Algiers' central role in Sahel's escalating security chaos

An extremely complex and potentially very serious state of affairs is fast developing in the Sahel, focusing primarily on Mali, but extending through Mauritania and Niger and, increasingly, Chad.

Full details and analysis of this situation will be provided in the June issue of Sahara Focus. The main points are:

There has been the appearance of a rapprochement between Algeria and these Sahelian states over the course of the last two or three months. This has been largely coerced by external powers, namely the EU and the US.
In October 2010, the EU Foreign Affairs Council, concerned by AQIM activity in the Sahel, placed the region at the top of its security agenda. It then commissioned a very detailed in-depth report on the region, which was researched and written by the author of Menas Associates' Algeria Politics & Security.
This report highlighted the role of Algeria, through its links with AQIM, in the Sahel's destabilisation. Although the full report has not been published, its key points were 'leaked' to Algeria, with the implicit message that its position in the Sahel could be undercut by EU intervention.
A similar message was relayed to Algeria by the US, which is not pleased with either Algeria's support for Libya's Colonel Mu'ammar Qadhafi, its increasing belligerency towards and falling out with almost all its neighbours, and its over-hyping and exaggeration of the Al-Qa'ida threat in the region.

For more news and expert analysis about Algeria, please see Algeria Focus and Algeria Politics & Security.

© 2011 Menas Associates

No Al-Qa'ida presence in the Libyan revolution

The US has reported that, despite fears of Al-Qa'ida presence in the opposition, rebelling against long- term leader Colonel Mu'ammar Qadhafi, it has found no evidence to support such suspicions. The US began gathering intelligence when anti-Qadhafi rebels started seizing towns in eastern Libya last month.

Speaking about the exercise, a US counter-terrorism official said: "We're keeping an eye out for extremist activity in Libya, but we haven't seen much, if any, to date.”

Eastern Libya has always been synonymous with Islamic militants, with the vast majority coming from Benghazi and nearby Derna. The US is, therefore, concerned that long-term instability may prove a fertile breeding ground for Al-Qa'ida and its subsidiaries. There is no concrete evidence, however, to suggest this may be the case.

In the past, Qadhafi has always claimed that eastern Libya has long been dominated by Al-Qa'ida, a charge vehemently contested by opposition leaders in the region. With most of Libya's domestic Islamists in prison, the anti-Qadhafi revolution is being led by ordinary people.

Speaking about it, Menas Associates Managing Director Charles Gurdon said: “Although Libya's revolution has very broad support in Cyrenaicia, its leadership structure is loose and unwieldy and includes, secular technocrats and intellectuals; more conservative tribal and religious leaders; representatives of the youth population; and some officials and military officers who defected from the regime.”

Sources: Los Angeles Times, Bellingham Herald, The Business Insider

For more news and expert analysis about Libya, please see Libya Focus and Libya Politics & Security.

Libyan regime is planning to plant dead bodies at strategic sites

Today Menas Associates has heard from our sources in Tripoli that the regime is planning to trick the world into believing that that Allied aerial attacks against strategic targets has led to many civilian deaths.

In recent weeks the bodies of the numerous civilians who have been killed by the regime's forces in and around Tripoli and Zawiya have not been handed back to their relatives. Instead they have been taken away by the regime and have reportedly been stored in morgues.

Foreign minister Musa Kusa has now publicly called on volunteers to go to strategic sites that the Allied aircraft might strike and act as human shields. We have heard from very reliable sources in Tripoli, however, that the real plan is to plant the bodies of the already dead civilians at these sites and then claim that they have been killed by the Allies.

This will be done to discredit the Allies, sow doubt in the Arab street about the air-raids, and bolster support amongst the regime's own supporters.

Guinea poll organisers propose date

Guinea's electoral commission has proposed holding the delayed presidential run-off election, meant to transfer power to civilians from soldiers, on October 31 but one candidate said on Tuesday that that was too soon.

