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Mining's last coffin nail?

08 March 2013, 13:00

The ideas of one, Transnet CEO Brian Molefe, to restructure rail transport tariffs to be aligned with the ANC regime's economic policy and the National Development Plan, can surely be nothing but pure stupidity. This increase will mean mining firms will see an increase up up to 68% in their rail transport costs. I am sure there are many seriously peed of mining CEO's and shareholders who are wondering if it is even worth doing further business in this new South Africa,

Molefe and his bosses are of the view that these increases will force miners to rather not export but add value to the minerals in South Africa. That might sound like a good plan, but it simply makes no business sense and the thinking behind is flawed. 

Even if these minerals, especially iron ore, are to be used locally, it will still have to be transported and the increased cost will still be part of the mines expenses. Secondly, China, who actually has a demand for the ore, will simply source it from somewhere else and the steel they make will still be cheaper than what can be produced in RSA  Even RSA users will import rather than use local steel. We will also have a surplus that basically will be dead stock.

The the reason why the regime wants this local use of minerals are twofold:

  1. Job creation

  2. Extraction  of more taxes

Businesses exists first of all to make profit and the two issues, important to government, are in no way a core principle for any business and mining is no different. Who on earth starts a business only to create jobs or pay taxes?

The mining sector is under severe pressure and this tariff restructuring might just be a last nail in an already almost shut coffin.

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