South Africa's cabinet on Thursday approved lobbing off a subsidiary of the country's Central Energy Fund to create a standalone state mining company.
The African Exploration Mining & Finance Company will be leading the South African government's plans to become more involved in the mining industry after an audit of all the state's mining assets to be transferred to the new entity.
The new organization would also be tasked with increasing the volumes of mine output beneficiated domestically targetting iron ore, chromium, manganese, vanadium, nickel, titanium, coal, uranium, gold, platinum and diamonds, most of which is exported in its raw form at the moment.
The fledgling firm in February started production at a small thermal coal mine and has been granted 27 prospecting permits in the country with new platinum and base metals rights in the offing.
The cabinet said partnerships with private firms will be sought by the new entity and Mining Weekly reports it "also has long-term ambitions to operate in the Southern African region and in Africa as a whole."
The decision for a state mining company is seen as placating those factions within the ANC alliance made up of the Communist Party and trade unions that have been calling for the seizure of mines.
In February the ruling ANC party issued a working document outlining greater intervention in the country's resource sector – with an emphasis on platinum – but stopped short of outright nationalization.
The ANC report stressed that nationalization would be unaffordable – it would cost upwards of R1 trillion ($125 billion), more than the state's entire budget, to buy out listed miners.
The proposals included a 50% tax on the sale of mining rights to prevent speculation and a windfall tax of up to 50% on super-profits, but royalty rates would be reduced to just 1% from 4%.
South Africa has the world's largest reserves of platinum by far and the PGMs industry was singled out for "targeted interventions".
A closely watched survey by the Fraser Institute shows South Africa’s appeal for mining investment has declined dramatically since 2006.
In 2006 South Africa was ranked 37th out of 64 countries and territories. The country’s position has declined since then and its 2011 ranking was 54th in an expanded survey of 93 jurisdictions and territories.
The mining sector in South Africa contributes 9.6% to GDP and employs 3.1% of the country’s labour force. In 2010 the sector contributed 15.3% of country’s exports.
A Citigroup report in 2010 states of South Africa's $2,500 billion worth of reserves, $2,300 billion resides in the platinum group metals. In dollar value Guinea, South Africa, India, the Ukraine and Kazakhstan are the countries that under-produce the most in terms of their reserves: