| Tue 7 Dec 2004, 9:44 | | Angloplat warns of royalty risk to investment |
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Angloplat warns of royalty risk to investment
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Marginal mines could be killed off, CE says
Resources Editor
MARGINAL platinum projects in SA could be killed off by a planned government royalty on mining, Anglo Platinum (Angloplat) CE Ralph Havenstein warned yesterday.
He was commenting on research done recently by Absa commodities specialist Hilton Ashton, who published a study last week.
The study suggests investment in the platinum and diamond industries could be choked off by royalties due to be implemented at the end of the decade.
Government originally planned a 4% royalty on platinum, but this might be scaled back following opposition from the mining industry.
Havenstein said that not only were there concerns about the scale of the royalty, but there was also concern that it would be imposed on revenue and not on profit.
The former approach would mean that mining companies could be in a loss-incurring position, but that they would still face the burden of having to pay the royalties.
`The mining industry believes the imposition of royalties on revenue would be detrimental for marginal mines, and for new development,` he sai d.
`It would certainly have an impact on a marginal project. The mining industry would argue for a profits-based royalty.`
The initially proposed 4% royalty rate on platinum would be `quite high`, and he was concerned there might be no certainty for several months about the final rate.
He said the Chamber of Mines had engaged government on the issue, and there had been `one-on-one sessions` between Angloplat and government.
Because Angloplat is in a closed period, Havenstein was unable to comment on the company`s recent performance.
But he said a restructuring exercise that would lead to the loss of 200-300 jobs was close to completion, and it would be finalised in the first quarter of next year. `It has taken place at middlemanagement level and above,` he said.
The primary focus was on boosting efficiency rather than on cutting costs, and would result in a cut of between 15% to 20% in management jobs.
The process involved reducing the number of management layers `so a mine manager would be one step removed from myself`.
`It would be a similar situation on the process-manager side such as a refinery manager. We have separated the processing and mining, and both report directly to myself.`
He said that technical services had also been brought closer to the manager responsible. `This will lead to a more efficient approach, with shorter communication lines, and a focus on core efficiencies.`
Havenstein also voiced concern at the apparent lack of concern i n government about the strength of the rand, which has had a major effect on the mining sector.
`If the European Union and the Japanese are getting worried about the strength of their currencies, why should we in SA be different,` he said.
`SA should verbalise more concern in government about the effect of the strong rand.`
He said the strong currency affected both the cash flow and profitability of mining companies, although some of this damage had been limited by strong commodity prices.
Uncertainty about the rand`s performance was also affecting decision making for new projects. `With the strong rand, projects are closer to the cusp in terms of whether you approve them,` Havenstein said .
He said that some projects had lives of 20-30 years, which meant that the right decision needed to be taken from the start about their viability.
Also, said Havenstein, Zimbabwe remained a concern for Angloplat , although the group was not dependent on its operations in that country.
`Clarity would certainly help to make investment decisions easier,` he said.
`Businessmen like things to be certain so they can plan.`
