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As An Excise-Taxing Africa Now Demands A Piece Of The Commodity Pie, Commodity Prices Are Set To Jump

Tyler Durden's picture





 

With insolvent governments across the world preparing to tax the living daylight out of each and every profitable "externality", also known as any industry with abnormal profits, it was only a matter of time before the perpetual laggard, Africa, caught on, only in this case it is implementing "excise taxes" first. Bloomberg reports: "African countries are moving to grab a bigger slice of their commodity wealth as rivalry for the world’s remaining reserves of iron ore, uranium and gold sap the bargaining power of companies such as Anglo American Plc. Tanzania’s proposal to study a so-called super tax on mines sent African Barrick Gold Plc, the East African nation’s biggest producer of the metal, to a record low in June. Ghana, Namibia, Guinea, Uganda, Mozambique and Gabon also are acting to increase their share of profits from mining." Translation: as the OPEC oil cartel dies with Saudi Arabia unable to balance its fealty to the US, and specifically Obama's reelection chances, with its requirement to act as a monopolist, another one is born, and one whose cartel behavior will see commodity prices surge as soon as the market realizes that producers are forced to pass on incremental taxes to end consumers. Ironically, what will be the West's loss, is about to become a windfall for the developing economies who are doing all they can to stock up their own commodity reserves, further shifting the balance of power from the US to emerging markets.

From Bloomberg:

The balance of power is swinging in favor of African governments as commodity prices soar and Brazil’s Vale SA (VALE5) and China’s Minmetals Resources Ltd. join Western companies bidding for contracts. At the same time, policy makers are looking to finance investment in roads, rail links and power supplies that they say is essential to maintain growth that has averaged 5.7 percent across the continent over the past decade.

“The fact that Chinese, Brazilian and Indian companies are becoming much more involved in the African mining space means that Western mining companies are feeling squeezed,” Chris Melville, a London-based African mining consultant at Menas Associates, said in a June 14 telephone interview. “When you have more suitors, you can afford to be a little bit more selective and a little bit more demanding.”

This is not just a vague warning. It is happening across the continent:

Companies may have little choice but to pay more. The copper belt running through Zambia and the Democratic Republic of Congo holds 10 percent of world copper reserves, while Congo alone has two-thirds of cobalt deposits. Botswana says it has 200 billion metric tons of coal reserves and Guinea is the world’s biggest exporter of bauxite, the ore used to make the main raw material in aluminum production. The continent also has some of the world’s richest seams of uranium, platinum and gold.

Kenmare Resources Plc (KMR), a Dublin-based producer of titanium minerals in Mozambique, dropped 8.1 percent yesterday after the government said it plans to revise the country’s mining law and will seek to give the state a share of projects in “strategic sectors” such as coal. Kenmare’s managing director, Michael Carvill, said by phone today that the plans won’t affect its existing operation in the southern African nation.

London-based African Barrick Gold slumped 7.8 percent on June 8 to the lowest price since the stock started trading in March 2010, after Tanzania’s planning commission recommended the government consider a super tax. The company said in a statement on June 9 that its tax obligations were fixed by existing contracts and could not be changed.

Worse, this scramble for excising is not isolated to Africa:

Countries outside Africa are also raising taxes. Australia estimates that its plan to impose a 30 percent levy on iron-ore and coal profits will earn A$7.7 billion ($8.2 billion) in its first two years, the country’s Treasury Department said last month. The tax, which will help pay for road and rail projects, is scheduled to start in July 2012 after the laws are passed by parliament.

Brazil is studying an additional tax on its most profitable mining projects, the newspaper Folha de S.Paulo reported on June 21, without saying where it got the information.

“There’s definitely more competition and the mining companies that want to be here in Africa in the long run have to revisit to some extent their strategy in terms of how they negotiate concession contracts,” Melville said.

And while customers of Western based mining companies are set to experience a pass through surge in prices as producers have no option but to offset this incremental taxation, China is profiting:

China Union Investment Ltd. is developing a $2.6 billion
iron-ore deposit in Liberia, while Cnooc Ltd. (883) is helping to
exploit oil deposits in Uganda. China also has a $6 billion deal
with Democratic Republic of Congo to build infrastructure in
exchange for minerals.

We expect it will take about 1-2 months before the realization of this latest unexpected event, whereby even lowly Africa is starting to flex its muscles, reaches the market and commodity prices react accordingly, resulting in another round of across the board inflation.

