FINANCE
va
W
hile not without its own set of unique challenges,
Africa currently offers a very compelling mining
proposition with a number of excellent prospects
in many parts of the continent. These include a very
strong growth story in West Africa and solid momentum
building in the East African corridor, particularly in Kenya,
Tanzania, into Ethiopia and even Eritrea, which has
recently opened its doors to mining investment.
Not surprisingly, these outstanding prospects have caught
the attention of international miners and investors, and Africa
is again seeing a healthy inflow of equity from many parts of
the developed world, particularly Australia and Europe. The
positive knock-on effect of this inflow of equity is a significant
increase in demand for debt finance. Perhaps unsurprisingly
given the ongoing global political instability, this demand has
been led to a large extent by the precious metals sector in
recent months.
Africa’s unique risks
Of course, while the mining prospects in Africa are
undoubtedly very positive across the continent, opening
and operating a mine comes with a mixed bag of unique
risks. Apart from the well-documented challenges of doing
any type of business in Africa, not least of which can be
relatively fluid regulations, unpredictable cash flows, a lack of
infrastructure, and the potential for corruption, mines in many
parts of Africa also face a constant threat to their operations
and sustainability from political violence, ethnic tensions, civil
unrest and terrorist activities. These terrorism activities present
very real challenges for mining exploration and development
– a fact that was horrifically illustrated by the November 2019
attack on workers, suppliers and contractors of Canadian
mining company Semafo in Burkina Faso, in which 39 people
lost their lives.
30
African Mining March 2020
Companies shouldn’t underestimate the
importance and value of an experienced
financial partner when mining in Africa, writes
Nivash Singh, co-head of Mining and Resources
Finance, Nedbank CIB.
THE VALUE OF A
FINANCIAL PARTNER
IN AFRICA
sh
Si n
gh,
co -head of
in
M in
g a
nd
The risk of these types of violent attacks is very real across the
continent. And recent global geopolitical tensions following
the USA's killing of Iranian general Qassem Soleimani in early
January 2020, are only adding fuel to the fire in Africa.
Apart from the obvious danger these violent activities present
to employees of the mines operating on the continent, they
also pose a significant threat to the sustainability of mining
or exploration operations and overall business continuity.
The resultant domino effect can extend to the full supply
chains of the mines impacted, or even threatened, by such
activities. But while most mines are able to take the necessary
mitigating actions to protect their workers and limit the
impact of violent actions, the potential negative impact
of operational disruption can be more difficult to manage
when it occurs at the level of the debt financier. Especially
when such finance organisations have minimal knowledge
of, or insight into, the challenges associated with the African
mining landscape.
Accessing debt funding
Historically, this hasn't been a risk, as most of the debt
funding required by participants in the mining industry was
accessed through commercial banks, most of which had
well-established track records. In recent years, however, many
of these commercial banks have lost some of their lustre as
debt financiers, primarily as a result of the far more onerous
regulatory and financial protection requirements they are
required to meet. This has opened the door to a new generation
of alternative finance solution providers that often offer faster
access to finance because they and their mining clients don't
have to jump through the same regulatory hoops.
www. africanmining.co.za