Mining giants not convinced new Royalty bill will benefit them

Tamlyn Stewart

Tamlyn Stewart

Mining houses have reacted cautiously to the controversial Mineral and Petroleum Resources Royalty bill, approved by Parliament last week.

The bill comes into effect on May 1 2009. It replaces fixed royalty rates with formula-based royalty rates, calculated according to the profitability of the mine - the less profitable a mine, the lower the royalty that must be paid, and the more profitable a mine, the higher the royalty that must be paid.

This is good news for marginal mines - start-up operations and mines close to the end of their lifespan - because the royalty rate they have to pay will decline as profitability declines.

But Goldfields chief executive Nick Holland said: "We hope that the authorities will re-evaluate the situation if royalties prove to be too onerous, given the cost pressures facing all mining companies.

"It is our hope that government retains an open mind on royalties given the large cost increases in key prices like labour, steel and oil that the industry is dealing with." Anglo American spokesperson Pranill Ramchander said yesterday that Anglo American supported the royalty being determined with reference to the profitability of the mining operations, but added: "There are, however a number of technical issues, which Anglo will be addressing, as a member of the Chamber of Mines, through further discussion with National Treasury."

The company would not be drawn on what those technical issues were.

Lizel Oberholzer, senior associate at Bowman Gilfillan Attorneys, said the bill is not good news for offshore oil and gas exploration.

"The bill was really written for marginal mines. It is not taking into consideration that marginal mines would not really exist [offshore] because it is so capital intensive, so you wouldn't find a small company doing this."

Oberholzer added that the fluctuation in the amount to be paid in royalties would deter investors.