- 2020-2021 has seen in a rise in resource nationalism or the risk of thereof in an extensive and fast-rising number of countries, including top mining countries. While resource nationalism had been relatively contained geographically speaking in the past to Sub Saharan Africa, and localised countries such as Indonesia, it is spreading across the world and is now noticeable in SSA (the DRC, Mali, Zimbabwe, South Africa, Guinea), Latin America (Mexico, Peru, Chile), North America (the US), Europe (Russia) and Asia (Indonesia, Mongolia).
- We expect this trend to continue over the coming few years, as underlying drivers of resource nationalism and government intervention will remain in play, including elevated metal prices, the boom in demand for Green Transition Materials and elevated economic, social and political risks in the wake of Covid-19.
- While previously stable countries are now recording a bout of resource nationalism, including Peru, Chile and the US, the trend could be stabilising in countries that have been government intervention hot spots in recent years such as Zambia and Tanzania.
- While resource nationalism has traditionally been limited to emerging and frontier markets, the US is currently facing increased risks of higher mining taxation. This could prompt other developed markets to follow suit.
- Increased oversight over mining projects could slow down significantly project cycles and in some cases thin the project pipeline. Stricter and longer evaluations will likely create backlogs and project delays.
We have long argued that resource nationalism in the mining sector was going to remain a key feature of the sector. In the wake of Covid-19, we have in fact raised the probability of a rise in resource nationalism on a global basis (see 'Risks Of Mining Resource Nationalism Post-Covid-19: Which Countries Are Most Exposed?', August 2020, 'Mid-Year Update: Mining And Metals Key Themes For 2021', July 14)). Over the past 12 months, resource nationalism in top mining players has flared up around the world, mostly in Emerging Markets. We expect this trend to continue over the coming few years, as underlying drivers of resource nationalism and government intervention will remain in play.
Metal Prices To Remain Elevated In 2022, Keeping Risks Of Resource Nationalism High
Select Commodities Indices And Prices, % Chg YoY
Source: Fitch Solutions Price Forecasts And Indices
So far in 2020-2021, we have noticed a rise in resource nationalism or the risk of thereof in an extensive and fast-rising number of countries, mainly in Sub Saharan Africa (the DRC, Mali, Zimbabwe, South Africa, Guinea), Latin America (Mexico, Peru, Chile), North America (the US), Europe (Russia) and Asia (Indonesia, Mongolia).
Resource nationalism can take several forms, including renegotiation of existing mining contracts to get better terms (which we are currently witnessing in the DRC, Mongolia for example), increase in taxes or royalties on the mining sector (Chile, Peru, Russia), asset nationalisation (forced equity transfers) or the threat of (Zambia, Mexico, Zimbabwe), in-country beneficiation (Indonesia), or export restrictions.
Boom Around The Commodities Of The Future Raise Risks Of Government Intervention
Demand Outlook For Commodities On A 20 Year-Horizon
Source: Fitch Solutions
Drivers Of Resource Nationalism Remain Firmly In Play In 2022
A number of factors will incentivise governments to consider intervening in the mining sector and tightening mining regulations. We note that several of those drivers have been clearly accentuated in recent quarters, mostly by the Covid-19 pandemic.
- The rally in mineral and metal prices in 2020-2021 has revived the interest in the mining and metals sector and boosted potential tax and royalty returns for governments. We forecast prices to remain elevated in 2022.
- Improved prospects for the Green Energy Transition minerals (which include copper, nickel, lithium, cobalt, among others), amidst the ongoing acceleration in decarbonisation efforts at multiple levels (government, companies, see 'How The Decarbonisation Megatrend Is Disrupting Mining And Metals Investment', September 24). This is leading to a sharp rise in investment in new projects towards these materials, prompting governments to make sure their countries benefit from these trends.
- Increased economic/fiscal hardships and rising social inequality in the wake of Covid-19 are providing strong incentives for a rise in government intervention in the mining sector.
- Another key driver of resource nationalism is political risk linked to elections. The recent election of left/social-leaning governments, in the US and Peru for example is a factor behind potential changes to mining regulations in these countries. Sudden changes in governments, which have happened in some countries recently, also usually increase risks of a change in regulation (in Mali for example, which saw two coups in 2020-2021). Finally, contested campaigns also increase nationalism rhetoric ahead of the elections in order to gain support. This happened in Zambia in 2020-2021 for example, when former President Lungu used a nationalistic rhetoric ahead of the August 2021 elections. While elections happen on a regular basis, their convergence with economic hardships and social tensions over rising inequalities pose an increased risk of resource nationalism.