The poll, the first free vote in the mineral-producing former French colony after decades of authoritarian rule, has been postponed repeatedly since September because of a lack of preparation and street clashes among rival political camps.

Electoral commission chief General Siaka Sangare told reporters he had proposed the date during a meeting with acting President and junta leader General Sekouba Konate on Monday. Konate is expected to ratify it.

But Cellou Dallein Diallo, one of the two candidates, said October 31 was too soon after a wave of violence between supporters of the rival political camps.

Diallo, a former prime minister, said 18 busloads of his supporters had recently been evacuated from Haute Guinea, a region loyal to his rival Alpha Conde, after they had been harassed.

“The biggest problem is to resolve the issue of displacement of this group,” Diallo said. “I think October 31 is too soon.”

Conde said he hoped the date would hold. Independent analysts said the decision to hold the vote as early as this weekend appeared to be a bid to keep ethnic tensions at bay, even though preparations might not be complete.

“I think that while there may still be issues over whether the election is free and fair and according to best practice, there are clearly dangers in allowing this impasse to continue,” said Chris Melville, senior associate at Menas Associates.

“What it means to Guinea in the medium term in terms of legitimacy of the process is another question,” he said.

Guinea, the world's biggest supplier of aluminum ore bauxite which has drawn billions of dollars in planned iron ore mining investment this year, has been run by a military junta since a coup in December 2008.

Konate has since won international plaudits for agreeing to hand power back to civilians, and has expressed frustration over a series of delays to the run-off after the first round vote passed relatively smoothly.

At least two people have been killed and dozens injured in political and ethnic clashes in recent weeks. Human rights groups said on Tuesday that security forces were not using enough restraint.

Sangare was chosen to lead the electoral body last week after Diallo accused the previous election chief of bias in a row that derailed the most recent October 24 poll date. Both Diallo and Conde have said they support Sangare's leadership of the electoral body.

Source: Reuters

For more news about Nigeria, please visit the Menas Associates Newsroom.

Stakes rise with Guinea election gamble

A move by Guinean authorities to hold a delayed presidential run-off on Sunday marks an attempt to contain rising ethnic tensions in the West African country but could store up trouble for later.

The landmark vote, meant to end nearly two years of military rule, has been repeatedly postponed since the first round in June amid outbursts of violence between rival political camps and a lack of adequate preparation.

The newly-appointed electoral commission chief surprised observers on Tuesday by proposing to hold the vote on Oct. 31 -- a move widely seen as a bid to stifle rising conflict and the potential for a new military coup.

"There are clearly dangers in allowing this impasse to continue," said Chris Melville, senior associate at Menas Associates, a London-based consultancy watching Guinea and its large bauxite and iron ore mining sector.

But the attempt to rush the vote could lead to a chaotic election aftermath in a country that has drawn billions of dollars in investment from firms like Rio Tinto and Vale.

Junta leader General Sekouba Konate has yet to ratify the date and one candidate, ex-premier Cellou Dallein Diallo, said the date was premature -- raising worries that his supporters would vigorously contest the outcome if he lost.

TRADE-OFF

Diallo took 43.69 percent in June's first round, relying on support from his ethnic Peul, who make up about 40 percent of the country. Veteran opposition leader Alpha Conde, one of the Malinke who make up about 35 percent of the country and have tended to enjoy political power since independence, took 18.25 percent of the first round.

But Diallo's lead may not be as strong as it appears.

Diallo said on Tuesday that recent ethnic clashes in regions that favour Conde had displaced large numbers of his supporters and no measures had yet been taken to ensure they could vote.

Conde has burnished his support with alliances with defeated first-round candidates Papa Koly Kourouma and Jean-Marc Telliano -- both of whom did well in the large Guinea Forestiere region -- and has strong support in Malinke stronghold Haute Guinea.

After complaints in the first round that some voters had to travel 20 miles (30 km) to vote, election officials have been adding new voting stations in those regions -- in theory making for a stronger turnout for Conde.

