MineWeb: Mining companies should not ignore resource nationalism trends

7 December 2011, MineWeb

Resource nationalism has become perhaps the most pressing concern nowadays for mining companies and they should be more sensitive in their approach to dealing with developing nations’ governments

While focussing specifically on Africa, Kemet CEO Brian Menell’s warning to delegates at the Mines & Money conference in London is equally valid across a much broader range of developing nations. Menell’s presentation focused on the premise that mining companies risk jeopardising their future growth if they fail to work with governments towards their mutual best interests.

“If we as an industry succumb to our natural instincts to rigidly resist any increased state intervention, we will be inviting enforced value transfers that will prove much more costly, than if we engage with genuinely open minds.” Mr Menell said in his speech. “In my view, the winners and the losers in our industry over the coming decades, will be distinguished between those that embrace this process now, and those that put their heads in the sand and hope that it will go away.”

Resource nationalism has become an increasingly pressing issue for mining companies in the last year with an Ernst & Young report naming it the leading global business risks for mining and metals businesses. A number of African countries, including Ghana and Zambia, have recently moved to increase taxes on mining operations, and other governments, such as Guinea, have proposed new legislation to increase state ownership in mining operations.

While Menell addressed his remarks primarily to current moves in Africa, in some respects the continent is a relative newcomer in the field as mining companies working in parts of Latin America and Central Asia in particular will attest. To an extent higher metal prices become a two-edged sword for the mining companies as they tend to highlight to politicians, keen to demonstrate their need to improve the lot of their populations, the assumed profits many companies are thought to be making as a result which they feel might be ploughed back for the benefit of the nation. While the risk is always that if they tax too high, investment will dissipate the governments have to try and find a path that would ultimately be beneficial to all parties – and sometimes they get it wrong!

In stressing the importance of managing the risks of resource nationalism, Menell argued that “the single most important thing that companies and senior executives need to do in order to manage the resource nationalism game, it to act with respect.”

He warned that:

“If we drop in on flying visits, and act like we have all the answers, and act like we don’t think that we need to bother to show an understanding of local historical, cultural and political dynamics, we will fail, and end up as targets for endless value extraction until we eventually run away.”

Menell argued that the current trend of resource nationalism in Africa was being driven by a “growing democratisation, and an increasing sensitivity, even amongst autocratic regimes, to populist and media sentiments”. While many resources companies may be tempted to resists state intervention, they would do more to preserve their long term interests by engaging with governments, to ensure that National Mining Companies are structured according to the principles of value for value and long-term sustainability.