Not One, But Two Radical Mining Code Changes This Week

 

Dave Forest

 

Very big week in mining. With not one, but two critical nations making major changes to their industry rules -- one helping miners open new opportunities, and the other potentially closing some doors for business. 

 

The good news came in Argentina. Where the national government signed a deal to unify mining regulations across most of the country's twenty-three provinces. 

 

A full 20 of Argentina's regional governors signed their support for revised rules on mining. With the biggest concession being that provinces will fix royalties at a 3% ceiling -- giving miners certainty on the financial conditions for new projects here. 

 

The signatory provinces will also seek to standardize key operational rules. Such as permitting open pits, and allowing the use of cyanide for heap-leach gold operations. 

 

One black spot in the deal was an opt-out by Argentina's gold-rich province Chubut. With that local government choosing to maintain its hardline against mining, which has idled a number of significant discoveries in the area. 

 

But that setback was nothing compared to what miners got dealt in another part of the world: South Africa. Where lawmakers dropped a long-awaited new mining code -- with some steep terms for the industry. 

 

As expected, the mining code increased the threshold for ownership of miners by black empowerment entities (BEE) to 30%, from a current 26%. Meaning South African companies will have to surrender more equity going forward. 

 

The new code also strikes down the "once empowered, always empowered" concept. Meaning that even after miners have achieved 30% BEE ownership, they will still be responsible for maintaining the level. If BEE shareholders sell to non-BEE shareholders, miners will be on the hook to sell additional chunks of stock to get back above the 30% mark.

 

For greenfields projects, the BEE thresholds will be even higher -- requiring black empowerment groups to hold over 50% of new operations. 

 

The changes also contained some surprises that hadn't been previously anticipated -- including an additional 1% gross royalty miners will have to pay to their BEE shareholders. And stipulations that 70% of mining goods and 80% of services be sourced from BEE groups. 

 

Finally, the new rules require all minerals to be upgraded in South Africa -- meaning any miners currently shipping out concentrates will have to build expensive new upgrading infrastructure.  

 

All of those burdens sent South African mining shares plunging, and the value of the rand down as much as 2%. Watch for a legal response from the industry -- with the South African mines chamber saying it will sue to block the new rules. 

 

Here's to the good, the bad, and the ugly,

 

 

Dave Forest

 

 

 

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