 


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Thu, 07/07/2011 - 10:20 | Link to Comment Clueless Economist
Clueless Economist's picture

Did anyone catch Becky Quick's aggressive questioning of Warren Buffett on CNBS between the girl in her pajamas studying for a MBA and Bill Schaefer made a financial gain with his invention commercials?

Her pointed queries had the old SOB sputtering and hacking evasive denials.  My favorite was Becky's probing request to know how Warren feels about investing so successfully during the financial meltdown.  Priceless!

Thu, 07/07/2011 - 10:23 | Link to Comment SheepDog-One
SheepDog-One's picture

Yes but Bill's profit is NOT typical!!

Thu, 07/07/2011 - 10:40 | Link to Comment francis_sawyer
francis_sawyer's picture

If that chick in her pajamas is studying for an MBA in 'pole dancing', she might have a shot at making something for herself...

Becky should take notes...

Thu, 07/07/2011 - 10:47 | Link to Comment Ray1968
Ray1968's picture

I wish that girl was around when I was applying for Graduate school. Geez, to think that I got an MS by going to class, paying tuition without loans, and getting a 4.0 is so 1998

Thu, 07/07/2011 - 10:20 | Link to Comment papaswamp
papaswamp's picture

As WTI is up $2.20 to $98.85...all is well! Rally on!

(earplugs, pop-corn and chase lounge in place for the train wreck...it's going to be loud.)

Thu, 07/07/2011 - 11:26 | Link to Comment trav7777
trav7777's picture

African "governments" lol.

The problem is that EVERYWHERE, governments want to spend and keep the profits of successful ventures.

Nevermind that the fucking governors themselves never had the initiative or knowhow to get anything done.  All they know how to do is steal, like a bunch of common street thugs.

Look at what Norway has done with their crown royalties and compare to S. America or Africa.  Or even the Middle East.

Thu, 07/07/2011 - 10:21 | Link to Comment Ancona
Ancona's picture

Bring it on bitchez1

Silver to the moooooon.

Thu, 07/07/2011 - 11:33 | Link to Comment SeverinSlade
SeverinSlade's picture

In the medium to long term yes.  Short term though as ZH has said previously, I think silver and all metals/commodities will trend downward.  They simply have to if the Bernank wants his QE3.

I honestly feel that silver will primarily trade sideways with slight downward momentum as we head into August.  Resistance level of around $32-33 seems reasonable.

Thoughts?  I can't see gold and silver exploding higher in the short term especially when the US officially raises the debt ceiling. 

Thu, 07/07/2011 - 12:16 | Link to Comment knowless
knowless's picture

since the paper price seems to have little to do with principles of reality I think you're right.

I have no original thoughts when it comes to price movements, I literally have no fucking clue, but if it dropped precipitously I have physical cash to exchange for physical silver.. so whatever. otherwise I don't really have much spare to play this game.

 

people in a speculative position on silver whose buy-in is mid 20's might get scared and sell if it breaks thirty, which could lead to temporary rolling to the back up the truck brigade.. but I can't see this being either an orderly decline in price, or a steep one time selloff.. either way i think it might ratchet up or down (most likely down) a few percent, but then be caught by the faithful and go sideways for a while more..

 

so basically, the inverse of anything I just said is likely more true than anything else, because I really shouldn't even be voicing an opinion in this circle. I couldnt list a price target with a clean conscience, realising my constant inability to call shit.

 

Thu, 07/07/2011 - 13:38 | Link to Comment SeverinSlade
SeverinSlade's picture

Yeah I'm with you.  I'm not playing the short term.  Just was looking to capitalize on recent gains of some of my mining stocks.  I agree with ZH and many of the regulars here that all commodities/equities/metals WILL show weakness (metals in terms of paper prices and some more than others) over the next month or so.  Just freeing up cash in anticipation of this.  We're nearing the year high on the DOW...Find it highly unlikely that we'll eclipse it (and if we do, not by much).  The time is ticking on the market. 

In the near future, physical demand and pricing will completely diverge from the paper.  But for now, paper does dictate a lot of physical pricing (and also pricing in many metal stocks).

 

Thu, 07/07/2011 - 10:24 | Link to Comment SheepDog-One
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Robo projectile vomiting blood.

