South African Mining Debate Scaring Investors, Cutifani Says

South Africa is scaring investors and threatening job creation with escalating arguments over calls for nationalization of the mining industry, AngloGold Ashanti Ltd. Chief Executive Officer Mark Cutifani said.

“The nationalization issue is troubling, given the polarizing nature of the discourse, which is having a divisive effect on our society as we scream and talk past each other,” he said. “The nature of the debate is frightening domestic and international investors, threatening an important resource of funds needed to deliver on our 5-million jobs target.”

Young people were justified in seeking “social change,” Cutifani wrote in a commentary in Johannesburg’s Business Day today, and the industry could have done better in implementing the 2004 Mining Charter, aimed at increasing black ownership. Still, companies had made progress in trying to redress the impoverishment of black workers in the last century, he said.

“Some would say the industry colluded, for a period, in the creation and development of segregation and then apartheid,” said Cutifani, also vice president of the Chamber of Mines industry lobby. “This history does not, however, mean that the route to prosperity for all lies in state ownership.”

The ruling African National Congress agreed in September to study nationalization, responding to a call by Julius Malema, leader of the party’s Youth League. The league has demanded the state take over mines, banks and land to help bring down youth unemployment, poverty and inequality in the biggest economy in Africa. The country, which has a 25 percent unemployment rate, has declared a goal of creating 5 million jobs by 2020.

Destroying Stability

The government would destroy fiscal stability should it buy back private assets, while taking resources without paying for them would break the finances of many South Africans invested in mine operators and cause a “global backlash,” Cutifani wrote.

The industry brought on a debate about nationalizing mines itself after failing to sufficiently increase black ownership, Department of Mineral Resources Director-General Sandile Nogxina said in a Business Day report last month. A failure to address economic imbalances in the country could lead to a “situation like Zimbabwe,” Bridgette Radebe, chairman of Mmakau Mining and wife of the justice minister, told a conference on June 22.

Under a new Zimbabwean law, foreign-owned miners must cede or sell 51 percent of their shares to black citizens or state-approved agencies. The law, known as the Indigenization and Empowerment Act, doesn’t allow white Zimbabweans or foreigners to own businesses with assets of more than $1 million.

Soured Deals

Cutifani said some suggested the call for nationalization had been driven by the souring of deals aimed at raising black ownership following the global financial crisis. While there was a limit to what could be done, AngloGold had restructured its deals to benefit workers, investors and the company, he said.

Another suggested motivation was “a widespread view that mining is neither contributing adequately to the country’s economic development, nor its benefits being fairly shared.”

Both of these are rooted in South Africa’s history of disadvantaging black workers and their communities, Cutifani added, under the apartheid system that ended 17 years ago.

“Dealing with the second set of concerns is more complex and solutions are less easy to come by,” he wrote. “Destroying the foundations of South Africa’s most important industry doesn’t look like the best place to start.”

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