African mining: Hang on tight

Lamido Sanusi, Emir of Kano and the chairman of infrastructure financier Black Rhino, gives a keynote address at the Investing in African Mining Indaba in Cape Town. (Photo: Mining Indaba)

Lamido Sanusi, Emir of Kano and the chairman of infrastructure financier Black Rhino, gives a keynote address at the Investing in African Mining Indaba in Cape Town. (Photo: Mining Indaba)

On the surface, the endless supply of canapés, lavish lunches and sharp, bespoke suits everywhere you turned at the recent Investing in African Mining Indaba gave the impression of an industry in rude health.

One miner even took the time out to quaintly christen a diamond — at 1 111 carats the world’s second largest, and Botswana’s biggest ever — it was named “Lesedi La Rona” which means “our light” in Setswana. 

But the troubling headlines of job losses and mines closures were never too far away from the minds of the indaba’s participants. Africa’s premier mining event took place under a pall, with prices of industrial metals wallowing at their lowest levels since 2008 — down 27% — while notable indices such as the JSE’s Resource 20 have dropped by more than half in less than a year.   

However, the industry is extremely cyclical; boom times are rapidly followed by busts and matters often boil down to who best amassed a decent stockpile during periods of low prices. And no industry in Africa is more resilient than mining: when Mali’s government was deposed in 2012 the putschists closed the borders to all but employees of Randgold Resources, which at the time was paying enough revenues to the central government to foot the entire civil service bill.

In Liberia, as investors bailed out during the Ebola scare, the country’s first gold mine operated by Aureus battled on, though there was an element of pressure from debt.

This time round though, even hardened operators appear to have been blindsided by the nature of the downturn, a dip that might even decide presidential elections in countries such as Zambia.

“The tremendous changes taking place in the world, and particularly the depth and length of this commodity downturn, are forcing mining companies to look at themselves in a different light, and to respond accordingly,” said Anglo American Plc chief executive Mark Cutifani at the indaba.

Responses have varied: some miners have turned to shareholders for extra financial cushioning, while others pulled the rug out from under investors and scrapped dividends.

Many are digging just to keep up with their financing obligations, while others like Anglo American have opted to close or sell mines, or shed tens of thousands of jobs, raising social tensions around an industry that is by itself not a big employer. Its real value lies in the linkages it creates with the rest of the economy.

A lot of the issues under the microscope were familiar: the need to ensure more communities benefit from the resources, as industry executives highlighted the need to transition from being mere extractors to “integrated development partners”.

Governments wanted more beneficiation and value addition as a means of beating market price drops, and more alarmingly, were offering more incentives even as the jury remains well out on the World Bank-led reforms encapsulated in vehicles such its 1992 Strategy for African Mining. 

But things were not all funereal in Cape Town. If Africa can weather the current storm, it is poised for a new liftoff that could mimic that of the early 2000s.

For one, new markets are looking increasingly promising: there is a lot of talk of India as the new mining frontier, being the only Brics (Brazil, Russia, India, China and South Africa) country that will beat low growth this year. Its economy is consuming ever more minerals, countering to some extent the deep uncertainty around China that is responsible for the current commodities price drop.

Then there are new entrants looking to dislodge established mining economies and position themselves at the vanguard of the next super-cycle: Kenya’s ambitious new Mining Minister Dan Kazungu told the Mail & Guardian Africa that its overhauled mining regime, which will be launched soon, will attract more investors. 

Nigeria, battered by the oil price drop, is looking to kick-start its industrial and mining industries with a $4.5-billion steel complex, which hasn’t made any steel since 1979, to be handed over to private operators. Solid Minerals Development Minister Kayode Fayemi has vowed to see it crank into operation “under my watch”.   

The downturn is also encouraging new ways of financing the industry — the feeling is that there has never been a worse time to finance a mine, but never a better time to develop one. This is seeing more private equity inflows especially for junior mines, and some particularly innovative ventures such as crowdfunding.

Additionally, not all exports are in the ditch — Eritrea, Congo-Brazzaville, Senegal, Gabon and Angola are enjoying the stubbornly high prices of niche minerals such as lithium, nutrient minerals, rare earths and graphite. 

An overdependence on exports has placed the continent in its current rut, so the renewed African Union-led talks of comparative advantage strategies based on regional strengths was a most encouraging outcome — but only if current integration efforts can gain much-needed coherence. 

For now, things will certainly get worse before they get better. The message is to hang on tight, but for those investors who pitch their tents now, the upturn will yield sweet returns.



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