"The first round showed Diallo as the clear front-runner. But it will be interesting to see if the machinations of the political elite in between will affect those results," said Tara O'Connor of Africa Risk Consulting.

Analysts said the Peul would be in no mood to accept defeat this time around given their view that other ethnicities have ganged up to exclude them from power since independence from France in 1958.

But there has been pressure from Paris, the United Nations and neighbouring states on Guinea not to delay the election any further. Assuming Konate accepts the Oct. 31 date, the trade-off will be in favour of reducing the risk of violence before the vote in the hope of being able to contain it later.

"The damage to the electoral system has already been done," said O'Connor of an electoral process that was billed as being Guinea's first democratic vote since 1958.

"It is just better that they are getting on with it."

Source: Reuters

For more news about Nigeria, please visit the Menas Associates Newsroom.

Congo resolves dispute over copper mine

Freeport-McMoRan, the US copper mining group, has resolved a long-standing dispute with the Democratic Republic of Congo over control of a vast copper mine by giving cash and shares to the government.

The Tenke Fungurume project, which could be ranked among the world's top 10 new sources of copper, has been plagued by uncertainty since 2007, when Congo's government decided to review all mining licences signed during the war in the country between 1998 and 2003.

More than a year of negotiations, thought to have involved the US government in support of Freeport, led to changes to the Tenke licence. Under the new terms, Gecamines, the state mining company, will own 20 per cent of Tenke, an increase from 17.5 per cent.

Freeport will pay $30m to Congo “in six instalments after reaching certain production milestones”, as well as $5m in “surface area fees”.

Freeport started producing copper at Tenke in south-eastern Katanga province in March 2009 and is still working towards full production. But until last Friday it did not have a clear licence.

Perception of risk surrounding the Tenke licence increased in August when Canada's First Quantum Minerals was stripped of the last of its assets in Congo.

The “international outcry” caused by this dispute might have “accelerated the settlement by strengthening Freeport's position and giving the government a greater incentive to show that it is not all bad”, said Chris Melville, an Africa mining specialist with Menas Associates.

Source: The Financial Times

For more news about Nigeria, please visit the Menas Associates Newsroom.

Guinea Presidential Run-Off Rivals Pledge to Push Ahead With Mining Review

Guineans vote in a delayed second- round presidential election on Oct. 24 that pits two candidates who have both vowed to overhaul mining laws in the world's biggest bauxite-exporting nation.

Former Prime Minister Cellou Dalein Diallo, who received 43.7 percent of the June 27 first round, will compete against opposition leader Alpha Conde, who garnered 18.2 percent. The vote will mark the transition from military to civilian rule.

An ongoing review of mining accords has already led to a dispute with London-based Rio Tinto Group over ownership of the Simandou iron-ore project. Other companies operating in the country include Russia's United Co. Rusal, the world's largest aluminum producer, AngloGold Ashanti Ltd., Africa's biggest gold miner, and Brazil's Vale SA, the No. 1 iron-ore producer.

“Political and social pressures for a review of the legal framework governing the mining industry are unlikely to go away,” said Christopher Melville, a senior associate at Menas Associates in London. That may bring the new government “into further conflict with mining companies, many of which have negotiated special terms for their projects.”

Guinea holds as much as half of the world's reserves of bauxite, an ore used to make aluminum, more than 4 billion metric tons of “high-grade” iron ore and “significant” deposits of diamond and gold, according to the U.S. State Department. Aluminum Corp. of China Ltd. also operates in the country.

'Defending Interests'

The election is being held almost two years after army the seized power following the December 2008 death of President Lansana Conte, who ruled the country for two decades. Guinea hasn't had a democratic transfer of power since it gained independence from France in 1958. General Sekouba Konate became the leader in December after an aide shot the coup leader, Moussa Dadis Camara, in the head.

In the period since the first round vote, Conde has become the favorite to win the run-off after at least two defeated candidates pledged support to the 70-year-old leader of the Rally for the Guinean People.

“The momentum has clearly shifted toward Alpha Conde during the period of delay,” Melville said.

While beset with organizational difficulties, the June election was held “freely,” a European Union observer mission said after the vote. The run-off was then postponed for “technical reasons,” Konate has said.

Mining Deal

Conde will “renegotiate mining deals” and develop standard mining policies, Moustapha Naite, a spokesman for the RPG, said in an interview from Conakry, the capital, on Oct. 18. He also favors a stronger state role in the economy and plans to replace the leadership of the Central Bank of Guinea and promote economists who support lower interest rates, his adviser, Mamady Sinkoun Kaba, said in an interview on Sept. 10.

Diallo said in August he would also review mining deals if he wins the second round “to make sure that the interests of Guinea are defended.”

The 58-year-old leader of the Union of Democratic Forces of Guinea was prime minister of the country from 2004 to 2006.

In the run-up to this weekend's vote, supporters of Conde and Diallo were injured in clashes between the two groups. This week, at least one person died when police fired upon backers of Diallo at a rally in Conakry.

A plan announced on Oct. 12 by Conde and Diallo to form a national union government may indicate that “none of these candidates are confident of victory,” Rolake Akinola, West Africa analyst at Eurasia Group, said in an interview on Oct. 15. The plan was reported by state-owned Radio Television Guineenne, which didn't provide further details.

Growth Accelerating

Guinea's political turmoil won't prevent the economy expanding 4.3 percent this year and 4.5 percent in 2011, according to the African Development Bank. Mining generates 24 percent of the nation's total economic output, according to the bank's website.

Per capita income is less than half the sub-Saharan African average of $861, according to the World Bank, and the country ranks 170th out of 182 countries on the UN's Human Development Index, which measures life expectancy, literacy and gross domestic product per capita.

Source: Bloomberg

For more news about Nigeria, please visit the Menas Associates Newsroom.

Guinea poll "difficult" to hold Oct 24 -commission

Guinea's election commission chief said on Thursday it would be hard to stage a presidential run-off on Sunday as planned, citing a "deplorable" lack of preparation that would lead to a disputed outcome.

The comments were the clearest sign yet of a likely further delay in the transition from junta to civilian rule in the world's top exporter of the aluminium ore bauxite after a dispute over allegations of bias within the election commission.

"I must stress to you that the date of Oct. 24 will be difficult to stick to," new commission chief Siaka Toumany Sangare said after meetings with key political players.

"I would not want to rush and send voters to the ballot boxes in such deplorable conditions that do not respect international standards and which will mean that the results will be disputed afterwards," said Sangare, who was named two days ago after his predecessor was accused of partiality.

The presidential run-off is seen drawing a line under decades of authoritarian leadership that left the West African country in poverty despite huge mineral resources.

Sangare stopped short of confirming a postponement but said he would carry out an "objective and inclusive re-evaluation" on whether the poll could go ahead as planned on Sunday. Further talks -- and a likely final decision -- are due on Friday.

Earlier, French Foreign Minister Bernard Kouchner, who has played a major role in efforts to guide Guinea towards civilian rule, suggested a delay of one week.

The run-off is due to pit former prime minister Cellou Dallein Diallo against veteran opposition leader Alpha Conde, strongly associated with the large Peul and Malinke ethnic groups respectively.

MINER UNCERTAINTY

A June 27 first round passed off relatively smoothly but was marred by accusations of fraud and other irregularities which prompted street battles between rival factions in which one person died and several dozen were injured.

It also sparked a row over the leadership of the national election commission which was only allayed on Tuesday with the naming of Sangare, a Malian, as the new president of the body.

The ensuing delay in preparations has meant that many of the electoral lists dictating voter eligibility in the various constituencies were not complete, one member of the cross-party body set up to oversee the transition told Reuters.

Diallo came out on top in the first round with 43.69 percent of the vote compared to Conde's 18.25 percent.

Analysts say whoever wins is likely to face calls to shake up existing contracts governing the presence of international firms such as Rio Tinto and RUSAL in the mining sector.

