IN THE STOPE
Mining companies invest enormous sums in prospection and
development but will struggle with investing the minimum
required to de-risk their immediate operating environment.
And, more often than not, projects fail on the back of
country risk: communities not understood and managed,
governments not eff ectively involved, country stability not
adequately assessed. Instead, companies bet, and I mean bet,
on a few local relationships in the hope that these will sort
their problems. By all means having local partners is a must.
But it is a largely insuffi cient approach.
There is a whole, data-centric, process of analysis and de-
risking that must take place. The rule of thumb here is that
upfront de-risking represents a cost of less than 10% to crisis
managing. And that has been demonstrated over and over.
This is what we do at Eunomix. We become a mining
company’s insurance policy through thorough analysis, risk
mapping and resolution. We embed that into our client’s
business. We help them become country risk-resilient so that
they can become country opportunity winner. We help them
become sustainable.
The one arm of our business is advising government on
how to develop their economies sustainably, and the other
is to advise clients in the private sector (investors, large
mining companies, small mining companies or construction
companies) and help them understand where they are going
and how to do it right on the basis of objective analysis based
on data. And then put in place a system of monitoring so that
they can manage any potential crisis.
We work with, and understand, both sides.
How long do you then stay with that company in the country,
or do you only provide them with a report?
It depends on what the client’s needs are. What companies
need to understand though, is that they have to take country
risk in Africa as seriously as any other aspect of the business.
It should not be an afterthought. It has to be part of the
DNA of the company, and part of the business plan. This is
a process that needs to be as disciplined as the processes
used for managing geology, processing, markets, operational
performance.
We don’t write only a report with loads of data and opinion
about this or that. We do a systemic analysis that explain
where the country is and where it is going. We identify
the risks and the likelihood of the situation in that country
improving or getting worse. We develop scenarios. We
test those against the company’s strategy, key values
and performance metrics. It can get quite detailed, from
measuring and anticipating policy stability to assessing the
ability to secure aff ordable power. We determine where
the co-dependencies are, and how to manage these. Our
methodology gives our clients a way of embedding country
risk into business.
We have worked across many jurisdictions, and with many
companies: AngloAmerican, Exxaro, Plinian Capital, Royal
Bafokeng Platinum, Sibanye-Stillwater, Vedanta, among
others.
What about small exploration companies that don’t
necessarily have the budget to undertake such
assessments?
These companies need to take it step by step. They don’t
have the resources to invest in these analyses, but they do
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need at least the minimum knowledge required to be able to
explore, and then take the next step and decide how much
money they are able to allocate towards country risk to be
able to continue. We off er entry level due diligence that can be
progressively upgraded as the project progresses.
Zambia has been in the news again recently after their spat
with Vedanta over the KCM operation. Throughout the years
they experimented with nationalisation and changed their
policies quite often. Eunomix has done extensive research
on Zambia and did a comparison between Zambia and Chile
a while ago. What are the highlights of that research?
We must disclose here that we did the recent update of our
2012 analysis on behalf of Vedanta. However, as with every
economic research project we conduct, the work is strictly
independent. Our clients do not have a say in how the work
goes beyond agreeing on the research objective. The work
remains our property. We must be able to stand behind it
irrespective of what anyone will say.
In this case we updated work we had already done. We
compared the production and revenues of Zambia and
Chile, both big copper producers, between 1970 and 2017.
In 1970 Zambia and Chile both produced about 10% of the
world’s copper. After their nationalisation exercise, Zambia
produces only 2% of global copper in 2002, while Chile
contributes about 35% to the world’s total production. The
extraordinary thing is that mineral rent in Chile explodes
while the mineral rent in Zambia collapses, which means
they are basically producing the product for nothing. There
is nothing for society besides salaries (if you are paying
those salaries). This type of resource nationalism is a lose-
lose proposition.
And it looks like resource nationalism is making a comeback
under President Lungu again, as well as in Tanzania, South
Africa, and we all know what happened in Zimbabwe.
The key conclusion of all the work we’ve done, whether in
South Africa, Zimbabwe or Zambia, is that a government
policy that results in the destruction of production and
productivity through the destruction of mineral rent, is an
anti-developmental and economically regressive policy.
It doesn’t matter what brand of nationalism you preach, if
economic destruction happens it is the wrong policy and it
will create socioeconomic misery and fi scal crisis. Our data on
this is clear: one does not build a mining industry by cutting
investment, production, exports. It just does not happen.
What is extraordinary is that it happens again and again.
It is too early to judge whether Zambia is going to experience
economic destruction. But if the past is any guide, the current
dispute on Konkola Copper Mines is probably going to have
a signifi cant negative impact. How can this possibly be
progressive?
Zimbabwe seemed to have realised some their mistakes
and have tried to stabilise the mining industry, one of the
core sectors of their economy. But the signs are that they
have let economic mismanagement go on too long. There,
turning things around seems nearly impossible given how
irreconcilable the terms of equation are: between the
intent of ZANU-PF to keep power at just about all cost, the
need to deploy the right policies in the midst of a grave
fi scal and monetary crisis, and the continued sanction
regime. Something has to give, and it looks like political and
economic reform.
African Mining
African Mining November 2019
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