Tuesday, August 17, 2010

Media bill and mine rights put off foreign investors

August 17, 2010

By Ann Crotty

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The controversial battle over ownership of the Sishen iron ore mining rights and prospecting rights for secondary minerals at a Lonmin platinum mine had contributed to making South Africa a considerably riskier place to do business, a London-based analyst said yesterday.

But while investors appear to be increasingly troubled by the uncertainty and signs of corruption surrounding the mining sector, it seems that the international ratings agencies do not believe that either the controversy around mining rights or the proposed state secrets bill justify a revision of the country's sovereign rating.

Yesterday Bank of America-Merrill Lynch issued a brief investor note relating to South Africa's mining rights, stating: "Offshore clients (are) very negative on recent events; security of tenure (is) becoming a real risk in the country, valuation discount should widen; expect investment to slide."

Leon Esterhuizen of London-based RBC Capital Markets said the Protection of Information Bill had not sparked much response among investors. "If it is made law we might hear more about it." But he said there was no doubt that the controversies surrounding Lonmin and Kumba, Sishen and ArcelorMittal South Africa had sparked considerable response and had damaged South Africa reputation.

"It is becoming increasingly difficult to persuade people to invest in South Africa's mining sector because of all of the uncertainty and the fact that unexpected things keep happening; offshore investors don't have to invest in South Africa."

However, the major international ratings agencies are generally more upbeat and feel that there is currently more good news coming out of South Africa than bad and this justifies maintaining the country's current sovereign rating.

"Notwithstanding these issues (uncertainty around mineral rights and the secrecy bill) there is more good news than bad news," Konrad Reuss, Standard & Poor's managing director for sub-Saharan Africa, said yesterday.

"Neither the media bill nor the uncertainty about mineral rights are ratings-critical for us at this point because they don't indicate a significant policy shift," Reuss said. He added that if the agency did identify a shift toward more populist policies with regard to spending there would be more concern.

Reuss said the government deficit was better than had been expected at the time of the annual Budget in February.

Reuss also noted that the Reserve Bank had used capital inflows to strengthen the country's foreign currency position and that the domestic economy had actually pulled out of recession quite quickly.

Kristin Lindow, the senior vice-president of sovereign ratings at Moody's Investors Service, was more concerned about the implications of the secrecy bill than about any uncertainty surrounding mineral rights. "South Africa and the ANC are regarded internationally as being truly democratic, these democratic credentials would be tarnished" by implementation of the media bill, she said.

Business Report

Comments by Sonny

Soon the FIFA millions will be spent and the ANC will be scuttling for public cash!!!

Service delivery in SA remains dysfunctional to Zero!!

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