Thu, 07/07/2011 - 10:31 | Link to Comment Dr. Richard Head
Dr. Richard Head's picture

I think it is more likely Robo is trying to shit while running at full speed - http://video.google.com/videoplay?docid=5607186224242106152#

Thu, 07/07/2011 - 10:35 | Link to Comment SheepDog-One
SheepDog-One's picture

LOL WTF! :D

Thu, 07/07/2011 - 10:34 | Link to Comment tmosley
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Aww, blood puke, good song title:

http://www.youtube.com/watch?v=MhyzK0Z3PJc

Thu, 07/07/2011 - 10:24 | Link to Comment fiftybagger
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Mining Stocks = Political Risk

http://www.youtube.com/watch?v=z2F50CamWlQ

Thu, 07/07/2011 - 10:43 | Link to Comment Bastiat
Bastiat's picture

Higher taxes get passed on as implied by the title of the article.

Thu, 07/07/2011 - 10:29 | Link to Comment SoNH80
SoNH80's picture

A new Scramble for Africa coming soon???  I know Zambia has a lot of Chinese in pith helmets running around, and the locals don't like it too much....

Thu, 07/07/2011 - 12:17 | Link to Comment trav7777
trav7777's picture

fuck the locals.  At what point is anyone going to call Africa out for its indigenous failure to develop its OWN resources?

Thu, 07/07/2011 - 13:58 | Link to Comment Anglo in Abitibi
Anglo in Abitibi's picture

No doubt they`ve been useless. You`re not allowed to ask a roomfull of people "What have you done today that wasn`t made possible by a technology invented by a white male"

BUT if the various commodity prices only go up from here the locals may end up having the last laugh.

I worked for a sub of a very disorganized home builder. He`d piss away months and months with a half-built house for no apparent reason other than bad planning. However he was in a hot market (Okanagan Valley) so he`d always make way more on the increased house valuation than his dipshit behaviour cost him.

So if the commodities uptrend continues for a few decades than maybe being inept at getting the resources out of the ground is actually beneficial?

Thu, 07/07/2011 - 14:25 | Link to Comment SoNH80
SoNH80's picture

You're right about African governing incompetence, but the Africans are 'good' at low-level brushfire guerrilla wars that last 40+ years.  When the locals get pissed, they take to the bush with RPG's.  Worth keeping in mind from an investment standpoint.

Thu, 07/07/2011 - 10:30 | Link to Comment SheepDog-One
SheepDog-One's picture

Meanwhile, while all sheeple slumber in their comas oblivious and the stock junkies sit mezmerized by squiggly lines, Obama puts up Socialist Security and Mediscare for deep cuts, and Geithner (apparently new ruler of USA) tells Obama 'Fuck the congress, just hand me $2 trillion more dollars NOW'!! AAA HA HA HAAAAAAA!!!
http://www.reuters.com/article/2011/07/07/us-usa-debt-exclusive-idUSTRE7...

Thu, 07/07/2011 - 10:32 | Link to Comment writingsonthewall
writingsonthewall's picture

Remember folks - when the world can't - Afri-CAN!

 

Suck on the exhaust pipe - this is colonialism in reverse.

Too right that Africa is not going to pay for this mess? Only today I heard some gibbering commentator claiming that the fighting in Somalia is seriously affecting commodity prices.

 

...so nothing to do with gentle Ben and his magic money making machne then?

Thu, 07/07/2011 - 11:28 | Link to Comment trav7777
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African't mine their own resources.  They're pathetic.

If whitey leaves, they will revert to the stone ages

Thu, 07/07/2011 - 12:57 | Link to Comment Andy_Jackson_Jihad
Andy_Jackson_Jihad's picture

If whitey leaves it will be with strings tied around the local "leader's" arms, legs and mouth.  The leader will get lots of money, the locals will get none and things will be back to normal.

IF anyone turns up that doesn't take the "deal" to make themselves very rich at their country's expense, well then just flood the area with AK47s and stir up the locals with tales of black magic and penis stealing until someone who "gets it" is the new king of the mountain.

Thu, 07/07/2011 - 14:02 | Link to Comment Anglo in Abitibi
Anglo in Abitibi's picture

Yeah but nobody makes them treat their fellow people like shit. They pay them to. Big f-ing difference in my book.

Thu, 07/07/2011 - 10:35 | Link to Comment Jovil
Jovil's picture

Well this poster hangs in the office of a prominent Nobel Prize in economics office. See where you stand in the Pyramid of Capitalist System.

 

http://lonerangersilver.wordpress.com/2011/05/09/pyramid-of-capital-syst...

Thu, 07/07/2011 - 10:48 | Link to Comment Monedas
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Does he have a portrait of John Maynard Keynes in his office ? Monedas 2011 Nice 19th Century Post Modern Socialist Cartoon Poster Art !

