Charlotte Mathews
22 July 2008
Johannesburg — MINING companies moving into new areas need to quantify the risks and reduce them as far as possible, says Ernst & Young director Adrian Macartney.
South African companies are moving into other African countries, South America, Papua New Guinea and Russia, he says. Since the life of a mine can be up to 50 years and entail substantial investment, it is important they understand the political, operational and technical risks they are running.
Some risks are insurable but others can be controlled by, for example, spreading risk in joint ventures or negotiating with governments.
Among the most obvious political risks faced by mining companies in Africa and South America are changes in contracts by governments, such as the Democratic Republic of Congo's review of mining licences, Zambia's new windfall tax on copper-mining profits, and Argentina's introduction of an export tax .
These changes indicate governments want to strike a greater balance between the rewards of mining companies and their host countries, Macartney says.
Governments are frustrated when mining companies operate for years without paying any taxes because of concessions granted in the past or the way companies structure their finances.
Developing countries are also becoming stricter about environmental degradation and imposing regulations.
New laws could affect project costs and returns, but governments have to take tough decisions to protect communities and the environment, even if at the cost of foreign investment.
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