South Africa Faces Tax Dilemma as Mining Industry Costs Soar – by Mike Cohen & Paul Burkhardt ( – February 5, 2013)

South Africa’s government faces a dilemma: how to help mining companies weather surging costs and depressed commodity prices as the ruling African National Congress seeks to wring more revenue from the industry.

Upheaval has plagued platinum and gold producers since August last year, when thousands of workers staged a series of illegal strikes, winning pay increases of as much as 22 percent. Adding to mining costs, Eskom Holdings Ltd., which supplies about 95 percent of South Africa’s power, is seeking 16 percent average annual tariff increases until 2018 to fund expansion.

While Mining Minister Susan Shabangu says the government is committed to working with the industry, the ruling ANC wants the country to derive greater benefit from its minerals. At a conference in December, the party said a “resource-rent” tax, or higher royalties, were under consideration.

“I’m quite worried,” Nick Holland, the chief executive officer of Gold Fields Ltd. (GFI), Africa’s No. 2 gold producer, said in an interview yesterday at the Investing in African Mining Indaba, a gathering of more than 7,500 industry executives. “We can ill afford to accept any taxes beyond what we have. It’s just going to increase the speed of the decline of the mining industry.”

Mining output slumped 11 percent on a seasonally adjusted basis in the three months through November from the prior three months, government data show. Nine loss-making platinum-mine shafts were shut in the second half of 2012, according to the Department of Mineral Resources, while Anglo American Platinum Ltd. (AMS), the largest producer, last month announced plans to idle four shafts, which may result in as many as 14,000 job losses.

Metals Decline

The government needs “to more get involved in discussions with mining on what we do, how we’re doing it, without jumping to conclusions,” Harmony Gold Mining Co. CEO Graham Briggs said in an interview yesterday. “If you meet and you understand and you’re not on opposing sides of the table, you can be quite successful.”

Platinum has fallen 26 percent since reaching a record high of $2,301.50 in March 2008 as a global economic slowdown crimped demand from carmakers, the biggest consumer of the metal. Platinum has gained 11 percent this year while gold has advanced 0.1 percent, insufficient to compensate for rising input costs.

“We have seen several years in which levels of demand for platinum have fallen significantly short of the industry’s expectations,” Cynthia Carroll, the departing CEO of Anglo American Plc (AGL), which controls Anglo American Platinum, told the conference. “At the same time, costs have continued to rise relentlessly. This is an industry in crisis. And the near-term future shows no sign of respite.”

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