"Any new government will be vulnerable to such calls in the aftermath of a highly contested election. This could bring it into further conflict with mining companies," said Christopher Melville, senior associate at UK-based Menas Associates.

Source: Reuters

For more news about Nigeria, please visit the Menas Associates Newsroom.

Bellzone razes risk in Guinea

Bellzone Mining has continued to eliminate the mining risk at its Kalia iron ore project in Guinea with a further increase and upgrade of its mineral resources. With only more good news expected on the resource front in the coming months, the remaining risk centres around the would-be operation's challenging infrastructure demands and existing country-risk.

The updated resource follows work over both Kalia I and Kalia II and has increased the total magnetite resource by 56.5% to 3.74 billion tonnes. More importantly from a risk perspective, 670 million tonnes from an entirely inferred initial resource has been converted into measured and indicated resources. There is also a maiden resource on the way in the fourth quarter for the higher quality oxide ore, on which Bellzone is relying to deliver a direct shipping ore (DSO) element within its planned operation.

The current resource would support a 50Mt per annum operation with a life of 60 years as envisaged by Bellzone, which would be reached with a staged approach. Stage one would see 20Mtpa of DSO produced as early as 2014 and 10Mtpa of concentrate by 2015 before the DSO production climbs to 30Mtpa by 2017 with 20Mtpa of concentrate.

The price tag for stage one has been set at $US3.8 billion, most of which is attributed to related infrastructure requirements – a 285km rail and coastal port, primarily – that China International Fund (CIF) has committed to fund in exchange for a 100% offtake agreement at Kalia.

This is just part of the picture. The current resource at Kalia has been delineated from just 6km of the 19km combined strike length at Kalia I and Kalia II. Bellzone predicts the total magnetite resource could reach more than 13Bt in addition to possible oxide resources of 2.9Bt. In this case, the mine life and production would be increased.

Bellzone managing director Nik Zuks said while the company would continue to look at expansions to the overall resource, focus had turned to producing the oxide resource in the December quarter. Investment bank CanaccordGenuity indicated in a research note last week that the upgraded magnetite resource figures had reduced the discount applied to Kalia and that an oxide resource would have the same effect when released next quarter.

“This upgrade and the major steps achieved over recent months towards project completion reduce the completion risk on this project and, as such, allow us to reduce the 'haircut' we applied previously to our net present value estimate for the completed project,” the bank said.

“We point to the importance of the higher-grade near-surface hematite at this project as a source of DSO. Our site visit and familiarity with these deposits suggest to us that JORC classification of the hematite cap is little more than a formality. When it comes later this year, we will be able to upgrade its contribution to value in Bellzone.”

In addition, Zuks said that both the infrastructure agreement and government agreements in place had “hugely de-risked” the project.

“The detailed agreement with CIF, the presidential decrees which lawfully secure the Kalia convention and exclusive infrastructure development rights, and a proven substantial JORC magnetite resource has hugely de-risked Bellzone's aspirations of building a 50Mtpa iron operation in Guinea,” he said.

With such a large and expanding resource in hand along with a financial partner in CIF, CanaccordGenuity broker Mike Cook believes that delivering an economic feasibility study for the infrastructure component of the development remained the major hurdle for Bellzone.

“[Kalia] is being de-risked because Bellzone is managing to tick a number of boxes,” he said. “The next step to de-risk it further is the feasibility study both on infrastructure and the mine itself. The feasibility for the mine will be the easy bit. The tricky bit is going to be getting the rail to traverse across some fairly tricky terrain – it's not flat like Western Australia but then again we're not talking about the Himalayas.

“The risk is that the feasibility study comes up and says that it's actually going to cost too much and will erode the return on the project; and that it's going to take five years to build the project rather than three. And that's a possibility.”

He said coming up with a positive feasibility over the next 12 months and building the mine and infrastructure over the following three years would be “quite a big ask”.

