S. Africa Plans Mine Royalties of Up to 8% of Sales (Update4)
By Mike Cohen
Cape Town, March 20 (Bloomberg) -- South Africa plans to charge mining royalties of as much as 8 percent of sales, trimming profits for Anglo American Plc, BHP Billiton and the world's biggest precious metals producers.
Finance Minister Trevor Manuel proposed that gold companies pay a royalty of 3 percent and platinum miners 4 percent. Diamond producers will pay a royalty of 8 percent, with coal miners paying 2 percent. The proposal must be submitted for public comment before going to parliament.
``If you apply a royalty, earnings must go down,'' said Dave Tunnington, senior resources analyst at Mutual Asset Managers, Africa's biggest money managers. ``If you look at the impact on Anglo, the market has taken it as a little bit of a negative.''
The government plans to impose the royalties as it takes ownership of mining rights from companies and works to compensate blacks for discrimination under apartheid. President Thabo Mbeki's government says it plans to spend the money on developing communities close to mines.
Anglo American shares fell 5 pence, or 0.5 percent, to 970p in London. Anglo owns 45 percent of De Beers, the world's biggest diamond company.
``The one that stands out is the diamond royalties and that is why Anglo stands out on the downside,'' said Keith Francis, a trader at Barnard Jacob Mellet Holdings Ltd.
Phase In
The royalties will phased in by 2007 and may be deducted against taxes, government officials said at a press conference in Johannesburg. That means companies will be allowed to present the royalties as a cost, cutting their profit and therefore their taxable income.
The tax will be payable quarterly once miners have been granted licenses allowing them to continue mining.
The South African government has said within five years companies must comply with targets to increase black participation in mining. Companies may take steps ranging from selling direct stakes in their businesses to blacks to training more black managers. Once this has been achieved they will be granted licenses.
The royalties would also affect companies including Xstrata Plc, Anglo American Platinum Corp., Impala Platinum Holdings Ltd., Lonmin Plc, AngloGold Ltd., Gold Fields Ltd. and Harmony Gold Mining Co.
Shares in Anglo Platinum fell 4 percent, while those of Lonmin fell 2 percent.
``It's too much, it's way more than we can accept,'' said Ferdi Dippenaar, Harmony's marketing director. ``There are four weeks to be making comments and we will be making comments.''
Gold Fields spokesman, Willie Jacobsz, said his company welcomed the publication of the proposals. He said it was too early to comment any further.
Government Revenue
The royalties would have raised 4.2 billion rand ($513 million) in the financial year ended March 31, 2002, Manuel said at the press conference.
There are 10 categories of royalties. Miners of metals used in industry such as copper, vanadium and iron ore will pay a 2 percent charge, and miners of precious stones other than diamonds will pay 5 percent. Salt and rock miners will pay 1 percent, with chrome and titanium miners paying 3 percent.
``It's a little bit silly to have different percentage royalties on different commodities because they go in cycles,'' Tunnington said.
South Africa also plans to impose royalties of as much as 3 percent on oil and gas production. Oil pumped in offshore waters deeper than 500 meters will attract a 1 percent charge.
The only oil currently produced in South Africa is pumped by the government. Natural gas has been found off the country's west coast.
``One doesn't like taxes that are levied on turnover, it can make a marginally economic project uneconomic,'' said Gary Ralfe, managing director of De Beers.
Manuel said marginal mines may be exempted.
``There are a series of exemptions and deductions that deal with particular circumstances, such as marginal mines, but in that case the onus of proof will be on the mine,'' Manuel said. ``There will be a parliamentary process in respect of that particular issue.''
The full text of the proposals are available on the Web site of South Africa's treasury.
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