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InDABA ReVIeW

Keep it consistent, for capital’s sake

enham Capital managing director who indicated her company had been Barrick chief executive Mark Bristow
DCaroline Donally has urged African “pretty successful” with its previous in- pointed the finger at the mining industry
governments to maintain consistency vestments on the continent. for confusing both government and inves-
around mining acts and other regula- Donally said because private equity tors around what to expect from develop-
tory policies or risk losing the support of funds were solely focused on returns for ment of a country’s resources.
cashed-up foreign investors. investors, firms such as Denham Capital “We’ve been doing a lot wrong, particu-
Speaking during a panel session on would only invest where the likelihood of larly the gold industry up until recently,
how Africa’s mining sector can be used a return far outweighed the risk. where we’re supposedly the experts at
as a engine for development, Donally “We continue to look for those stand- turning a large fortune into a small for-
said the biggest investment risk for a pri- out opportunities…where we can create tune,” Bristow said.
vate equity fund such as Denham Capital value for our shareholders,” she said. “This mining industry went into Tan-
was if a government suddenly changed “On a term basis, we’re not three- zania in the 1990s and invested in gold
the rules of engagement. month focused or day in/day out-focused mines, but didn’t make real returns. It
Donally said this was not just limited to because we don’t have a share price to promised a lot. But, if you look at the fea-
Africa, but was known to be more preva- watch. We’re looking at a 4-5 year term, sibilities that were published then, the
lent on the continent than elsewhere in which some might say is short term, but gold price was $US400/oz, it didn’t deliv-
the world. er. And Tanzania had
“We’re going into the best mining code
a jurisdiction with a outside North Amer-
certain set of rules ica. Eventually after
and so can we please a long time certain
stick to those rules,” companies did back
she said. off and pay taxes,
“We understand others didn’t, and so it
there will be subtle ended up in a hostile
changes along the situation.
way and we don’t ex- “So, what do inves-
pect the rules to be tors and the press
what they were 15- say globally? Oh, it’s
20 years ago when African politics. But
frankly there were it’s not really. The
10-year tax holidays person who takes
and nobody paid any the biggest risk in
import duty, there developing mines in
were no royalties, no emerging markets is
free-carry, no noth- the politician. They
ing. We don’t expect have a job to deliver
that, but we also for their community,
don’t expect there to Caroline Donally so when you come in
be a completely uneven distribution of the from a private equity perspective and as a mining company
profits between the investors and the host from a patient capital perspective, given and promise the world about what you’re
country. what we see in the markets these days, going to do, but you don’t do it…that can
“For us, a lot of it is about consistency that’s actually pretty long-term capital. happen once, twice, three times and
and so can we please agree the rules of “We see a number of reasons to come eventually the politician will change the
engagement up front so we know what it and invest in Africa. I don’t want to go rules and take away from you because
is we’re going into and we know where down the complaining route, but we do you haven’t met your commitments.
we’re spending our capital. Sure, if the see risk unfortunately, and much of that “We’ve got lots to blame ourselves for
orebody doesn’t turn out as expected, risk revolves around the uncertainty.” with the lack of delivery.”
well, that’s our risk, but we’re not taking Donally’s comments at Mining Indaba Bold Baatar, chief executive of the en-
the risk things change within the govern- followed what appears to be the end of ergy and minerals division at Rio Tinto
ments. That’s a very difficult risk to man- a nearly three-year development freeze plc, said the industry had to accept re-
age for a private equity fund. in Tanzania after the Government and sponsibility for writing the wrongs of the
“We need to return capital to our inves- major mining company Barrick Gold Corp past.
tors within a certain time period and so reached a breakthrough investment deal “It’s upon us an industry to make sure
time is money for us. If a project sits idle in January. that we generate the returns, otherwise
because we’re negotiating with govern- Once viewed as Africa’s premier mining the return destruction that we saw over
ments, that is a massive burden on an investment jurisdiction, Tanzania turned the last 20 years makes it increasingly dif-
investor like us.” the tables in mid-2017 when it suddenly ficult for today’s capital to be trusted,” he
Roughly one-third of Denham Capital’s announced changes to the mining act, said.
investment portfolio is housed in Africa, creating widespread uncertainty for min-
according to Houston-based Donally, ing companies and investors. – Michael Washbourne

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