Amre Youness on Managing Risk

The issues of Resource nationalism will remain a risk for many mining companies working in Africa so long as politicians are tempted to promise changes to long standing mining laws.

For example, earlier this year, the Democratic Republic of Congo's Mining Industry Coordinating Council approved the proposed revenue split which could impose 10% tax on revenue, or a 55% tax on adjusted net mining revenue. The point is that the government will obtain a certain percentage of profit, whichever would result in higher revenues for the government.

Many countries, from the DRC to Zambia and South Africa, are seeking a greater share of mineral wealth, which creates new risks for mining companies. To address this risk, mining and metals companies need to continue to engage with government on the impact on business decisions of increasing levels of resource nationalism, whether we are talking about taxes, use-it-or-lose it  licenses, or in-country processing requirements.

"Companies need to demonstrate that they add value to the community," said Amre Youness. "This is about more than extraction and production - you have to keep your workers safe, and provide benefits to the communities, from roads to schools to other basic infrastructure like water and healthcare."

Balancing competing demands from multiple stakeholders is a challenge for all mining and metals companies. Firms that fail to do so face the risks of damaging their corporate reputation, encountering project approval delays and protests or violent opposition. Companies need to ensure that these stakeholders have a common understanding of the challenges their projects face. While there is no perfect approach that will appease all stakeholders, increased transparency helps generate trust with stakeholders. Transparency through reportorial requirements, such as the Social Development and Management Program progress reports, and participation of local governments in the Extractive Industries Transparency Initiative is a way to communicate how value is shared across all relevant stakeholders.

Amre Youness and the Africa Mining Boom

On the Amre Youness blog there was recently a story from the Financial Times, highlighting the fact of how emerging market companies from places like Kazakhstan, China, and Brazil have a natural affinity to do business in other emerging markets, such as in Africa and Asia.


The Amre Youness blog highlights the following excerpt:

"There's no doubt ENRC is after Northam Platinum for more than a 12 per cent stake," says Rob Edwards, head of mining and metals research at Renaissance Capital. "They are going for consolidation at some point." The R2.2bn (£194m) purchase in effect gives ENRC a blocking stake. 

ENRC's move has made waves in the platinum industry in South Africa, where three-quarters of the world's platinum reserves are located. The stake in Northam gives ENRC a rare entry point into the highly consolidated industry. 

But getting a bigger share in Northam depends on South Africa's Mvelaphanda Resources, the seller, which is in the middle of a messy unbundling involving all the complexities of "black economic empowerment" policy. That carries a risk for any ENRC stake-building strategy. 

"We have an appetite for risk," Mr Cochrane says. "Many others don't have the convictions we have about the future of these countries in Africa." The purchase of Camec also gave ENRC assets in Zimbabwe and Mozambique. "If you want to invest there, you really need to have a conviction that Africa is going to be a different place in 20 years." 

As ENRC has pushed outward, some analysts have drawn unfavourable comparisons to Kazakhmys, which has neither ENRC's balance sheet nor its commodity spread. Indeed, one of Kazakhmys's most valuable assets is its 26 per cent shareholding in ENRC. 

They control IMR, and ENRC's push into Africa has brought IMR out of the shadows. Long before ENRC's 2007 flotation IMR had investments across Africa. They included the Chambishi copper smelter in Zambia, which IMR sold to ENRC in February for $300m. The deal was deemed a "smaller related party transaction". 

IMR's other assets include Samancor, the South African ferrochrome producer. "We have bought a number of assets from IMR but we would not say IMR is an incubator for ENRC acquisitions," Mr Cochrane says. 

He adds: "Clearly the founding shareholders have relationships and that helps us whether in Africa or Kazakhstan." 

The doors that IMR opens makes ENRC's Africa strategy - as well as its entire international expansion - less spontaneous than at first glance. 

The strategy, however, still raises the question of whether miners based in developing countries - such as Brazil's Vale or China's Chinalco - have an inherent affinity for emerging markets that makes them more competitive in other emerging markets. 

In January, Johannes Sittard, ENRC's chairman, told the Financial Times the company brought its emerging markets experience to bear when evaluating whether to buy Camec. 

"In the 1990s if you asked the question: 'Should I invest in Kazakhstan?', there would be people who would say you were crazy. Here we are," he says.

Read more from Amre Youness on his Twitter.

Amre Youness ENRC London Stock Exchange

Amre Youness is the Chief Executive Officer of International Mineral Resources (IMR), a UK-based mining and metal processing company with a global sales and operations presence. He also serves as the Chairman of leading mineral processing companies based in sub-Saharan Africa, including Samancor Chrome, the second largest chrome producer in the world; Shaft Sinkers, one of Africa's most experienced mining contractors; and Chambishi Metals, a leading Zambia-based copper and cobalt producer.

Prior to joining IMR, Mr. Amre Youness was the President of TMC Financial, a California-based private investment company focused on mobile telecommunications and technology. Mr. Youness is a long-time advocate for education and human rights, with experience in sub-Saharan Africa. His not-for-profit work includes, among other things, serving on the Policy Advisory Board of ONE International, an organization committed to fighting against extreme poverty and preventable disease with a focus on Africa.

Mr. Amre Youness holds a Bachelor's of Science degree from the School of Foreign Service at Georgetown University. He currently lives in London with his wife, Caroline, and his children.