Resource-rich Africa lures investors

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 22 Dec 2016   Posted by admin


Resolute Mining announced plans to construct $US95million underground gold mine at its Syama mine in June. Image: Hugh Brown.

By Elizabeth Fabri

HOME to some of the world’s largest untouched resources, Africa is treasure trove for foreign investment with Australia leading the chase as the region’s largest contributor. As more projects enter production, opportunities for ASX-listed miners and contractors are only expected to grow.

Africa’s resource wealth is no secret; the continent produces more than 60 metal and mineral products, from high-grade gold to diamonds, platinum, bauxite, manganese, iron ore and copper.

However, for many years concerns around regional stability prevented overseas companies from taking that much-needed ‘leap of faith’..

In the early 1990s Africa still only received five per cent of global exploration and mining development expenditure, according to KPMG’s Mining in Africa Towards 2020 report.

“A study by the Word Bank on the shortcomings of African territories in the eyes of miners revealed a need for infrastructure, stable legal systems, a predictable fiscal regime, profit repatriation guarantees, and access to foreign exchange,” the report stated.

“The remarkable changes that took place in Africa from 2000 to 2011 resulted in the continent receiving 15 per cent of global exploration expenditure and mining investment during 2012.”

In the last decade the surge in investment, predominately driven by China’s demand for commodities, brought more projects into production.

Deloitte estimated 30 new large-scale projects valued at $US18 billion would come online before 2018; with a large proportion of expenditure traced back to Australian shores.

In a key-note speech at the 2016 Africa Down Under mining conference assistant minister for Trade, Tourism and Investment Keith Pitt said the government estimated Australian companies had poured more than $30 billion into extractive projects across Africa.

“There are over 200 Australian companies, many of these Western Australian, with about 700 projects in 35 countries,” Mr Pitt said.

“Much of this is in exploration activity – especially in gold.

“As such, the future is bright, especially as we come out of a period of particularly low commodity prices.”

Mr Pitt said Africa was one of the largest investment markets for Australian extractives companies.

“Aussie firms are at the cutting edge of international best practice,” he said.

“They have demonstrated innovation and resilience in engaging in challenging environments.

“And they are backed here in Australia by robust legal and financial regimes.”

Perseus Mining’s Edikan mine produced first gold in 2011, and continues to be a high performer for the region. Image: Perseus Mining.

Investment opportunities

A number of regions have benefited from Australia’s presence in Africa, particularly Western Kenya, Namibia, and Central and West Africa.

“The area is seeing a significant increase in railway construction in order to transport ore to ports and this has led to the opening of mines in Guinea, Liberia and Sierra Leone,” KPMG stated.

“Around 85 per cent of global phosphate reserves are located in North Africa.”

Botswana was a hive of activity for diamonds and coal, with an estimated 200 billion tonnes of coal reserves, while Ghana and South Africa were the largest gold producers.

“Companies including Perseus Mining and Endeavour Mining Corporation invested US$20bn in Ghanaian gold mines during 2011-12,” KPMG stated.

Mozambique’s mining sector was also strong, with an increase in economic activity predicted following the rise in global coal production.

While mining giants had interests in many of these assets, it was the juniors instead that earned their stripes as Africa’s majority investment group.

In a recent report, the Australian-Africa Minerals & Energy Group (AAMEG) found out of 590 Australian projects in Africa, 449 were owned or partially owned by ASX-listed companies with a market cap up to $100 million.

Northcott Captial managing director Nick Martin said the sudden spike in investment came down to three crucial factors; having a clear and concise understanding of what financiers wanted; ensuring the building blocks were exact; and being responsive to market changes.

Mr Martin said financing projects in Africa continued to be difficult but the market was improving.

“Commodity prices are subdued, there exists a distressed asset overhang, investor sentiment is ‘selective’ at best and many commercial banks are ‘risk adverse’,” Mr Martin said.

“That said – good projects will still obtain finance; the money is there – but it needs convincing to go to Africa.

 “The market is changing and my advice to companies seeking funding is – start the process early….as early as possible.”

Companies to watch

In 2016, the news was flooded with announcements from Australian miners acquiring established African projects, forging joint ventures, and returning high-grade results from exploration programs.

But miners haven’t been the only ones in on the action, with Australian service contractors also appointed to carry out tasks.

