(May 11 2012) Exclusive to GEOnomic Investing
South Africa is bestowed with impressive mineral wealth; and as a result mining has been the main driving force behind the development of Africa’s richest economy. The main minerals mined in South Africa are gold, diamonds, platinum, chromium, vanadium, manganese, uranium, iron ore, coal, and copper. In 2011, mining accounted for 9.6% of South Africa’s gross domestic product and more than 35% of export revenue, according to government data.
South Africa accounts for approximately 10% of the world’s global gold production; about 40% of the world’s total gold reserves are found in the Witwatersrand area. The country runs a prolific, but high cost gold mining operation- hosting some of the world’s deepest gold mines with depths greater than 3.5 km. 80% of South Africa’s iron ore is mined in Sishen and Thabazimbi. The north western part of South Africa is famous for platinum and diamond mining. Major coalfields are found in the Highveld and Low-veld regions of South Africa. South Africa is the world’s leading vanadium supplier, the Bushveld Complex, contains some of the largest known deposits of vanadiferous magnetite ore in the world.
Political and Economic Climate in South Africa
In 2011, South Africa ranked 54tth out of 93 jurisdictions in the Fraser Institute’s ranking of the world’s most attractive regions for mining investment. In 2012, South Africa was ranked 67th out of 79 jurisdictions. This ranking is an unbiased survey that is compiled by poling mining executives and exploration mangers with operations across the globe. The survey considers how mineral endowments and public policy factors such as taxation and regulation affect exploration investment.
South Africa is not a member of the Extraction Industry Transparency Initiative; an organization that works with countries to increase transparency in the oil, gas and minerals industry. When South Africa was asked to join ten years ago, it turned down the opportunity- claiming that the EIT was a “reform school for delinquent countries.” It is important to note that even though this move was faulted by some, the EIT member list is small, and many perceived safe and stable regions are not members. The EIT currently has 13 member countries and 20 candidates. Canada, which holds many regions which ranked as one of the best places to do business in mining in the Fraser Institute’s survey, is not a member. The United States just recently announced that it will join the EIT.
Mining Taxation in South Africa
In South Africa’s, revenue taxes and royalties from mining companies go into the national fiscus and are administered by National Treasury as part of the overall revenue and expenditure budget, with no special treatment of revenues from mining.
A study commissioned by the ruling African National Congress in 2010 proposed the introduction of a “resources rent tax” on all mining operations triggered once they are generating returns exceeding about 15% annually. Other recommendations included a 50 percent capital-gains tax on the transfer of mineral prospecting rights and a 30% “mineral foreign shareholding withholding tax” on companies based in foreign tax havens. South Africa’s Mineral Resources Minister Susan Shabangu said she sees no need for a major overhaul of the country’s mining tax regime “Our current tax system” is fair and “competitive and it is working well,” Shabangu told reporters in Cape Town today in May 2012.
Miners in South Africa
Harmony Gold (NYSE:HMY)
Anglo American (LON:AAL)
Great Basin Gold (NYSEAMEX:GBG)
Pan African Resources (LON:PAF)
Anglo Gold Ashanti (NYSE:AU)
Rio Tinto Group Plc (NYSE:RIO)
BHP Billiton Ltd. (NYSE:BHP)