Apartheid reparations heat may send mining firms to cooler sites
April 15, 2003
By Bloomberg
Johannesburg - Anglo American and rival producers might reduce investment in the country as the burden of making amends for apartheid grows, company officials said yesterday.
Nine years after institutionalised racial discrimination ended, the government is passing laws that will force producers to share assets with black investors, teach workers to read, and pay royalties.
Former employees have sued Anglo and De Beers for injuries under apartheid.
Producers said they might reduce planned investments, estimated by the Chamber of Mines at R80 billion, reducing job creation. The current rate of unemployment is one in three.
"We have to spend our shareholders' money where we get the best returns," said Ferdi Dippenaar, marketing director at Harmony Gold Mining.
Harmony is also investing in Australia and Russia.
Also hurting local producers is the strength of the rand, which has gained 53 percent against the dollar since the beginning of last year. The companies pay expenses in rands and receive revenue in dollars.
The mining industry was built on cheap black labour, with workers often housed in men-only hostels hundreds of kilometres from their families.
Worker advocates say lax safety standards led to thousands of deaths and injuries.
About 744 people died in mining accidents in 1989, compared with 288 last year, according to the Chamber of Mines.
As many as 500 000 former mineworkers had silicosis, a lung disease caused by exposure to mineral dust, said Richard Spoor, an attorney who won a R460.5 million asbestos settlement from Gencor.
The country has passed laws that compel mining companies to sell 26 percent of their assets to blacks within a decade and has proposed that producers pay royalties of between 1 percent and 8 percent of sales, with the highest levies on diamonds and platinum. The plan requires public review and approval by parliament.
De Beers has said it might re-examine plans to spend R7 billion to extend the life of its 100-year-old Premier mine, because of the rand's strength and the cost of royalties.
The company said it might shut the 132-year-old Koffiefontein mine unless the government waived royalties for the operation.
"It's a cumulative effect of all of these issues," said Patrick Evans, the chief executive of Toronto-based SouthernEra Resources, which owns a diamond mine and is digging a platinum mine in this country.
"This has the potential to make South Africa less competitive."
Producers already paid total taxes equal to 38 percent of profit, compared with 15.9 percent in Chile, where there were no royalties, Evans said.
The government recognised the need to work with producers to create jobs and spur economic growth, Phumzile Mlambo-Ngcuka, the minister of minerals and energy, said recently.
"While the changes are robust, they are not punitive," she said. "We do not wish to bring undue pressure on the industry. We need you and you need us."
Some companies are already reducing their dependence on the country.
Xstrata last week agreed to pay $3 billion for Australia's M.I.M. Holdings, partly on concern about the mining laws.
The company, which mines coal and operates the world's biggest ferrochrome business in this country, said 37 percent of its earnings before interest, tax, depreciation and amortisation came from South Africa.
"There's always an issue about South African risk, which has been heightened by the fact that there's still some uncertainty around the implementation of the minerals act," said chief executive Mick Davis.
Between January 2 and April 4, foreigners sold R1.27 billion more local shares than they bought. Net sales were R4.92 billion last year, the first annual outflow since investment controls ended in 1995.
"The cost of doing business in South Africa is now a very live debate among both foreign and domestic investors," said Michael Spicer, an executive director at Anglo.
"The total cost of doing business in South Africa in terms of taxes, levies, empowerment costs has to be kept in line with peer countries," he said.
Producers may face further costs from litigation.
Anglo American and De Beers have been sued for $6.1 billion by former employees who say they were enslaved and tortured under apartheid.
The suit was filed by attorneys including New York-based Ed Fagan, who won $6.25 billion in judgments against companies that benefited from Nazi rule in Germany.
The Truth and Reconciliation Commission has called for Anglo to pay compensation equal to 1 percent of its market value, or $212 million at current prices.
Anglo has said it helped end apartheid. Company leaders publicly criticised the system and worked to desegregate workplaces and improve housing against government wishes, it said.
Since the first democratic elections in 1994, Anglo has sold assets to black investors, bought more goods from black-owned suppliers and given money to charities.
Anglo's donations were "intended to help address
the terrible legacy of apartheid," chief executive Tony Trahar said last week while announcing its support for South Africa's bid to host the 2010 soccer World Cup. - Bloomberg
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