In April, Australian contractor PYBAR Mining Services announced it had entered a three year agreement with drilling services company Capital Drilling Limited to complete underground hard rock mining services in Africa.

“Our focus remains on the Australian market, however with a large number of potential underground projects in Africa, there is an opportunity to transfer our capabilities to a market that can benefit from our expertise,” PYBAR chief executive Paul Rouse said.

“Partnering with an established player such as Capital Drilling will facilitate any entry into the African market.”

Progress at Perth-based Kibaran Resources’ $US80 million Epanko project in Tanzania, was also picking up pace, with a feasibility study on track.

Throughout this phase, the graphite hopeful had engaged the services of Perth-based companies GR Engineering, Intermine Engineering Consultants, and Knight Piesold.

Perseus Mining, best known for its Edikan Gold mine in Ghana, was gearing towards first gold production at its Sissingué Gold Mine in Côte d’Ivoire in late 2017, and completing definitive feasibility works in mid-2017 at its Yaouré Project, also in Côte d’Ivoire.

Resolute Mining also had a strong foothold in the region, committing the majority of its $19 million exploration spend to African targets in the next 12 months.

At the October Africa Down Under conference Resolute managing director John Welborn said the company had uncovered multiple high-quality projects close to its existing flagship project Syama in Mali.

After 20 years in Africa, he said Resolute remained hopeful of opportunities in the region, with feasibility works now completed at its Bibiani Gold Project in Ghana, and exploration prospects along the Syama Shear and greenstone belts in Mali and Cote d’Ivoire.

“Resolute is currently exploring more than 135,000sqkm of prospective tenure across three countries in Africa,” Mr Welborn said.

“Resolute remains committed to partnering with governments and other stakeholders to develop projects that benefit everyone, specifically those who live and work in the jurisdictions in which we operate.”

 

Investing in African Mining Indaba is the world’s largest mining investment conference.

Mining Indaba

Also sharing a 20 year history in the region, was the annual Investing in African Mining Indaba conference, which brought together investors, miners, governments and stakeholders from around the world.

Held this year from 6-9 February in Cape Town, South Africa, the 2017 event was set to attract 2000 international companies across 100 countries and territories.

The four-day conference aimed to advance mining in Africa by highlighting the benefits of investing in the region through corporate presentations and information sessions, and facilitating networking opportunities.

This year’s program included key note speeches from about 150 industry leaders, from Resolute Mining’s Mr Welborn, to African resources ministers, Harmony Gold chief executive Peter Steenkamp, Rio Tinto energy and minerals chief executive Bold Baatar, and Deloitte Energy and Resources leader Andrew Lane.

 

Long term vision

Africa is in the midst of a ‘massive historical shift’, with its population expected to double to 2.4 billion by 2050, according to the Australian Strategic Policy Institute (ASPI) latest report Aus-Africa Dialogue 2015.

“By 2030, most Africans will live in cities, rising to 56 per cent by 2050,” it stated.

 “Africa continues to grow economically, but the International Monetary Fund has cut its growth forecasts for 2016 to 3 per cent as much of the continent reels from the downturn in commodity prices and the related slowdown in Chinese demand.

“If Africa is still ‘rising’, it will do so in the near term at a slower pace than in the heady days of the late 2000s.”

The institute said mining in Africa had a long way to go, and more research, exploration and cooperation between the government and industry was required to realise its potential.

“The minerals sector and governments urgently need to rehabilitate a relationship that’s broken down in recent years, in order to reduce the costs of mining operations and improve trust between all stakeholders,” it stated.

 “Mining companies need to understand governments and be more transparent with them about profits and returns; this can and should be a win–win for the mining companies and the governments.”

ASPI senior analyst Lisa Sharland said the development of a whole-of-government strategy would ensure the government and private sector were well positioned to identify opportunities for broader Australian-African engagement.

“The remote location of African mines, many of them joint ventures with Australian partners and investors, means mine owners often perform a quasi-government role,” Ms Sharland said.

“Admittedly, some of the higher risk African mining ventures can present difficulties for investment and there are ongoing challenges with taxation and revenue arrangements.

“A workshop with African mining stakeholders as well as regional bodies and institutions such as the African Development Bank, the Common Market for Easter and Southern Africa (COMESA) and the African Union, would also be beneficial.”

Ongoing partnerships such as this were deemed necessary for the sector’s growth, and had already been embraced by various groups.