Prospects for high-grade and shallow mines luring Australian investors to Africa

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While the growth in global commodity prices has unequivocally driven economic growth in Africa, several African countries still lag behind, despite an abundance of mineral resources.

A recent report by British banking and financial services company HSBC revealed that in 35 African countries, commodities accounted for more than 80% of exports.

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“As a result of Africa’s commodity market exposure, commodity prices and the ‘supercycle’ that occurred over the first decade-and-a-half of this century had a huge impact on Africa’s growth.

“For much of Africa, there is also considerable concentration of economic exposure, with many economies highly exposed to just one or two commodity exports. For 30 African nations, one particular commodity accounts for over 40% of that country’s total exports,” the report read.

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HSBC noted that, in many African nations, oil and petroleum products were the dominant commodity exports, with 21 African nations having petroleum as one of their top three commodity exports, while in economies like Angola, Chad, the Republic of Congo, Equatorial Guinea, Gabon, Libya, Nigeria and Sudan petroleum was the dominant export.

However, despite being the main driver of the economy in several of these countries, the value of commodity exports remains small, compared with nations such as Australia and Canada, with only eight African nations having commodity exports that exceed A$10-billion annually.

“Even in aggregate, Africa’s role in most commodity markets is modest. Total African exports of most major commodities make up less than 10%, and in many cases less than 5%, of global trade flows. These proportions have remained quite steady, being at similar levels in 2017 as they were in 2005,” the HSBC report stated.

For certain commodities, however, African exports account for a fair size of global trade, with about 13% of global crude oil trade in 2017 coming from African nations, while South Africa and Mozambique collectively supplied about 27% of India’s coal imports in the same year, ranking as the third- and fourth- largest coal suppliers respectively to India, after Australia and Indonesia.

South Africa is also ranked as the third-largest iron-ore exporter in the world, accounting for about 5% of global iron-ore trade in 2017. However, this is a long way behind Australia and Brazil, which account for 50% and 25% respectively.

South Africa and Ghana are also relatively large gold producers, with South Africa having the second-largest proven gold reserve in the world, after Australia. However, South Africa’s role in gold production has declined over the years, as mine shafts have become deeper and less productive.

For a few commodities, like platinum and cobalt, Africa plays the dominant role in global production.

South Africa’s platinum production accounted for two-thirds of global output in 2018, HSBC noted, while it also holds about 90% of global platinum group metal reserves. The Democratic Republic of Congo (DRC) dominated cobalt production in 2018, making up about two-thirds of global output in that year. The country’s cobalt reserves also make up about half of global reserves.

Australian Involvement

It is estimated that there are currently some 170 ASX-listed mining and resources companies operating across 35 African countries, with the scale of exploration, extraction and processing involving both current and potential investments worth an estimated A$40-billion.

The Australian Senate in 2016 set up a committee to investigate Australia’s trade and investment relationship with Africa, and, in its 2018 report, the committee recommended a range of measures to support these miners, as well as advising that the Australian government consult with stakeholders to improve data collection regarding Australian mining activities in Africa, and that greater participation be facilitated.

Australia-Africa Minerals and Energy Group CEO Bill Witham says Africa still offers considerable opportunity for Australian miners, offering the potential for high-grade and shallow mines, compared with jurisdictions such as Australia and North America.

“The other opportunity is probably the perceived difficulty of some of these countries. We hear a lot of media reports that things are tough and that the region is difficult to operate in, but when you look at countries such as Burkina Faso, which has a number of new gold mines, and the DRC, which is increasing its copper output, a perceived security threat can actually create an opportunity, as there is not as much competition on the ground.”

John Welborn, CEO and MD of gold miner Resolute Mining, which has been active in Africa for some 20 years, also believes that Africa offers a wealth of opportunity for Australian miners, noting that there is an opportunity for miners of any commodity to discover or acquire resources at a fraction of the cost of established jurisdictions like Australia or North America.

“I am convinced that the way to make money in the gold industry is to buy ounces cheaply, and to build the machinery that extracts them. I see it as modern-day alchemy,” Welborn told Mining Weekly.

Resolute recently started ore production from its Syama underground gold mine, in Mali, which has been touted as the world’s first purpose-built, fully automated sublevel cave gold mine.

Welborn previously said that the combination of mine automation, improved recoveries and lower-cost power had the potential to increase Syama site production to 300 000 oz/y and reduce life-of-mine all-in sustaining costs to below $750/oz.

Welborn believes that modern technology means that African orebodies can be mined more efficiently and for a lot longer.

“We are celebrating the fiftieth year of man walking on the moon, and it strikes me that the technology that exploded from the Second World War to the 60s . . . we haven’t seen that happen in mining over the intervening years. And I think it is something that is a huge opportunity for African miners and African countries.”

Challenges

Despite the opportunities awaiting possible investors, Welborn notes that a number of challenges still remain, including geopolitical uncertainty in some African countries, as well as investor confidence.

“The challenge for Australian companies investing in Africa is to bring their investors with them,” Welborn said.

Witham also identifies a lack of significant infrastructure as a hurdle to developing bulk commodity operations, and harnessing Africa’s potential for significant iron-ore and coal mines.

“The large iron-ore and coal projects are really tough to develop, and African countries don’t seem to be very good at delivering large infrastructure projects. That is what has held back a lot of the big developments, including the coal in Mozambique, the bauxite in Guinea, and the Simandou iron-ore project, in Guinea.

“If the large railways and ports do get built, we will see Africa being able to contribute a lot more,” Witham said.

Offering advice to African leaders on the best way to attract foreign capital, Witham and Welborn are in accord: political stability and the rule of law are the best incentives.

“Everyone on all sides of that equation needs to recognise the need for returns, that investors and lenders need to be protected, that miners need to be rewarded, and that host governments need to get an equitable return,” Welborn said.

“The jurisdictions that have been successful . . . invariably, they are the ones that have provided incentives for investment, tax holidays, and equitable returns for miners.”