African governments and their mining industries can achieve their respective objectives if they work together in a spirit of partnership that emphasises long-term growth over short-term gains.
That was the message delivered by Mark Bristow, CEO of Randgold Resources, at the Jo’burg Inbaba 2017, a two-day mining conference held in Johannesburg last week. Randgold operates five gold mines in three African countries – Mali, Côte d’Ivoire (Ivory Coast) and the Democratic Republic of Congo.
Bristow started by emphasising the notion of “value”, and observed that it means different things to different people. Is it primarily about rewarding investors, for example – or should the focus be on supporting the economic development of the host country?
“Can the differing, and sometimes conflicting, demands of these stakeholders be fairly balanced? It’s not easy, but I believe that it is possible – indeed essential,” he said.
To be endowed with abundant mineral resources is no guarantee of wealth for all
He noted the conference was taking place against a background of “increasing disaffection” between the mining industry and some of its host governments in Africa. The conference heard how Tanzania and South Africa, for example, had enacted mining policies that were so focused on short-term fiscal and ownership gains that they had effectively killed the possibility of any new investment for the longer term.
Bristow said a successful mining industry needs a committed partnership that recognises the realities of mining.
It is important to note that mining is a long-term game, where substantial investments are required upfront and the returns take many years to materialise, “so a high level of confidence in the rules is essential to investors”.
Bristow said that a country’s mineral resources are the property of the people – with the government acting as their stewards. On the other side are the investors, who provide the capital and take the risk so that the mining company can realise the monetary value of the mineral resources.
“We are clearly in this together,” said Bristow, “and the only way to achieve an optimal outcome is to work in a spirit of genuine partnership between the government, the people and the mining company.”
He went on to say that a partnership must be beneficial to all partners, and that the first requirement is that the mining company should be profitable.
“It needs to generate sufficient revenue to deliver returns to its investors, support the national fiscus, contribute to the local economy, and build and operate its mines,” he said. Without profits, none of these things are possible. “This simple but pertinent point is often ignored by stakeholders.”
Bristow said governments and their mining industries should seek an equitable share – somewhere around a 50:50 basis – of mining revenues after the recouping of the capital cost of building the mine. In Africa, however, he noted that governments demand a higher share which is even more than in advanced countries – and this is despite the massive barriers to entry such as the lack of infrastructure and skills, and the risks associated with socio-political volatility.
“The recent rise in the gold and commodity prices appears to have increased this appetite, with… various mining codes being revised in favour of governments, in some cases with no regard for the consequences,” he said. “Not only does this deter investment, but it reduces the potential number of projects that could be economically developed.”
Bristow said many African countries were endowed with great mineral resources, but that this was no guarantee of wealth creation that benefits all. He cited the Democratic Republic of Congo and Venezuela as examples of resource-rich countries – the former in minerals, the latter in oil – where people were poor and had not benefited from their resources.
“Just having mineral resources is not enough – it’s how you develop them that matters, and the secret of success is [a] sustainable, committed public/private partnership.”
He said the partnership had to take into account the fact that the mining industry is subject to the rise and fall of global economic cycles. It does not have a good record of coping with this, which has resulted in underperformance during downturns.
“The main culprit in this underperformance is the myopic vision which chronically afflicts all the players, from the investors to the governments, and which results in the destruction of long-term value for short-term gains,” he said.
“Driven by investors’ demand for immediate gratification, [mine] managements are forced to focus on next quarter’s results. So, for example, when commodity prices went through the roof during the last Chinese-led supercycle, everyone pushed to exploit the short-term windfalls – including governments who sought to change mining codes and participate in those windfalls.
“Just like many of the company executives and boards, governments are also concerned about their next term of office and their popularity, rather than about building an economy for future generations.”
Bristow called for “an open-minded and all-inclusive” debate around enabling a country’s mining industry to create sustainable value and to serve as the catalyst for growth – and noted that Chile had done this with “striking success”.
Is there a way for mining to create real value, to be shared equitably by all stakeholders? There is, Bristow said, but only if there are “mutually beneficial partnerships”, and he cited the West African country of Côte d’Ivoire (Ivory Coast) as an example.
“Côte d’Ivoire too has revised its mining code, but there it was done through a transparent process and only after a complete and constructive engagement with the mining companies,” Bristow said. “It is model of its kind, which will invite and support investment.”
Côte d’Ivoire was ranked first among African countries in terms of its mining investment attractiveness in the latest Fraser Institute survey, published in early 2017.
Bristow ended his address on a positive note: “I honestly believe that governments and mining companies can reach a mutually beneficial accommodation – a partnership in which each has rights and responsibilities, and where they work together to ensure that real and sustainable value is created, for the benefit of all stakeholders.”
He admitted it would not be easy, but reminded the audience of Nelson Mandela’s words: “It always seems impossible until it is done.”
See also: Good governance, great outcomes