BHP Sees Risks to South Africa Coal Supply in Draft Mine Law

BHP Billiton Ltd. said proposed amendments to South African laws that could see coal declared strategic and subjected to export curbs threaten to compound likely energy shortages in the continent’s largest economy.

“South Africa has the necessary coal resources” to cover its energy needs and for exports, Manie Dreyer, president of BHP’s local coal unit, told lawmakers in Cape Town today. “All we need to do is ensure these developments are incentivized. The changes proposed in the amendment bill will deny the coal-mining industry the certainty that is needed to induce investment” and instead act as a deterrent.

Dreyer was commenting on the last of four days of hearings at Parliament on proposed changes to the 2002 Mineral and Petroleum Resources Development Act. The government says the amendments are to ensure the nation benefits more from its mineral endowment. They would enable the mines minister to force producers to offer an unspecified part of their output to local processors and get permission to export any strategic minerals.

BHP, the world’s largest mining company, joins Anglo American Plc and a succession of other metals, oil and gas producers in telling lawmakers that the proposed amendments are overly onerous, too vague and will have unintended consequences.

Eskom Holdings SOC Ltd., the state power utility, last week backed plans to have coal declared a strategic resource to avert expected shortages of the fuel from 2018.

Coal Abundance

While Eskom, which burns coal to generate 85 percent of its electricity, has contracted 80 percent of the amount it needs for the next five years, it anticipates a shortage of as much as 40 million metric tons annually after 2018.

South Africa is the continent’s largest coal and gold producer and the world’s biggest supplier of platinum and chrome. Besides legislative changes, the mining industry is contending with rising costs, slumping mineral prices and labor unrest.

Compelling companies to sell their output for less than they could obtain on the open market may constitute expropriation and violate the country’s constitution, Melbourne-based BHP said in a written presentation. The law, if implemented, could also force companies to breach their long-term supply contracts and be in violation of South Africa’s international trade obligations, it said.

The Chamber of Mines, an industry body whose members include BHP and London-based Anglo American, said on Sept. 13 it is continuing talks with the government over the proposed law and shortcomings may still be addressed.

‘Very Unattractive’

Anglo American said the law would give too much discretion to the mines minister, creating increased investor uncertainty.

“In an industry such as mining with very long-term horizons this is very unattractive,” Anglo American Executive Director Khanyisile Kweyama told lawmakers. “It is imperative to us that that the Mineral and Petroleum Development Act be constructive toward the mining industry rather than undermine it. We urge you to create a regulatory environment that will make mining effective and efficient.”

Impala Platinum Holdings Ltd., the world’s second-largest producer of the metal, and Lonmin Plc, the third-biggest, also said the law would negatively affect their businesses and constrain their ability to expand.

“There are serious problems with this legislation,” Sandy McGregor, a money manager at Allan Gray Group Ltd., which oversees about 27 billion rand ($2.7 billion) of mining assets, told lawmakers today. “We have seen a major decline in mining share prices. This is no time to put in investor-hostile legislation. Ignoring the concerns of the industry could have very damaging consequences” for the economy.

Lawmakers’ mineral resources committee will discuss comments on the draft law next month and decide with state officials whether any changes are necessary, said Faith Bikani, the committee’s acting chairwoman.