Thu, 07/07/2011 - 10:56 | Link to Comment writingsonthewall
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Most people think that they are in the upper levels - actually MOST people are at the bottom.

Even those who think they are wealthy are not in the pyramid of Capitalism - and the whole structure maintains itself as enough people at the bottom have the misguided belief that they can (or already have) moved up a level.

 

The means of production may have changed - but the old structures remain. The 'middle class' think they are on tier 2 - but actually they are at the bottom - it's just that they spend some of their earnings on nice suits and get to push a few grunts around for the big boys.

 

Great poster.

Thu, 07/07/2011 - 11:22 | Link to Comment Monedas
Monedas's picture

We never got a taste of Capitalism.....Scientific Socialism sucked all the air out of the laboratory ! Monedas 2011 I'm still looking for one....just one.... democracy that has enjoyed a center right bias sometime in it's history ! Even Switzerland gets failing marks ! Even Austria where the Austrian School of Economics was chiseled in sand ! Monedas 2011 We have had Socialism everywhere forever ! It's a little late in the Keynesian cycle to blame some mystical, straw dog called Capitalism ! Stop lickin' the punch bowl.....the Kool Aid's gone ???

Thu, 07/07/2011 - 16:30 | Link to Comment Cthonic
Cthonic's picture

Fits nicely atop a symbolic barrel of crude.

Thu, 07/07/2011 - 10:35 | Link to Comment schoolsout
schoolsout's picture

I thought Sinclair said Tanzania was thinking of no such "super tax"

Thu, 07/07/2011 - 10:40 | Link to Comment Bastiat
Bastiat's picture

In March "the planning commission recommended the government consider."  Nothing has changed to my knowledge and article provides no update.

 

Thu, 07/07/2011 - 10:48 | Link to Comment schoolsout
schoolsout's picture

Thanks

Thu, 07/07/2011 - 11:15 | Link to Comment NotApplicable
NotApplicable's picture

The thing about political winds is that they change, quickly.

With the exception of a privileged few, I expect all miners to eventually be hollowed out worldwide, as it will fit into the Marxist "death of capitalism" meme.

Thu, 07/07/2011 - 11:53 | Link to Comment Monedas
Monedas's picture

The Death of Capitalism was the Mother of all abortions.......but that doesn't stop the left from slicing and dicing the poor little tissue mass !               I agree that miners are in trouble ! The same people who are jousting with Capitalism's Ghost.......still think stock owners have rights ! Monedas 2011 Happy to be Capitalism's Sancho Panza !

Thu, 07/07/2011 - 10:40 | Link to Comment Monedas
Monedas's picture

If you can take any commodity contract, delivered goods, home in the trunk of your Yugo.......that's money in the NWO definition ! Monedas 2011 Comedy Jihad World Tour

Thu, 07/07/2011 - 10:41 | Link to Comment oldmanagain
oldmanagain's picture

As natural resources dwindle, less will be owned by Corps. Hopefully.

The rapid concentration of wealth, opportunity, ownership is historically recurrent and does not end well.  Those revered "animal spirits" are a two edged sword.

The solution is government, but this is not going too well.  Look at the Supreme Court. The Corps now have more political power than Government. The world is just a replaceable employee.

Thu, 07/07/2011 - 11:08 | Link to Comment Monedas
Monedas's picture

Are you 180 degrees out of synch with reality......or was your post just a list of the areas where you are dead wrong ? Monedas 2011 An older but wiser fool ?

Thu, 07/07/2011 - 11:17 | Link to Comment NotApplicable
NotApplicable's picture

Funny, I'd say that the problem is government, but perhaps I'm just jaded?

Thu, 07/07/2011 - 11:38 | Link to Comment Monedas
Monedas's picture

I love the way these liberals waltz in here with their Madison Ave. power of suggestion conceit fully intact while their Keynesian pants are accordioned around their ankles ! Monedas 2011 Comedy Jihad World Tour

Thu, 07/07/2011 - 10:42 | Link to Comment AnAnonymous
AnAnonymous's picture

Saudi Arabia is loyal to the US, no matter the president. Dont see why they should make a special effort for Obama. They are probably friendlier with the Bush due to numerous personal ties (president Bush got richer through ME wars and has many  investments in the area)

Committment of SA is independent of presidency.

Thu, 07/07/2011 - 10:52 | Link to Comment spanish inquisition
spanish inquisition's picture

Step 1 - Eliminate the northern leader who called for a stronger African Union and more control over their resources.

