Times because the world's biggest miniers "are slowing down – or even talking about cancelling – their investment programme, allowing them to play country against country".

Natural resources companies with a pipeline of, say, five projects in five different countries are now likely to build just two or three of those. Thus, executives have the power to cherry pick which combination of country and project offers the best returns.

The threat of a cancellation – or long delays – could be a powerful incentive for politicians to offer better terms to companies, executives mutter.

In particular, local and regional politicians will be particularly prone to lobby in companies’ favour in the hope of securing jobs and investments.

The paper says Australia appears to be leading the way in backing off from placing too onerous demands on resource investors and African countries are also taking a softer stance.

Changes in South American governments' attitude towards greater state control and revenue from mining are less evident, with a country like Peru struggling to contain protests against new mega-mines and Argentina seizing outright control of energy assets.

As attractive deposits become harder and harder to find in traditional markets, miners – especially those exploring for gold – are also pushing the limits of the political risk they are willing to take on.

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