* Gold miner's marginal tax rate cut to 34 from 43 pct* Ruling ANC still mooting mine tax hikesBy Ed StoddardJOHANNESBURG, May 17 As African governments seek to extract more revenue from their mining sectors, the continent's biggest economy has given gold producers a much-needed tax break tha t removes at least one head wind from a struggling industry. Gold Fields, the world No. 4 bullion producer, on Thursday became the latest South African gold miner to report better-than-expected earnings partly on the back of the new, lower tax regime. It benefited to the tune of close to 1 billion rand ($120.46 million) from the change in the first quarter. The companies' gain will cause some shareholder pain as the burden has been partly sifted to dividends, but analysts generally agree that the Treasury's revenue stream from the gold sector will be less as a result. It is impossible to forecast the precise net result as that would hinge on a range of factors from the price of gold to the dividends disturbed. Effectively it is a change in the formula which brings the marginal tax rate for gold miners down to 34 percent from 43. Not everyone in the industry sees it as a significant shift in the South African government's thinking on resource nationalism, which has been a defining feature of the region's political risk profile."It is a structural change and I would not read too much into a change of sentiment on that," Gold Fields' chief executive Nick Holland told Reuters."The gold industry has already taken royalty taxes which is about 300 million rand ($36.14 million) a year to us. Now we have a mooted carbon tax coming which is probably another 300 million. We can't really take much more," he said.
Holland also noted that the ruling African National Congress, while it has gutted the radical idea of mine nationalisation, is mooting higher mine taxes that would effectively translate into 50 percent on profits. Still, while hardly a U-turn, the tax cut does at least indicate that ruling party and government thinking on the subject is not just running one way."We're not aware of any mining jurisdiction in the world that's lowering mining tax at this time," JPMorgan Cavane noted in March shortly after the changes were announced in the 2012 South African budget. Mines minister Susan Shabangu told Reuters earlier this week that any future changes to tax policy would aim to keep the sector, which remains a vital source of employment, competitive. Looked at against the backdrop of the domestic political debate on mining and global and regional trends, the move does seem significant.
Across Africa and elsewhere, the trend - spurred by red-hot commodity prices which have recently cooled - has been to raise mining taxes and royalties or get a bigger slice of the action. This has ranged from tax hikes in Ghana to Zimbabwe's drive to get foreign mining houses to surrender 51 percent stakes in their local operations to black investors there. Not all investors will be happy with part of the burden shifted to shareholders in the form of a dividend tax. And while the formula by which gold miners get taxed has changed, this has not been extended to other sectors, such as platinum and coal.
NOT ALL THAT GLITTERS This may partly stem from the fact that platinum and coal are regarded as growth areas while gold needs all of the help it can get. But can it arrest a decline in South Africa's gold industry, which has seen it fall from being the Saudi Arabia of the precious metal to the world's fourth biggest producer?That must surely be the government's aim given the sector's importance on the employment front in a country where the jobless rate is probably over 40 percent. But the money that flows to the gold miners' bottom line will likely flow out of the country. The Big 3 gold miners, Gold Fields, AngloGold Ashanti , and Harmony, are all investing heavily in expansion plans elsewhere. With the world's deepest mines, steeply climbing power costs and wages rising by double digits annually, the sun is setting on the sector here. And when the additional earnings get ploughed into Papua New Guinea, Mali and other frontier mining states, the government may not be impressed. This could spark a U-turn on the tax policy for gold miners.($1 = 8.3015 South African rand)
* Not enough liquidity for amount of metal in financing deals* Aluminium open interest dwindles from 2011 peak* "Squeezes" likely to be a feature of the marketBy Susan Thomas and Josephine MasonLONDON/NEW YORK, Feb 21 The $80 billion aluminium market is starting to crack under the weight of finance deals that have locked up millions of tonnes of the metal as collateral in warehouses. For years, financial institutions have been buying physical aluminium and simultaneously selling futures. Stock financing is particularly attractive for banks and other such institutions, which have access to cheap funding to pay for the inventory. The strategy relies on the futures market remaining in a "contango" structure, where the price of a futures contract tends to decline as it approaches the delivery date. The aluminium market, which was in contango for most of last year, whipped into the opposite structure, called backwardation, in December, when spot prices were at a $44 a tonne premium to prices in three months' time CMAL0-3. And backwardations are cropping up at regular intervals along the aluminium forward curve this year. This would normally mean market tightness and consumers scrambling for metal. But not in this case, analysts and traders say."These kinks in the curve are not fundamentally justified," Barclays analyst Nicholas Snowdon said. There is currently a glut of aluminium. Instead the tightening in spreads is reflecting a lack of urgency in hedging by consumers along the curve for 2013, which means forward selling pressure from inventory financiers and producers that has not been offset by buying, Snowdon said.
There are backwardations along the forward curve in June-July, September-October and December 2013-January 2014. Most stock financing deals are executed for a few months at a time and must be periodically rolled forward. The financier must buy back its short position ahead of maturity and then sell futures contracts for a date further ahead. The need to buy back short futures positions as part of the roll leaves the financier vulnerable to a squeeze.
"If there's a lot of demand for metal for financing, there's got to be someone on the other side of the deal. Traditionally there had been a lot of money coming in from long-only indices, and I'm not sure that is still the case," Citi analyst David Wilson said."It does suggest that there is no longer enough liquidity for the amount of metal in financing. This is the bigger issue."In a typical stock financing deal, the financial institution counts on being able to buy back the short futures position for less than it originally sold the position for, making a profit. In the event that the market moves into backwardation, and the futures position costs more to buy back than it was sold for, and the financial institution may have to deliver the physical warehouse metal against its short position. Any geniune tightness in aluminium supplies would be likely to appear as a backwardation near the front end of the curve and that is not the case this year.
"We're forecasting a big surplus this year. Moreover, if there was tightness it would come out in front-end time spreads," Snowdon said. "This is more a reflection of the transactional imbalance caused by people undertaking inventory financing and in turn participants pre-positioning for those financing deals being ultimately rolled forward."In other words, traders say, it has become easy to squeeze the aluminium market, but it's not a typical squeeze."June-July has tightened up since January because that's where people are pushing these forward hedges to," said a London-based metal trader."You need discrete lenders of June-July and they don't exist any more. All it takes is someone to borrow 1,000 lots and suddenly the market gets tight and the market squeezes itself because there's a lack of liquidity."A big hedge fund has been mentioned by several metals traders as being behind a squeeze in June-July, but many said the identity of the protagonist is not relevant."The name is not important. What's important is the fact that the aluminium market has become easy to squeeze," said a London-based aluminium trader. Whoever it was, they did not need to take a sizeable position to prompt the backwardation, the traders said."It seemed to develop a life of its own because panic sets in between those having to roll financing deals, CTAs