Step 2 - Shore up support in the south with a FLOTUS puff run.

Step 3 - Squeeze the middle for resource access using standard playbook. Start with the usual bribes and progress to other items as needed. Use the CIA to foment unrest and to start a separatist group, label as a terrorist state, invade to promote human rights.

Edit:

step 4 ........

Step 5 Profit!

Thu, 07/07/2011 - 11:40 | Link to Comment SheepDog-One
SheepDog-One's picture

LOL, love any 'Underpants Gnome' themed post.

Thu, 07/07/2011 - 12:19 | Link to Comment trav7777
trav7777's picture

How about this...how about let them develop their own resources.

We were pumping oil here for 80 years before the ragheads had any clue there was black gold under their camels

Thu, 07/07/2011 - 13:20 | Link to Comment spanish inquisition
spanish inquisition's picture

Couldn't agree more, but not gonna happen as long as there are politicians willing to sell their soul and their constituents into slavery to be in power.

Thu, 07/07/2011 - 11:08 | Link to Comment apberusdisvet
apberusdisvet's picture

For every tax or  concession to unions in the 3rd world on miners, determine the actual cost.  In some cases this might double the current commodity price, for the PMs especially.  And for the PMs especially, can outright confiscation be in the mix?

Thu, 07/07/2011 - 11:21 | Link to Comment geminiRX
geminiRX's picture

Martin Armstrong has a contrian view of the gold price going into 2012 (it will fall into the low 1400's or high 1300's for the rest of the year). This guy is not a prophet by any means, but he has had some good calls and a balanced opinion is warranted.

http://www.martinarmstrong.org/files/The%20Fate%20of%20Gold%20and%20Oil%20Front%20Runner%2007-04-2011.pdf

Thu, 07/07/2011 - 12:39 | Link to Comment Pete15
Pete15's picture

http://news.yahoo.com/blogs/lookout/family-fights-government-over-rare-d...

 

They already want the precious!!! Bastards. 

Thu, 07/07/2011 - 12:42 | Link to Comment brent1023
brent1023's picture

An overdue transfer of wealth from the shareholders of international commodity corporations to the nationals of the countries with the wealth in the ground?

Happened to oil decades ago. Why has it taken so long for other commodities?

If underdeveloped countries start doing this, will developed countries follow? Canada gets very low royalties for its commodities. Copper shipped to Japan at not much over the cost of production, with all the profit to the mining company.

As both a shareholder and a taxpayer, I have no idea what the correct balance is.

However, if the part of the final cost that is the result of speculation on and maniuplation of commodity markets could be taxed more heavily that would be ok with me.

Thu, 07/07/2011 - 14:16 | Link to Comment Manzilla
Manzilla's picture

I can't say I know the correct balance either but it would be nice to find.

Thu, 07/07/2011 - 13:47 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

This problem of political risk is why I do not invest in gold mining companies, for example.  If gold (and now we can see other commodities) prices go up, then the locals can tax the mines more...  Taking the bulk of the benefit of higher prices.

I the case of gold, the answer is obvious.  Buy the physical, not the mines.

Thu, 07/07/2011 - 14:13 | Link to Comment Manzilla
Manzilla's picture

Maybe the US should be a little more selective about where it exports it's food. Isn't the number something like 40% of the world's food supply comes from the US? I kinda like the title "the Saudi Arabia of food".

And what's my point????

It's time for a sexy party!

http://www.youtube.com/watch?v=O9REMmhvjQw

Thu, 07/07/2011 - 14:44 | Link to Comment Stuck on Zero
Stuck on Zero's picture

I'm reminded of the "Banana Cartel" that was organized in the 1970s after the OPEC Cartel was formed.  Many South and Central American countries joined the cartel.  Their toughest work came with defining the "Standard Banana" which was needed to regulate exports and would serve as the "barrel" equivalent for oil.  They handed the task of the University of the West Indies in Jamaica.  Their computer scientists sat around measuring bananas for a few months and arrived at a definition of the "Standard Banana."  Unfortunately, by this time the whole idea of the banana cartel more or less fell apart.  The moral of this story is that you can live without bananas but you can't live without oil.

Thu, 07/07/2011 - 19:19 | Link to Comment shahroodi
shahroodi's picture

i smell war or least revolution in africa....lol.

Fri, 07/08/2011 - 05:43 | Link to Comment LudwigVon
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You may want to go ahead and shower...

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