How to mine African opportunity

AFRICA’S resource-rich nations have been warned against introducing tax measures that may dissaude investment from Australian companies.

AFRICA’S resource-rich nations have been warned against introducing tax measures that would encourage Australian companies looking to expand offshore to seek alternative destinations.

Following scrapping of Australia’s minerals resource rent tax, industry experts have debated the merits of revenue-raising measures tied to emerging new mines in developing nations.

Gilbert + Tobin Lawyers partner Michael Blakiston told the Africa Down Under conference in Perth this week that Africa had lost its investment exploration appeal to Latin America, highlighting that the African sector was under real equity threat.

“Investors there have not seen the returns they were promised despite big revenues and production, so we need to ensure things like mineral resource rents don’t become a tool for government revenue solutions as that will simply encourage a further flight of investment capital,” Mr Blakiston said.

Mark Gubbins, managing director of credit and political risks at Arthur J. Gallagher International, argued that despite the challenges there had been an increase in interest in investing in sub-Saharan Africa.

“If you look at the way economies have emerged, from the Nigerian economy, Angola … my experience is you have seen several South African companies looking to almost divest and invest up towards sub-Saharan ­Africa,” he said. “You have fund money from Europe and America that, perhaps, used to look to Asia and now it sees the real growth opportunity to be coming from sub-Saharan Africa.”

Australian miners and explorers looking to increase their presence in Africa have been encouraged to push for stabilisation clauses in all new contracts to mitigate the risk of unexpected changes to fiscal regimes.

Rob Edel, DLA Piper head of mining, said such clauses had become fundamental to attracting investment in African mining projects: “Australian miners have to manage the risk of investing in Africa and the optimal way to achieve that is to help contribute to a stable investment regime.”

He said Australian players in Africa were likely to be encouraged to increase their African investment if they could lock down a definitive list of taxes to be charged, stipulate a fixed rate for certain taxes, confirm what taxes could be exempt for fixed periods and have binding guarantees that no new tax rates would be ­imposed.

Crucially, there also had to be allowance for an “opt in” provision, in the event that a more beneficial regime might be introduced during the life of the original agreement, he said.

Scott Horton, an international adviser to emerging market governments from DLA Piper’s New York office, had an opposing view and cautioned that the industry’s success in negotiating the stabilisation causes had gone too far.

“Stabilisation clauses need to focus on the revenue issues and not other things,” he said.

“As long as the investors aren’t too greedy about this it will be OK. As long as they don’t press beyond revenue issues and into social policy issues, because that is when it becomes really offensive (to the African countries).”