MINING INDABA
production increased by 1% CAGR in the past 10 years. Africa
production continues to dominate the global production of
platinum group metals, manganese, cobalt, chromium amongst
others, mainly due to Africa’s dominance in resources/reserves
of the specific commodities. However, continuous exploration
underpins a thriving and sustainable mining industry, in our
view. In this regard, Africa remains significantly underexplored
relative to other major mining jurisdictions such as Canada,
Australia and Latin America.
By way of an example, Africa represents less than 10% of global
active exploration sites for base metals versus Australia, Canada
and Latin America at greater than 20% respectively. Even gold
exploration in Africa continues to lag these three jurisdictions
besides being the most explored commodity in Africa in terms of
drilled activities. Before even considering cost competitiveness,
regulations, infrastructure and other constraints; the sustainability
and future competitiveness of Africa mining is in the first instance
disadvantaged by lower exploration relative to other major
mining jurisdictions. For Africa to close this exploration gap and
ensure that this key sector continues to thrive into the future; a
longer-term view for Africa mining is required. Longer-term policy
certainty is the utmost in our view, stronger governance structures
and infrastructure investment are as key.
What are the challenges standing in the way of a booming
African mining industry?
According to Magnus Ericsson’s research paper published
on Mineral Economics journal in July 2019, 12 of the top 20
countries with the largest contribution of mining to total GDP
are in Africa. The significance and reliance of many African states
on mining continues to necessitate a more intricate balancing
of interests, particularly between capital, government and
communities. It is the challenge of developing a country specific
shared value concept that takes into account the interests of
all stakeholders including the cost of capital. A finessed shared
value model is even more critical for countries with a higher
reliance on mining as the commodities markets are cyclical,
thus, value creation is highly variable. An equitable, shared value
model could be negative for near-term returns but a necessary
cost for a stable and predictable operating environment,
thus potentially value accretive longer-term. Infrastructure
constraints in Africa is a topic that has been widely discussed,
one that I do not perceive as insurmountable if the right
regulatory framework is in place. The beneficiation of Africa’s
mining production is another challenge that requires a finessed
solution, one that attracts beneficiation, not just regulates it.
Can mining help in developing the lagging economies of some
African countries?
Africa’s abundant mining resources remain largely untapped,
with perhaps the exception of South Africa. Africa mining goes
beyond financial returns; it changes lives of communities, many
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of whom live below the poverty line. Mining in Africa has its
own constraints, but the rapid technology advancement opens
up options to navigate these challenges.
From an investment viewpoint, what does 2020 look like for
mining in Africa?
The state of the global economy generally underpins the
trend of mining performance. As it is, the risks in the global
economic outlook are tilted to the downside in our view, as
trade and political tensions remains largely unresolved. Business
confidence has been on a decline while manufacturing PMIs in
major regions are in contraction.
With copper being the bellwether of global economy, the
negative news is priced into this commodity despite its
favourable long-term fundamentals, supported by climate
change related themes. We however expect the Central Banks
to maintain the easing path that gathered momentum in 3Q19.
Allied with ongoing domestic stimulus by China, this should
be broadly positive for commodities as an asset class. The
prices of precious metals rallied hard in 2019 and still looking
attractive due to prevailing market conditions. The weakening
of currencies in emerging economies has also been a tailwind
as the bulk of production is export bound and traded in dollars.
Therefore, 2019 is broadly looking positive for mining in Africa,
despite high uncertainty related to global trade tensions.
What are the factors that investors look out for when deciding
to invest in mining in Africa?
Mining investments are long term in nature thus long-
term regulatory certainty is paramount. In countries where
policy certainty is ambiguous, only high-value projects with
shorter payback periods tend to attract capital. This creates
a vicious circle of greater dependency by all stakeholders on
the few mining projects able to attract capital. Investors are
increasingly placing a higher weighting on environmental,
social and governance (ESG) aspects before committing
capital. There are many examples across Africa where
investor value erodes, and ESG-related shortcomings are
at the centre. The outlook of the specific commodity is also
a key consideration. The availability and reliability of key
infrastructure such as electricity, roads and rail network
are also critical as it reduces the quantum of the capital
investment and enhances the viability of projects.
How supportive is the African mining industry for women?
Mining has increasingly opened up to women at all levels, albeit
still far from reflecting the demographics. As an equity analyst,
I am not qualified to comment on the day-to-day struggles
of women in mining, but we are increasingly seeing women
underground, women driving the big LHD trucks and women in
the boardroom. An encouraging trend from where I’m standing.
In South Africa, Mme Daphne Mashile-Nkosi and Ms Bridgette
African Mining
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