Target state mining firms, says Brian Menell – Mining MX

Brendan Ryan | Tue, 06 Dec 2011

MINING executives need to develop better political skills and engage in the creation of national mining companies to counter the negative impacts of resource nationalism.

That’s according to Brian Menell – a member of South Africa’s influential Menell family which formerly controlled Avmin – and who now runs extensive mining interests throughout Africa as CEO of the privately-owned Kemet group.

Addressing the Mines and Money Conference being held in London on Tuesday, Menell said the national mining company model represented “the best way forward” in dealing with demands from governments for greater equity in mining companies and mining projects.

He told delegates, “this is the model that we as an industry should explore and engage with in order to make sure – wherever we can – that it creates a sustainable win-win solution and not simply a one-sided transfer of value”.

“We need to learn from the good and bad sides of the rise to dominance of the national oil companies over the allocation and exploitation of new oil resources over the last 30 years, and engage with the process to ensure that these new state mining companies grow into valued partners and not into parasitic and inefficient overlords.”

According to Menell, social responsibility programmes “generate very little national level goodwill and tend not to be recognized in negotiations on the fiscal or technical terms associated with mining rights.”

He believed the most important thing a company and its executives could do “in order to manage the resource nationalism game is to act with respect.”

Menell commented, “if we drop in on flying visits and act like we have all the answers and like we don’t think that we need to bother to show an understanding of local historical, cultural and political dynamics – we will fail and end up as targets for endless value extraction until we eventually run away.”

He added, “we need more political skills in the industry. We need to evolve a culture of management that gives equal weighting and seniority to technical and political capacity”.

“We need more leaders who have the acumen and confidence to act like Harry Oppenheimer when he negotiated with the Botswana government to create Debswana as a sustainable partnership – albeit one that has arguably evolved too far in favour of the Botswana government – but one that is still the cornerstone of both Botswana and of De Beers more than 30 years later.”

Menell laid down four basic principles the mining industry should advocate as “cornerstones” for the new generation of national mining companies.

He said the equity participation by the national mining companies in new mining projects should be capped at 25% of which a maximum of 10% should be a free carried interest.

He believed the exercise of “back-in rights” should go hand-in-hand with preferential tax and duty rates as well as long-term security and stability agreements for the life of the project.

“The principle of value for value should be adhered to,” Menell stated.

Then the structures had to be transparent so that the “value creation that is accruing to the nation” can be clearly seen by media, the electorate and the international community.

Finally, negotiation between the national mining company and mining project developers “must be on a level playing field and free of politicisation and of the distortions of bureaucratic entrepreneurialism”.

“The objectives of this should be very clear; to create sustainable structures that reduce uncertainty, reduce instablility and avoid the moving goal posts of changing legislation and punitive tax and royalty regimes.”

“It is only through real partnerships with State bodies that have the financial and technical capacity to fully understand and participate as equals in our industry that we can protect our long-term position.”

Menell concluded, “if we as an industry succumb to our natural instincts to rigidly resist any increased state intervention we will be inviting enforced value transfers, that will prove much more costly, than if we engage with genuinely open minds.”