New mining legislation is back in vogue in Africa, or at least in selected countries in Africa.
In South Africa, where the post-apartheid settlement is still striking an uneasy balance between business and the economic requirements of the country’s “historically disadvantaged people,” there is more tinkering with the mining charter.
A crusade to root out corruption is the rallying cry of the government, but crying foul about corruption is the oldest trick in the Third World book when it comes to pushing other agendas.
So before we get too carried away with this latest lurch in African political risk, it’s worth putting things in context.
For one thing, it’s not just Africa that likes to put the squeeze on the resources sector, and redressing social wrongs is the favoured mantra of the politicians who implement such squeezes.
It’s not more than a couple of years since financial markets were up in arms about George Osborne’s plans to hike royalties on North Sea oil. Australian government plans to boost royalties on mining right at the end of the last boom caused a political storm, and even established European Union mining jurisdictions like Spain are constantly tinkering with mining rules to placate unions and other local interests – witness the complicated struggles of Atalaya (LON:ATYM) to get into production.
Not everyone succeeds in striking a balance.
In Zambia in the 1970s the copper industry was all but destroyed by government intervention and took more than a generation to rebuild. Other countries took note of that experience and it wasn’t widely copied.
In conversation about political risk Fortune Mojapelo, the driving force behind Bushveld Minerals (LON:BMN), a company building a commanding position in South African vanadium, argues that “a good political process will self-correct.”
And he’s right, of course. In the South African and Tanzanian democracies this appears to be what is happening, although from the cloistered vantage point of trading terminals in European cities this is not always apparent to investors.
Thus the discount on Tanzanian mining companies has widened markedly over the past few months as the anti-mining rhetoric rises, to the point where the valuation on a company like Shanta, which is likely to produce in the region of 80,000 ounces of gold next year, and at good margin, begins to look quite interesting.
Acacia is the most notable faller, but it’s only got itself to blame. The company’s reputation even inside the mining community is pretty bad - from the government’s perspective it must look awful.
The problem isn’t only that the new President of Tanzania is highly critical of the favourable mining terms that were granted to Acacia when it was starting up.
From the vantage point of the present, those terms do look pretty favourable. But back then Tanzania was much newer as a mining jurisdiction per se and it needed to attract money in.
After all Tanzania is not a country, like southern neighbour Zambia, which has enjoyed an economically significant mining industry since colonial times. On the contrary, it was only really opened up to mining by canny entrepreneurs from the junior space in the late 1980s and 1990s.
In that context Acacia’s favourable terms make more sense than they would do elsewhere.
But people have been killed at Acacia projects – and not just in mining accidents. There have been riots. The word is that the mine itself is built like a fortress and that it is run remotely from offices in Dar-es-Salaam. Type “Acacia Mining deaths” into Google and the search engine does not come back empty.
This is not the way to endear yourself to a government, much less to investors.
Accordingly, Acacia’s shares have lost around 75% of their value in the past few months and are now trading at just under 200p, as the Tanzanians have hit it with a US$190bn tax bill.
But other companies know fine well that operating in Tanzania is what you make of it. Kibaran Resources (ASX:KNL) majors on social welfare programmes around its graphite projects, and has just been granted an environmental approval. Shanta also has very active social programmes. And Kibo’s Louis Coetzee, an African by birth, knows exactly how to keep on terms with the locals.
To be sure, Tanzanite One did get run out of town a few years ago, but that company too had a tendency to militarise its mine security.
Hell, as the boys from the old Mantra Resources will tell you, Tanzania will even let you mine uranium in its national parks, providing things are done right. But if they’re not, that’s a different matter.
So, are investors right to be spooked about Tanzanian risk?
Probably not. This is not a situation that bears comparison to Zambia in the 1970s, when government intervention took out the whole copper sector. The only comparable action to that in recent years has been Robert Mugabe’s destruction of agriculture in Zimbabwe.
But even in Zimbabwe it’s still possible to go mining and make money. Caledonia Mining (LON:CMCL) has been mining gold there for years and paying dividends.
Political risk is like weather - its extremes come and go, but the general patterns become easy to discern after sustained and careful observation: there is endemic warfare in the east of the Democratic Republic of Congo; there is an ebbing and flowing Islamic insurgency in parts of Mali, but not where Hummingbird Resources (LON:HUM) is; there is an occasional violent change of government in Burkina Faso; there is often militant and violent union action in South Africa; there are issues with the Khoi-san in Botswana.
And so on.
In Tanzania, there is a long history of trouble with Acacia and there is political corruption. It’s part of the political and investment landscape.
Share prices are discounted accordingly, but it’s up to the market to decide how hefty or otherwise that discount should be.