With gross domestic product down in many countries, Holland told the first session of Africa Down Under 2013 in Perth that resource nationalism was entirely rational as governments sought to increase their revenue.
But he acknowledged it was viewed badly.
“Why are people saying it’s bad when it’s entirely rational?” Holland asked.
He said a disconnect had emerged with too much focus on mining profits, though the industry had “shot itself in the foot” by not being clear on costs.
“The mining industry globally has made its pie look more attractive than it is by focusing on cash costs, not all-in sustaining costs, so we have not been growing the right pie,” Holland said.
“Mining economies can create jobs, fuel development and attract investment capital but we have created a false sense that there’s a bigger slice to take.
“The mining industry is going through tough times and in reality, margins and returns from mining are in decline, best [exemplified] by the fact the world’s top 40 mining companies are experiencing serious financial troubles and the industry is not self-funding.
“Operating cash flows are not sufficient to cover investments, investors are deserting the sector and the equity model is at breaking point, leading the industry to halt new investments and cut back on existing operations.”
Holland said margins in the gold sector in particular were under pressure.
“The margins didn’t improve when the gold price went up,” he said, adding that margins were around 10%.
“For an industry that wants to sustain itself over time, that’s not enough.”
With investors deserting the sector, investment was slowing and the pie was shrinking, Holland said.
He said mining GDP was the right pie to be growing.
According to Holland, for every 1% growth in mining GDP, there was around a 2.6 times multiplier effect.
Across just 12 countries, that would equate to $8-9 billion in value in just one year.
Holland said there was a fork in the road.
“We can take the lose-lose road, or we could work on a different approach,” he said.
“So growing GDP through mining is the win-win pie on which to focus, as countries like Chile have achieved by focusing on long-term investment to establish a market economy, strong institutions and transparent and stable fiscal regimes.
“There are key contributing factors – strong long-term partnerships to ensure mutual success, limited government involvement in mining production and investment by government in social transformation including infrastructure and education in mining communities.”
Holland said the different stakeholders needed to forge strong partnerships that didn’t involve finger-pointing.
He stressed the importance of certainty.
“There needs to be certainty and transparency in the rules of the game.”
Holland said governments that recognised that investors needed certainty were on the right track.
