The International Centre for Settlement of Investment Disputes has ruled in favour of the Kenyan government in its dispute with Cortec Mining Kenya, which has been developing the Mrima Hill niobium/rare earths project. Cortec had argued that an increase in mining royalties and the 2013 revocation of certain critical licences amounted to nationalisation.
Roskill view: This is not the first time that the mining industry has seen its plans upset by government decisions and it won’t be the last. The rationale on the part of the producing countries is fairly clear; to earn revenue instead of just exporting added value. But it can backfire.
For example, in Tanzania, the leading gold producer, Acacia Mining, has seen its output drop by 40% in 2018 as a result of a long-running argument on taxation with the government and a ban, since early 2017, on the export of mineral concentrates, which had accounted for a third of the company’s production. A similar fate has hit Cradle Resources, with its Panda Hill niobium project, also in Tanzania. A well-advanced and viable project, the company saw progress slow when a major financial backer pulled out after Tanzania unfavourably changed its mining legislation.
The same is happening in the DRC, where the government’s decision to raise the royalty on tantalum (and other metals), coupled with the costs already being incurred by miners for conflict-free compliance, reduces the attraction of the country as a source of supply and as an investment destination. Increasing the cost of legitimate production merely serves to encourage subterfuge (in the case of tantalum, that means smuggling, so government revenues fall anyway).
The next big event to watch closely is the Brazilian presidential election. Polls indicate that Jair Bolsonaro will win easily. This is important because he has expressed a desire for state control of the mining industry. Given that Brazil is a very large producer of iron ore, niobium, tantalum and other commodities, things could get quite interesting. Huge amounts of money are involved, and investors do not like uncertainty.
Roskill’s Tantalum: Global Industry, Markets & Outlook report will be published soon. Click here to download the brochure or sample pages or to access further information.