MINES AND MONEY: Engaging is ‘key to surviving resource nationalism’

MINES AND MONEY: Engaging is ‘key to surviving resource nationalism’

The key to navigating the pitfalls associated with resource nationalism in resource-rich countries is to forge relationships and engage with governments and state mining companies, according to Brian Menell, founder of South African mining and industrial conglomerate Anglovaal Group.

“We need to engage not so much through persuasion as to offer and provide resources and experience,” Menell said at the Mines and Money conference in London on December 6.

“Unfortunately or fortunately, the degree to which we as mining companies derive benefits is through driving personal relationships. We need to take a step back and focus more time and effort on that,” he said.

Legislation arising from increasing resource nationalism – for example, in developed economies such as those of Canada and Australia – may hold potential benefits as well as burdens for mining companies, he added.

The phenomenon is growing globally, and is likely to continue to do so in the long term, as democratisation spreads and governments look to derive value from the mining industry in increasingly uncertain economic times.

Opportunities to be exploited

In countries such as Zambia, Peru and Guinea, governments have introduced higher levels of taxation and imposed royalty requirements on mines in response to short-term fiscal stress, according to Menell – but this may present opportunities that can be exploited, he added.

“We are seeing increasingly assertive implementation of use-it-or-lose-it-type regulations. This is a constructive response to the dominance of short-term opportunistic investors,” he said. “If these regulations are correctly and fairly administrated, I believe they are entirely positive for the industry as a whole, and should be encouraged.”

There are, however, still hurdles to be overcome, he added, as countries as diverse as Canada, Venezuela and Russia are continuing to introduce legislation aimed at increasing local ownership of mining assets.

“Other than showing we are good and obedient corporate citizens, there’s not much mining companies can do [about this],” Menell said.

“There are increasing demands across the mining industry to grow local beneficiation – for example, banning exports of unsmelted tin in Indonesia, which has created a local smelting industry,” he said.

“This may be suitable for tin but, for many minerals, it’s inefficient and sub-economic,” he added.

Greatest opportunity The area representing the greatest opportunity, on the other hand, is the possibility of creating new models for enhanced equity participation from state structures, according to Menell.

“There are new mining codes proposed in Guinea and in Zambia, which go hand-in-hand with the creation of state mining companies,” he said.

“On one hand, this is the most dangerous trend, as it is a stepping stone to expropriation and outright nationalism,” he said. “However, if it’s correctly conceived, it represents the best way forward and the best chance of creating a new and sustainable model for the coming decades.”

It is at this point that the mining industry must engage with newly formed state companies to make sure they become value partners, rather than “parasitic and inefficient overlords,” according to Menell.

This involves developing political and negotiating skills ahead of technical expertise, in order to “come out on top,” he explained.

“The single most important thing that companies and senior executives need to do is to act with respect in our host nations,” he said. “The winners and losers in the industry over the coming decades will be those that embrace the process now, and those that put their heads in the sand and hope it will go away.”