South Africa's Chamber of Mines asks for ‘Royalty Relief’

The Chamber of Mines, which claims to represent 90% of SA’s mining industry by value, wants the Treasury to give loss-making mines in the embattled industry "royalty relief" to save companies and retain jobs.

The chamber outlined a number of suggestions for Finance Minister Pravin Gordhan, who delivers his budget speech on Wednesday, pointing out the distressed nature of the local mining industry, which is under pressure due to globally weak commodity prices, rising domestic costs and falling productivity.

Since 2012, gold, platinum and coal companies had cut 47,000 jobs, chamber CEO Roger Baxter said earlier in February. Mineral Resources Minister Mosebenzi Zwane has said another 32,000 jobs were at risk.

"Given the parlous state of many loss-making mining companies, and given the discussions in the industry-agreed jobs declaration, the chamber believes that Treasury should consider giving royalty relief to loss-making mines, just to help them survive," the chamber said.

"This would be revenue neutral as the companies would repay the royalty at a later stage when commodity markets improve. This would help many loss-making companies survive the current crisis, with benefits for sustaining the majority of jobs and economic development benefits"

Royalties have been in force since March 2010 and are based on formulas according to whether the mineral sold is in its raw form or has had value added to it through beneficiation.

The chamber urged Mr Gordhan not to make any upward changes to the taxes related to the mining industry.

"Given the financial crisis facing the South African mining sector, the chamber recommends that the finance minister makes no substantive changes to mining taxation or the mineral royalty system. The industry needs policy and regulatory certainty and predictability," it said.

The South African mining industry consumes about 15% of Eskom’s power output and it has cited the 255% increase in electricity prices since 2009 as one of the major cost items that have contributed to the need for restructuring.

Companies like Sibanye Gold are installing solar electricity generation capacity as well as looking at coal assets to supply an independent power producer to secure reliable and relatively cheap power.

The chamber called for an investigation into the host of levies imposed on the mining sector, including the Recycling and Economic Development Initiative of SA (Redisa) tyre levy, the environmental levy on electricity and a number of municipalities introducing levies on electricity and water supplied to mines.

"The chamber recommends that government undertake socioeconomic assessments of all proposed levies to determine the impact on the health of the mining sector and to avoid sterilisation of ore in operating mines. This would enable a more competitive mining sector with larger benefits in terms of investment, employment, transformation, export earnings and economic growth."

The chamber asked for the introduction of a proposed carbon tax to be postponed for five years.

It rejected the idea of an increase in corporate tax beyond the prevailing 28%, which it described as high relative to international standards, and instead suggested value-added tax be increased by one percentage point to 15%, securing an extra R20bn in annual revenue for the government.

by Allan Seccombe