There is also an element of risk hanging over Guinea – a country that has had its share of troubles over the years and which loves a good military coup. Chris Melville from risk consultancy Menas Associates said the move toward democratic elections (in progress) after a year of military rule and a further nine months of interim government was a positive step for Guinea, but the outlook was uncertain. He said both presidential candidates were similarly accepting of foreign investment in the mining industry, with the frontrunner, Cellou Dalein Diallo also having increasingly strong links with the Chinese.

“This is a country that has been locked down and stagnating under the authoritarian rule of Lansana Conte from 1984 to 2008,” he said. “A lot of the ethnic and political dynamics that were contained under his rule have the potential to re-emerge under a newly democratic order. There is also a risk going forward, given how close the election process has been, that whoever loses it will seek to overturn the result through popular protest or potentially unconstitutional means.

“In a highly personalised and contested political environment such as Guinea's, the personalities of the people in power are hugely important for mining companies, especially those who have signed agreements during a transitional period. A lot of deals have been signed in this period, which creates an underlying level of risk when a new fully legitimate and constitutional government is inaugurated. The key question for the players who signed deals is to what extent have they been able to embed themselves with personalities who will remain important in the post-election period.”

Guinea is seen by many, including the usually conservative Rio Tinto, as a country where the mineral wealth outweighs any risk. Bellzone's position in Guinea and its ability to progress rapidly towards production make the junior one of the standout emerging iron ore players in the market, according to Renaissance Capital.

“Given its growth potential and the fact that the region is now game-on in terms of iron ore development, we think investors should see Bellzone as a highly favourable risk/reward investment,” the bank said. “At the time of Bellzone's IPO, the market was sceptical about management's ability to progress the project over a compressed timeline. This is no longer an issue.

“The project has been de-risked, and actually accelerated, due to the elimination of the usual lengthy period of funding required for a project of this nature.”

Source: HighGrade

For more news and analysis about mining, please visit the Menas Associates Newsroom.

PPPRA issues new conditions for allocation of import approvals

The Petroleum Products Price Regulatory Agency (PPPRA) has issued new conditions for the allocation of import approvals with effect from Q4 of this year. According to reports, PPPRA's decision stems from its concern that in the third quarter only 11 of the 50 approved marketers that were issued import licenses, actually submitted the required performance reports. The result was that only 22 per cent of the anticipated totals were imported.

The new conditions are also said to be in line with the objections raised by established marketers that the introduction of the sovereign debt notes scheme had brought about an influx of marketers who had no facilities or infrastructure and were not genuine marketers in the petroleum products import allocation scheme. According to reports, the new conditions which emerged after a meeting between PPPRA and marketers include the rule that marketers will now be required to produce proof of financial capacity, as evidenced by a letter of undertaking from a bank.

There is a penalty rider to the condition, which states that marketers who connive with banks to produce misleading statements of financial capacity will be subject to a fine of N10 million. The PPPRA will also no longer give approvals to transfer fuel import permits to third parties – this is in order to discourage the practice of bogus marketers simply obtaining import approvals with the sole intention of transferring/selling them on to third parties.

The PPPRA has also suspended the issuance of new import licenses and the revalidation of expired import licenses. This will enforce optimal performance by forbidding marketers who have not exhausted their allocation to roll it over to the next quarter. This use it or lose it clause means that the marketer who does so loses the right to revalidate the license and use it for the next quarter.

For more news and expert analysis about Nigeria, please see Nigeria Focus and Nigeria Politics & Security.

© 2010 Menas Associates

Congo and Areva in uranium exploration talks

Democratic Republic of Congo and France's Areva are in talks over possible uranium exploration at a now-closed site that once produced material for the Hiroshima bomb.

Mines Minister Martin Kabwelulu and Areva's Africa Chairman Zephirin Diabre met this week, both parties confirmed, and additional discussions were likely into next year.

"We are looking to have all the geological data available before a meeting in Paris," Kabwelulu told Reuters by text message on Thursday, adding that the next meeting was likely to take place in March 2011.