|Country||Type of government intervention (or risk of)||Trend in resource nationalism (rising, stable, decreasing)||Details||Related Research|
|Mexico||Asset nationalisation, Stricter oversight||Rising since 2018, Risks of further resource nationalism are high||Trend driven by López Obrador administration (since 2018)’s nationalist agenda, and using community and environmental arguments to increase scrutiny in existing and new mining projects. In October 2021, the government presented a bill which would explicitly rule out the issuance of lithium mining permits for private companies. This follows conflicting government messages in 2021 over the future of mining regulations, in particular related to lithium. Government officials have said in 2021 open pit mines will be evaluated on a case-by-case basis due to their “enormous” impact on local communities and especially water resources. Crackdown on tax breaks will likely be a priority. There are also risks of rising environmental and social (community)-related regulations. Risks of further resource nationalism and government intervention remain high in our view.||'Mexico Lithium: Proposed Restrictive Reforms Unlikely To Pass, But Sonora Only Project For Now', Oct 14; 'Mexico Mining Regulation Competitiveness' Erosion Likely To Continue', Oct 2020|
|Peru||Increase in taxes/royalties, Contract renegotiation, Stricter oversight||Rising trend since 2021, Risks of further resource nationalism are high||Peru’s new president (since July 2021) Pedro Castillo campaigned partly on the promise of keeping for the country a larger chunk of the revenue derived from mining. Government rhetoric since his inauguration indicates clear risks of greater taxes and increased government involvement. Speaking at the Perumin conference in September 2021, Minister of Energy and Mines Merino said he wanted to redraft Peru’s General Mining Law, following his comments in August about the need for ‘social profitability’ in new mining projects and a ‘new pact’ between the government and mining companies in the form of contract renegotiations. During his campaign Castillo has hinted he could look at renegotiating tax stability agreements.||'Peru Mining: Growing Signs That Key Changes To Mining Regulation Are Likely', Oct 4|
|Chile||Increase in taxes/royalties||Rising trend since 2021||The government introduced a new Bill in 2021 to replace the existing profit-based mining tax with a progressive royalty on sales of copper as prices rise. The bill would create the heaviest tax burden among major copper-producing nations. The bill passed the lower house in May and was in the hands of the Senate as of September 2021. The bill proposes a base rate royalty of 3.0% on copper and lithium sales, as well as other metals. In the case of copper there will be an additional progressive tax, with marginal rates at 15-75% depending on copper prices. It appears the bill does not include any references to tax stability agreements that are currently in place.||'Chile Mining Report', Sept 28|
|DRC||Contract renegotiation, Stricter oversight||Rising trend since 2018, Risks of further resource nationalism are high.||A new, stricter, mining code was passed in 2018. Rising scrutiny of China-owned projects since 2021 suggests stricter oversight on existing regulations. Announced in August 2021 a broad review of existing mining contracts, and includes a review of the “infrastructure -for-minerals” deal, originally signed in 2007 with Chinese investors.||'China To Remain Key Player In The DRC’S Mining Sector, But Scrutiny On Deals Is Rising', Sept 27|
|Mali||Contract renegotiation, Stricter Oversight||Rising trend||The country recorded two military coups in 2020 and May 2021, suggesting high political instability in the coming quarters. The transitional government in charge prior to the May 2021 coup mentioned it would review mining deals after the auditor general identified in 2020 problems including “non-distribution of dividends” by miners in the country. In September 2020, Barrick Gold's unit SOMILO paid its first dividend to Mali, 15 years after production at the Loulo mine started, and a year after the auditor general criticised the firm for not paying dividends. A full review of mining policies is unlikely given the ongoing political instability, but rising pressure to pay taxes and dividends is likely. Likewise, changes in government suggest mining deals signed under previous governments could face increased scrutiny.||'“Coup Within A Coup” Presents Further Headwinds To Malian Stability And Growth', May 26|
|Zimbabwe||Export restrictions, In-country beneficiation, Asset nationalisation||Rising trend||In August 2021, Zimbabwe has banned exports of raw chrome ore (a key ingredient for steel production) with immediate effect and will ban exports of chrome concentrates from July 2022 in order to secure its ferro-chrome industry (and incentivise steel investment). Zimbabwe holds the second-largest known chrome ore reserves after South Africa. This move follows a decision in October 2020 by South Africa to impose a chrome ore export tax to boost local ferrochrome producers. As another sign of resource nationalism, in May 2021, Zimbabwe's mine minister threatened to seize Todal Mining's platinum concessions (a Eurasian Resource affiliate) because no progress had been made in developing them. The concessions may be taken over under the “use-it/lose-it principle” which allows the state to repossess idle mining claims.||'Zimbabwe Mining Report', Sept 21|
