African Governments Push Mining Companies' Patience

February 6, 2014

 

Mining is big business and leads to big profits. However, to be able to reap these rewards a company needs to negotiate with the owner of the land they want to mine on and for many natural resources Africa presents a bountiful harvest. And the leaders of the governments who own the land know this.

 

"Governments want a bigger slice of the pie and they want to take that before the pie is even baked'" Mark Bristow, chief executive of Rangold Resources Ltd told the Wall Street Journal. Rangold Resources operate gold mines in Congo and Mali and are well aware of the strong-armed tactics employed by African governments in search of more revenue.

 

It is not uncommon for mining companies to find their tax rates raised by double digits and ownership structures legally changed to benefit the state coffers.

 

Currently South Africa, Guinea and Mozambique are reviewing options for raising new taxes, reviewing all mining contracts (past, current and future) and finding ways to extract more money from mining companies.

 

In response, mining companies have said these moves will result in less high-risk investment and slow the creation of mining jobs, meaning less pie for everyone. Companies already pay fees and taxes for the rights to mine sites. There are cost-intensive factors that immediately dive into profits when prices are low. Demanding more money may lead some companies to seek digging and exploration elsewhere.