In the media

Fuzzy social obligations rendering SA less competitive than Australia

28 August 2012

High Australia-level mining taxes are preferable to the fuzzy indeterminable social obligations imposed on South African mining companies.

That is the view of JSE- and NYSE-listed DRDGOLD CEO Niël Pretorius, who was speaking during question time after DRDGOLD reported a 53% increase in operating profit in the year to June 30 off a 36% gold-price increase.

“At this stage, you can’t model it, it's a hidden tax and, if not managed properly, it could render South Africa less competitive, even compared with Australia,” Pretorius added.

In the financial year, DRDGOLD distributed R1.4-billion into the South African economy and its main 20% black economic-empowerment shareholding, taken up by the Ncholo family, has been paid in full from operational earnings.

Pretorius criticised the South African government for getting mining companies to do what are government tasks, as a condition of being granted mining licences.

Pretorius said it was counter-productive and would eat into the capital-expenditure capacity of mining companies and end up being jobs negative.

“You’re certainly not going to be creating more jobs if you are going to have to deliver into all these social obligations in order to keep your mining licence,” he added.

As the government found itself less capable of delivering the social imperatives that help it to be re-elected, it was transferring more of those obligations to the private sector, and making South Africa less competitive as an investment destination.

He concurred that a portion of the hundreds of millions of rands that mining companies were paying to the government in the form of royalties should go towards social imperatives.

“Rather just call it a tax, and put us in a position where we can measure that tax, as opposed to having fuzzy, indeterminable social obligations that put mining licences at risk,” he said.

A condition to spend more bottom-line-impacting capital needed an offset, “unless we’re comfortable giving the money to the Department of Public Works, which I don’t think we all are.”

Surface gold miner DRD Gold saw operating profit leap to R622.2-million, headline earnings a share soar 259% to 61c and free cash flow jump 91% to R619.5-million.

Pretorius said that the company was keen to increase the R1.4-billion that it distributed into the South African economy, which, on the basis of every rand being spent seven times, was significant.

DRDGOLD spent R821-million or 59% of its expenditure on paying its 2 222 employees, R22-million to the government in taxes and royalties and R46-million in dividends.

Apart from its 9% shareholding in Blyvooruitzicht Gold Mining Company, which DRDGOLD sold to the JSE-listed Village Main Reef, the company is no longer associated with underground mining.

Having now brought everything under the Ergo dump material recycling operation, it has designed its Crown/Ergo material-transporting pipeline and plant network to strike a balance between gold recovery and environmental restoration.

The system, which in time may be migrated to other metals and minerals beyond gold, has reduced its material-moving electricity requirement by 25%.

The two machine operators on the Ergo tailings dam now move 40 000 t each a day compared with the 25 000 t a month that the 1 600 underground employees of the East Rand Proprietary Mines operation did before the underground part of it was put on care-and-maintenance.

Ergo produced 135 708 oz in the period and now needs to maintain tonnage volumes to ensure that Ergo’s new flotation/fine-grind circuit becomes operational before June 30 next year.

Source: www.miningweekly.com