"All I can confirm is that they did indeed meet," a spokesperson for Areva told Reuters by email.

Congo's largest uranium mine, Shinkolobwe, provided the uranium that went into the atomic bomb deployed by the United States on Japan in 1945 during the Second World War.

The site in the south of the vast and minerals-rich central African country was officially closed in 2004, but the United Nations has since cautioned that radioactive material from Congo is frequently smuggled out.

The site is in poor condition, likely suffering from leaks that would be costly to contain, and a lack of fencing is has opened it up to smuggling -- raising fears among Western diplomats that some of the uranium is reaching Iran.

"Uranium is the one resource that's always been at the back of everyone's mind -- it explains U.S. interest in a country that was otherwise not very interesting," said Christopher Melville, Africa specialist with London-based risk consultancy, Menas Associates.

Source: Reuters

For more news about Nigeria, please visit the Menas Associates Newsroom.

News Digest: Africa Mining Comment & Analysis – Botswana

The IMF yesterday 2nd September reported that following the contraction of 2009 and the country's first recession since independence, economic growth would be restored to 8 per cent -levels in 2010, driven by a recovery in diamond mining output. The release followed a presentation in Perth on 1st September by the Minerals, Energy and Water Resources Ministry outlining the government's plans to streamline licence and permit applications, and to drive greater local beneficiation and diversification.

Chris Melville, Africa mining consultant with Menas Associates today commented:

“With Botswana's mining industry now back on its feet, the government is once again raising the bar for other pretenders to its title as the most progressive and investor-friendly mining regime in Africa”.

“This is what mining investors like about Botswana - the government's dual commitment to a predictable regulatory framework while making gradual but concerted efforts to enhance the investment environment”.

“Despite Botswana's regular appearance at the top of indices for investment attractiveness in Africa, there is no resting on laurels. The economic crisis exposed Botswana's over-reliance on diamond production and the administration's promotion of diversification is to be welcomed, both from the perspective of the country's long-term economic health and in continuing to spark the interest of global mining companies”.

“As in many mining countries in southern Africa, mining companies face continued infrastructural and operational constraints – however, it is refreshing to see a government prepared to invest heavily to address these deficiencies”.

“Things may be looking a little dicey within the ruling BDP and recent high-level corruption scandals are a cause for concern. But these developments remain notable for their somewhat exceptional nature and it would be wrong to suggest that Botswana's economic and political miracle is under serious threat”.

Background

The Botswana economy contracted by 3.7 per cent in 2009 after the collapse in diamond prices saw multiple mine closures, double-digit declines in employment and significant falls in diamond output (which accounts for 70 per cent of revenues in the crucial mining sector). However, the investment environment continues to enjoy the favour of foreign investors, regularly appearing in the top places in surveys of investor sentiment: a 2010 Fraser Institute report ranked Botswana first among African countries for the attractiveness of its mining policies and 21st of the 72 jurisdictions surveyed.

President Ian Seretse Khama's authoritarian style of managing the ruling Botswana Democratic Party (BDP) is continuing to drive defectors into the arms of the opposition Botswana Movement for Democracy (BMD) splinter party, while Khama's cousin, former defence minister Ramadeluka Seretse was yesterday charged with failing to disclose shareholdings in a company that was awarded a government defence contract.

© 2010 Menas Associates

South African Mining Investment Risk Grows as Anglo, Lonmin Lose Rights

Anglo American Plc and Lonmin Plc, who employ 100,000 people in South Africa, say the government has deprived them of mine rights, threatening investment and job creation in the country's biggest export industry.

The disputes over the rights, some of which are now in the hands of former government officials, add to investor concern that their investments in South Africa aren't safe. The ruling African National Congress (ANC) is preparing to discuss mine nationalization at a September congress.

“These could be the first indications of a worrying trend,” said Chris Melville, an analyst at London's Menas Associates. “The key question is whether the government looks to resolve this uncertainty and close the loopholes or whether we begin to see politically connected individuals and companies systematically exploiting them.”