|South Africa||Demand for local participation in companies’ ownership||Rose in 2017-2018 and stabilised since, but risks of further resource nationalism remain elevated.||Introduction of a new mining charter in 2018 requiring miners to increase Black mine ownership levels and good/service procurement from Black-owned companies. The 2018 charter is less restrictive than the 2017 initial proposition (which was watered down by President Zuma's government), but it is still stricter than previous regulations. There is still uncertainty over the Black-ownership rules as local courts have been overruling the new policy.||'South Africa Mining Report', Oct 12|
|Russia||Increase in taxes/royalties||Rising trend||In order to shore up pandemic-hit state budget, the Russian government has been increasing taxes on the mining sector in 2021. Most importantly, it submitted to Parliament in September proposed changes to mineral extraction taxes (MET) for Russian metals firms from 2022, which it estimates could bring USD7.5bn to the state over 2022-2024. The bill brings a new formula for MET (tied to global prices) and will effectively increase taxes. The taxes will affect Russian producers of steel, coking coal and fertilisers, as well as mixed ore (including Nornickel mines in Siberia). The government dropped the initial idea of a new profit tax. It appears Russian producers have agreed with the government on the change in taxes, which suggests high likelihood that this tax will be implemented. It would be the third tax increase for the Russian metals and mining industry since the start of the year as it raised export tax for metals earlier in the year. In March 2021, President Putin has also hinted that Russian metal, fertiliser, other firms should invest more at home.||'Russia Mining Report', Aug 27|
|Indonesia||In-country beneficiation||Rising since 2014, Risks of further resource nationalism are high||In 2019, Indonesia brought forward its a ban on nickel ore exports to 2020 from 2022 in an effort to boost its own nickel industry, including the development of processing facilities and increase value across the domestic supply chain. In Sept 2021, the government announced it was exploring the possibility of levying an export tax on nickel products with less than 70% nickel content to drive expansion of its domestic processing industry. Most nickel products exported from Indonesia have nickel content of 30% to 40% and could be refined further domestically to at least 70% content. Indonesia’s processing industry is dominated by low-nickel content products such as nickel pig iron or ferronickel.||'Indonesia's Battery Supply Chain Ambitions: Assessing Potential, Investment, Sustainability', Aug 6; 'Indonesia: Moving Up The Mining Value Chain', July 2020|
|Mongolia||Contract renegotiation||Rising trend||Resource nationalism and tensions over the key Oyu Tolgoi project will likely remain high amidst a rising populist and protectionist stance in Mongolia. Oyu Tolgoi has been the subject of several long disputes between Rio Tinto and the government (whichs owns 34% of the project), due to tax issues and project cost overruns, among others. The government threatened in 2021 to cancel the 2009 Oyu Tolgoi investment agreement over a tax dispute. It also threatened in January to halt the expansion of the mine, arguing that delays and higher-than-expected costs had eroded the economic benefits the country had hoped for. Parties are working towards a renegotiation of the deal.||'Mongolia Risks Greater Populism Amid Rising Dissatisfaction' April 13|
|USA||Increase in taxes/royalties||Rising risks of a change in regulations||Growing risk of change to regulations covering mining on US federal land (28% of the US’s total area), following proposals in Congress made in 2021 to introduce new taxes on profits from both existing and future mining projects. In contrast to oil, gas and coal operations on federal lands, hard-rock miners currently pay no royalties to the federal government. More than 872 mines were operating on federal lands as of September 2018, of which 748 were hard-rock operations. While these proposals are not likely to become law in their current form, we do expect changes to the US tax regime for mining projects on federal land within the next few years.||'US Mining: Heightened Risks Of Regulatory Changes As Resource Nationalism Intensifies Globally', Oct 2021|
|Zambia||Asset nationalisation||Rose since 2018; could be in the process of stabilising following 2021 elections.||Resource nationalism rose quickly and significantly in recent years under President Lungu, towards greater state ownership of mines and tense relationship with key foreign mining players. Glencore exited Zambia in 2021. The victory of opposition candidate Hakainde Hichilema in the August 2021 elections will lead to a change in policy towards more business-friendly reforms over the coming quarters. The new mines minister said in September 2021 that the government will now work to ensure stability and predictability in the mining sector. The new President also mentioned the government will review mining policies. This suggests a stabilisation in resource nationalism stance and potentially a return to more mining-friendly policies.||'Tailwinds For Reforms Following Opposition Candidate's Victory In Zambian Elections' Aug 16; 'Zambia Mining Report', Sept 6|
|Tanzania||Increase in taxes/royalties, Stricter oversight||Rose since 2017, could be in the process of stabilising.||Mining policy in Tanzania will likely remain stringent in the coming years, as incumbent president Samia Suluhu Hassan shares a similar view on the sector as the former president, John Magufuli. Hassan replaced Magfuli after the latter passed away suddenly in 2021. There are signs of a change in the business environment of the country, with the new president urging the government not to ‘flex our muscles against investors’. Under Magfuli, the business environment for mining became increasingly restrictive, with the introduction of a stringent mining code in 2017 and a long dispute over tax payment with Acacia Mining.||'Tanzania Gold Production To Gradually Slow As Mining Policy Remains Stringent', July 27|
