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Mineral nationalism, whereby a country seeks to increase, or in extreme cases entirely expropriate control of, its mineral resources is a growing global trend.
At the Bank of America’s Merrill-Lynch Banking Conference 2018 Rio Tinto’s Chief Executive, Jean-Sébastien Jacques told attendees; “From the Democratic Republic of Congo and South Africa to Mongolia, resource nationalism is gaining momentum. As a result, the case for investment and foreign investment is clearly under threat.”
Outright expropriation of mineral deposits and complete control of extraction and processing activities by a nation is unlikely. However, comparatively more subtle changes are becoming the norm. These include tax and royalty increases, demands on local content requirements and reductions to maximum available shares that a transnational or international company can hold in an operation.
In Africa, Ghana, Guinea, Zambia and Namibia have introduced changes to their tax structures with Ghana increasing taxes on mining companies from 25% to 35%. The Democratic Republic of Congo (DRC) introduced a new Mining Code in 2018 raising base metal royalties from 2% to 3.5%. The government has subsequently made efforts to block or impede commercial asset transfers and limit exports.
Situation in DRC
The DRC holds approximately 50% of the world’s cobalt reserves and in 2018 provided approximately 65% of global cobalt, a metal considered “critical” in terms of supply risk by Western national and supranational governing bodies and institutions, including the British Geological Survey, United States Geological Survey and the European Commission. This is the latest in a long string of events occurring in the DRC with negative implications for the price of cobalt, which has seen both demand and price increase significantly since 2008.
Situation in Tanzania
In Tanzania, in May 2017, President Magufuli accused foreign mining companies of draining the nation’s natural resources, declaring “economic warfare” on the international companies operating within its borders. Government probes revealing alleged corporate tax evasion have led to bans on exports of copper and gold concentrates, seen LSX listed company Acacia Mining hit with a $190 million fine and resulted in three new laws being enacted.
These laws enforce mandatory state ownership, at a 16% share, for future mining operations with 50% of shares in mining companies’ operations handed to state-owned enterprises. The Tanzanian has been given the power to change exiting agreements and ban exports on raw materials with President Magufuli stating plans to build copper smelters to improve integration of the country’s resources industry.
Chinese Investment in Africa
Analysts believe African leaders have confidence in their actions because of the influx of Chinese investment into the region. China has come to dominate projects from resource extraction to infrastructure, and to schools, airports and football stadiums.
Across the globe Chinese companies have been more willing to accept the terms and conditions of governments seeking greater degrees of resource nationalism.
Similar to Tanzania, actions taken by the Indonesian government since 2012 have enforced changes requiring all foreign extractive companies to divest 51% of their operations to Indonesian enterprises leading many investors to complain that capital recuperation would be impacted to beyond a ten-year timescale.
The Grasberg copper mine, in Papua province, formerly run as joint venture between NYSE listed Freeport McMoran and LSX listed Rio Tinto, saw London-based Rio sell its share of the mine to the Indonesian state-owned holding company, Asahan Aluminium, for around $3.5 billion in 2018.
The country has banned raw ore exports and invested in downstream processing of materials with smelting of bauxite and nickel aided by Chinese investment. China have planned to invest $83 billion dollars in the Indonesian mineral industry, focusing on extraction and transportation infrastructure for mineral exportation.
Chinese Investment in Bolivia
A similar story in Bolivia has seen committed investment from Chinese companies, notably Sinosteel and Linyi Gelon, aid the nation’s development of mining and processing operations at its El Mutún iron ore mine and lithium rich salt flats at Salar Uyuni. Stipulations of the Bolivian state regarding foreign investment in its mineral resources required any participants to enter joint ventures spanning extraction and processing. In 2013 Linyi Gelon agreed to invest in construction of a Li-battery pilot plant and in 2016 China received its first large-scale shipment of lithium carbonate.
While the vast sums of money at stake in pre-existing operations around the world mean Western mining giants will not be retreating from nations where resource nationalism is becoming the norm, there remains a risk of huge capital losses, dissolution of smaller mining companies and the prolonged process of international arbitration to settle disputes between governments and corporations, the latter being the route which Acacia Mining has had to take.
Sources and References
- Risk List 2015 British Geological Survey - Commodity Statistics -BGS (2015)
- Hume N (2018) Rio Tinto warns of threat from rising costs and resource nationalism. Financial Times.
- Lewis B, Graham P, Croft A (2018) Glencore settles with Gertler over Congo royalties. Reuters.
- Jacob T, Pedersen RH (2018) New resource nationalism? Continuity and change in Tanzania’s extractive industries. The Extractive Industries and Society 5; 287-292
- Kaup BZ, Gellert PH (2017) Cycles of resource nationalism: Hegemonic struggle and the incorporation of Bolivia and Indonesia
- Corporate income taxes, mining royalties and other mining taxes – White paper - PriceWaterhouse Coopers (2012)
- Shapland M (2018) Out of Africa: How London’s mining giants are battling the rise of ‘resource nationalism’. Evening Standard.
- Shedd KB (2009) USGS Mineral Commodity Surveys – Cobalt 2009.
- Shedd KB (2019) USGS Mineral Commodity Surveys – Cobalt 2019.
- Soeriaatmadja W (2018) Indonesia gains control of Grasberg mine - Straitsberg Times.
- Resource nationalism rises in 30 countries -Verisk Maplecroft (2019)