South Africa, which boasts the world's biggest platinum and chrome deposits, is already struggling to attract foreign investment as laws to redress the inequalities of apartheid compel the sale of stakes in mines to black South Africans, increasing investment costs. Canada's Fraser Institute, a research agency, ranks the country ahead of only the Democratic Republic of Congo and Zimbabwe in terms of the ease of mining exploration investment in Africa.

The ANC's youth wing and labor unions, the groups that propelled Jacob Zuma to the presidency last year, are calling for the country's citizens to benefit more from mineral resources, valued by Citigroup Inc. at more than $2.5 trillion. At stake is investment in an industry that employs 491,000 people and accounts for 5.2 percent of the country's gross domestic product, according to Statistics South Africa.

Employing Black Managers

The disputes have arisen as companies renew mining rights to comply with laws that stipulate targets for black ownership, the employment of black managers and women, and the economic development of communities near their operations. They form part of legislation designed to make up for the use of cheap black labor during white rule in the country's mining industry.

“It's a piece of legislation that's still being tested in application,” said Sandile Nogxina, director general of the government's Department of Mineral Resources, in an interview. “I don't believe it should frighten investors away as we have courts of law in the country to deal with disputes.”

Anglo and Lonmin say they have been wronged.

Prospecting Rights

In March, the department awarded a fifth of the prospecting rights in London-based Anglo's Sishen iron ore mine to Imperial Crown Trading, prompting a lawsuit from Anglo subsidiary, Kumba Iron Ore Ltd. Imperial's biggest shareholder, Jagdish Parekh, has been involved in contract mining and uranium investment with Zuma's son, Duduzane. The other five shareholders include ANC members and a former ANC employee.

While Pretoria-based Kumba said in an e-mail that “it is the only company that should be granted these rights,” Imperial maintains it has done nothing wrong. Jacinto Rocha, a former department official, said Kumba's application was improperly submitted.

In May, London-based Lonmin lost the prospecting rights to some of the metals mined alongside platinum to a unit of HolGoun Group, led by a former Public Enterprises Ministry director general and Lonmin director, Sivi Gounden, his wife, Vanessa, and Miriam Sekati, an official in South Africa's Security Ministry. Lonmin said the award of the rights was “wrong.” Vanessa Gounden said by e-mail the company had acted “with integrity and within the ambit of the law.”
No History in Mining

Both Imperial and HolGoun are closely held, partly black- owned, and don't control any operating mines in South Africa.

The new holders aren't well known because black South Africans were barred from investing during apartheid. The fact that some are followers of the ANC is irrelevant because many people belong to the party, said Nogxina of the government's Department of Mineral Resources.

“South Africa is trying to promote the entry of historically disadvantaged people into the economy,” he said. “Of course, they will have no history in mining.”

Already the new owners are benefiting. Last week, Imperial agreed to sell its Sishen rights to ArcelorMittal South Africa Ltd., which previously lost the rights after failing to renew them on time, for 800 million rand ($110 million). At the same time ArcelorMittal South Africa agreed to sell a stake to black investors including a group lead by Duduzane Zuma.

“Why should someone benefit to the tune of 800 million Rand because of the exploitation of an oversight?” said Peter Davey, head of mining research at London's Ambrian Capital Plc. “That there are similar names that keep appearing is worrying.”

'Terrible Message'

Lonmin was also temporarily banned from selling byproducts from all of its platinum mines after the department said it missed a deadline to renew some of its rights. Platinum group metals are mined from the same orebody as gold, nickel, chrome and copper.

Lonmin shares fell 5.1 percent in London on Aug. 6, the biggest decline in five weeks, in the first trading session after the announcement.

“It sends a terrible message to investors,” Peter Leon, chairman of the London-based International Bar Association's Mining Law Committee, said from Johannesburg. It says “political connectivity trumps good commercial sense.”

Source: Bloomberg