|Ghana||Increase in taxes/royalties, Stricter oversight||Stable risks||The re-election of Ghanain President Nana Akufo-Addo at the end of 2020 maintains resource nationalism risks in the country. Akufo-Addo has previously called for an end to the habit of African governments offering fiscal incentives to attract investment, believing that these deals need to be more beneficial to Africa. Government intervention to enforce rules has also increased in recent years, as the president is taking a strong line on illegal mining which digs up more than a third of Ghana’s gold. In April, Ghana’s military launched a nationwide operation to clear illegal miners out of the country’s water bodies, with Akufo-Addo seeking to ensure more environmental responsibility in the nation’s mining sector.||'Ghana Mining Report', Sept 1|
|Sierra Leone||Stricter oversight||Stable risks||In 2019, Sierra Leone canceled the iron ore mining license of Gerald Metals subsidiary SL Mining for its Marampa iron ore mine, and instituted an export ban for the company. This followed SL Mining filing for arbitration in August 2019 over a royalty payment dispute and suspending the Marampa mine. Sierra Leone’s government responded by cancelling its mining licence. In May 2021, Gerald Group announced it will pay Sierra Leone US20mn and cede a 10% stake in an iron ore project as part of the resolution to the dispute that led to the shutdown of production.||'West Africa Mining Report', July 26|
|Stricter oversight||Stable for now, but it could rise in the future||The country recorded a military coup in September 2021. The new authorities have made sure mining operations continue and stressed that 'existing regulations, contracts and investments will be respected', but they expect 'miners to respect their engagements with regards to contracts'.||
'West Africa Mining Report', July 26
|Argentina||Increase in taxes/royalties||Moderate risk||President Alberto Fernandez’s intervention in multiple sectors is the source of the increased risk. The ruling coalition is facing legislative loss in 2021, which could lead to volatile policy making and more intervention in the economy in order to shore up support. The center-right opposition has more market-friendly policies.||'Argentina Enters Period Of Uncertainty As Government Faces Legislative Losses', Sept 13|
|Source: Fitch Solutions|
In the table above, we list some of the most important recent examples of resource nationalism. Not only is the list of countries long and getting longer by the day, but it includes top mining countries, including Indonesia, the US, Russia, Chile and Peru.
Increase in resource nationalism in previously stable countries. What is also noteworthy is that some countries that have usually been characterised as stable mining markets, such as Chile and Peru, are now also recording a flare up in resource nationalism, amidst political changes that threaten to alter the business-friendly operating environment for the industry.
Spread of the risk to Developed Markets (DMs)? While resource nationalism and at times unstable mining regulations have traditionally been limited to emerging and frontier markets, we note that the US has recently also recorded an increase in resource nationalism risks. This could prompt other DMs to follow suit. Governments in developed markets have in fact been increasingly willing to benefit from the boom in battery materials by getting more directly involved in the mining and metals sector. For example, on a government-led level, a number of countries are making progress to develop plans to support strategic minerals projects, including the EU, Australia, Canada, the US and Brazil. While these initiatives do not imply stricter mining regulations or increases in taxation yet, it is indeed a form of government intervention.
Resource nationalism trend stabilising or receding in a number of countries. In the case of Zambia and Tanzania, which recorded major flare ups in resource nationalism in recent years, we believe the outlook could be stabilising, as new governments have been elected in 2021. Resource nationalism risks are stable in Ghana and Sierra Leone for now in our view.
|Mining Industry Value (USDmn)||Mining Industry Value, % global||Copper production, % of global||Iron ore production, % of global||Cobalt production, % of global||Bauxite production, % of global||Gold production, % of global||Nickel production, % of global||Lithium production, % of global|
|Source: Fitch Solutions|
Impacts Of Resource Nationalism For Mining Companies
The ongoing rise in resource nationalism will have a number of impacts for mining companies:
Impact on company strategy: Mining companies could try to avoid risky countries in the future, although we note countries with resources of Green Transition Metals will still see increased interest from foreign investors. Mining companies will need to prepare to the rise in resource nationalism globally, with risk mitigation strategies, careful government/public communication and making provision for the likely increases in taxation.
Increased oversight over mining projects could slow down significantly project cycles and in some cases thin the project pipeline. Stricter and longer evaluations will likely create backlogs and project delays. For example, miners in Mexico are highlighting in 2021 record regulatory delays caused by steep government budget cuts and increased overview of the mining sector.
This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings. Copyright © 2021 Fitch Solutions Group Limited. © Fitch Solutions Group Limited All rights reserved. 30 North Colonnade, London E14 5GN, UK.