Canadian Mining Journal

Feature

Spotlight on Mining in Africa

Marked by economic improvements, unparalleled resource potential and an increasingly investor-friendly climate, Africa is cited as one of the top mining geographies of 2012. In the most recent PwC mining deals report, On the road again? Global...


Marked by economic improvements, unparalleled resource potential and an increasingly investor-friendly climate, Africa is cited as one of the top mining geographies of 2012. In the most recent PwC mining deals report, On the road again? Global Mining 2011 Deals Review & 2012 Outlook, we indicate Africa is one of the most popular growth destinations for mining in 2011. Western buyers acquired 122 projects in Africa last year, a small percentage of overall deals, but noteworthy considering this total was negligible only five years ago.

Often, insufficient and sometimes non-existent infrastructure can be an obstacle to mining investment in Africa. Mining deals that may look viable on paper may not be possible once infrastructure costs are factored into the internal rate of return. However given the combination of high commodity prices, enhanced technology and investment competition from China and other emerging markets (e.g. Brazil, India and South Korea), infrastructure is now a deal maker, not a deal breaker, for Africa.

Tougher fiscal terms, gradual regulatory shifts, rising labour pressures along with more stable and better managed governments are also reshaping the landscape of the mining sector in Africa. The impact of these trends varies from country to country in the continent. In some of the reform-minded states that are reasonably well governed, an overall improved investment climate can offset the pain of mining policy headwinds. Issues in respect of resource nationalization or benign resource nationalization remain. Some current examples include:

•  The South African government is frustrated with the pace of ownership transfers under its Black Economic Empowerment provisions, but has resisted calls for nationalization from the ANC Youth League.

•  The DRC government is enacting a new mining code this year that involves higher royalties and other changes related to government ownership or parastatal for copper mining.

•  In Ghana, recent shifts include a new flat royalty rate of 5% (gold) that was introduced, and corporate tax rates were raised to 35%. The government is also weighing the possibility of a 10% windfall tax and the establishment of a gold parastatal.

•  Under the 2011 regulations to the Indigenization and Economic Empowerment Act (2007), companies with mines in Zimbabwe must provide the government with credible plans to cede majority stakes (51%) to indigenous Zimbabweans.

Commodities of interest

The revival of African mining is obvious from the number of new projects covering a range of commodities. One of the main commodities of interest is copper. As global construction activities increases, so does the copper market. The red metal enjoyed an impressive 300% increase in price between 2000 and 2010.

Miners invested in copper believe the price of copper will remain strong. The long-term fundamentals of copper include the fact that copper inventories are low, grades of older copper mines are low and copper prices remain strong. A host of copper projects in Africa are primarily located in Zambia and the two Congos, but copper projects are also planned in other parts of the continent.

Meanwhile, Africa is the new hotspot for iron ore. Greenfield projects in Sierra Leone, Guinea, Liberia, Congo and other countries are well on track to create a new global iron ore centre. In terms of the coal project pipeline, three countries dominate this area: South Africa, Mozambique and Botswana. Finally, the uranium boom continues in Namibia and new supply from mostly Greenfield projects is expected before 2015.

A note to Canadian mining companies

Recently, Juliette Bonkoungou, Ottawa’s face of African diplomacy for nearly nine years, directed a message to the Canadian mining sector:

 “We’re saying to Canada, China is there. Brazil is there now. India is very strong. Come too, but in an official way. That means having high-level political rapport.”

Ms. Bonkoungou noted African nations expect more high-level diplomatic political ties that signal interest in their future.

Canada can look to China to see how they have managed their investment in Africa. Trade between China and Africa has grown unprecedentedly during recent years. China is South Africa’s largest trading partner and it has a strong presence in the continent as a whole – offering loans, roads and railways to create $120 billion in trade with Africa. As well, China hosts regular political summits with African leaders and, in return, African political leaders have made trips to China to familiarize themselves with how they structure their economic policies.

For Canadian miners to fully realize the benefits of this African renaissance, the Canadian government needs to be more proactively and politically involved in Africa. By strengthening the nation’s trade, economic and political ties with the continent, Canadian mining companies can enhance their positive rapport with Africa while identifying growth opportunities that benefit both Canada and the African nations in which they operate/

For more information, please visit PwC’s mining site at: www.pwc.com/ca/mining.


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