SA Chamber criticizes bill

The possible effects of the proposed Royalty Bill released by South Africa’s National Treasury will not be good for the economy or the mining industry. In the coming weeks the chamber will submit to the treasury a formal list of its objections to the legislation.

There are five areas of the draft legislation that do not meet the needs of the chamber. They are as outlined below.

q Royalty on revenue — The introduction of a revenue-based royalty tax would add costs to mining operations and take a disproportionate toll on less profitable mines. This could result in unintentional job losses; thus the chamber supports a royalty on profits and not revenue.

q International competitiveness — The rationale for establishing different royalties for different commodities is incomprehensible. The arbitrary categorization of commodity royalties suggests diamond mining is twice as profitable as platinum mining and that gold mining is three times more profitable than mining granite. These apparently irrational classifications of royalties cast doubt on the research done to legitimize other provisions contained in the proposed legislation.

Moreover, enforcement of the recommendations related to the proposed fiscal stabilization provisions will diminish certainty, increase investment hurdles, and aggravate foreign investors, who already have an aversion to South Africa’s mining sector.

— Black economic empowerment — The proposed royalties would raise the cost of capital, thereby increasing project risk and making it more difficult for black empowerment companies to raise debt financing and generate the cash flow necessary to develop healthy businesses.

— Local/rural development offsets — In keeping with the spirit and intent of the mining industry’s empowerment charter, released in the fall of 2002, there was an expectation that corporate social investment in mining communities and major rural labour areas would be offset against any royalties paid to government. The draft bill makes no provision for this.

— Double royalty — The proposed legislation contains a provision for the preservation of existing royalties payable by mines to communities or to people native to the area where a mine is situated. As currently worded, the draft legislation would oblige mining companies to pay this royalty in addition to the new royalty stipulated in the bill.