Despite potential risk factors associated with mining in Africa, mining services provider Fraser Alexander executive business development head Ken Bouch says the rewards make it worth investing in the mineral-rich continent.
However, before investing in mining services in a new region, the company uses an extensive country matrix to assess potential risks to project development. The matrix takes into account 27 different categories, such as the number of operating mines, dominant commodities and possible new commodities, opportunities for Fraser Alexander service offerings, the legal and regulatory framework, the business language and culture, and potential local partners and competition.
Bouch explains that only African countries that rate about the same or better than those where Fraser Alexander is already based are considered for further investigation, adding that the company then seeks advice from its credit risk insurers and external auditors.
Africa’s attractiveness in terms of mining and resources is evident in first-world countries’ readiness to mine in Africa, where countries, such as Australia and Canada, are particularly active, he adds.
Working with local and global mining industry stakeholders active in Africa, providing mining services, Fraser Alexander has also been expanding its tailings division into Africa. This division provides services involving the deposition of tailings and the operation, maintenance and risk management of tailings facilities.
According to Bouch, the hydraulic mining, or hydro mining, of old tailings dams is on an accelerated growth path. Hydro mining is the process of using high-pressure water jets to repulp the tailings deposits. He explains that many influential mining companies are beginning to consider remining and retreating old tailings dams, owing to the benefits of an additional revenue stream and the improved environmental impact of their projects.
The environmental management of mines is an aspect that CEOs of large mining houses are beginning to emphasise. As mining companies become more aware of the possible long-term impact of their operations on communities and the areas where they operate, and discover that operational efficiency is a result of making a mine more sustainable, more CEOs have made sustainability a priority. This is especially evident in the tailings retreatment and tailings disposal projects undertaken by Fraser Alexander on behalf of its clients.
Fraser Alexander business development senior manager Emmanuel Ngubane adds that hydro mining is growing significantly in Africa, as many new projects on the continent involve surface, rather than underground, mining. He explains that hydro mining and the remining of old tailings dams “are very quick to generate cash flow”, which holds significant appeal for major mining companies looking to invest in the African mining industry. This Fraser Alexander says, is owing to its hydraulic mining solutions enabling its clients to unlock value from their dormant tailings facilities.
Bouch explains that “the ‘mining’ costs are a fraction of that of underground or opencast mining and less time is needed to establish a hydraulic mining site”.
Hydro mining is a labour-intensive, rather than capital-intensive, service, he adds. Not only is it easy to export labour services into Africa, if needed, but Fraser Alexander also fulfils localisation policies in countries through such projects. Thereby, fewer expatriates are needed for mining services and projects, prioritising local labour and skills development, which allows for educating and training of locals, Bouch notes.
Capital-intensive service offerings, such as water treatment and mining construction, pose more risks that need to be mitigated and properly managed to expand further into Africa. Therefore, Bouch emphasises the critical importance of undertaking country, client and currency risk analysis, which is why Fraser Alexander is taking its time to implement plans to broaden its footprint across the continent.
The company’s construction team remains focused on aggressively pursuing projects in Africa, most notably for bulk engineered earthworks.
Fraser Alexander also decided to place a permanent business development senior manager in Zambia in August 2016 to further pursue mining opportunities and create a business development hub to cover Zambia, the Democratic Republic of Congo (DRC), Tanzania and Zimbabwe. Subsequently, two new hydraulic mining contracts have been completed in the DRC, one tailings deposition contract has been secured in Zambia and a third DRC hydraulic mining project is to be commissioned in September.
“The continued presence of a senior business development manager as the face of Fraser Alexander has definitely contributed to this growth,” states Bouch.
Further opportunities have also arisen in Botswana, Namibia and Tanzania.
Risks and Developments
Bouch and Ngubane have outlined four main risks and challenges associated with mining in Africa. Political risk may arise when new governments come into power, requiring companies to understand, as well as adapt, to possible policy changes.
Exposure to the exchange rate constitutes the second risk, says Ngubane, with Bouch adding that historically, operating in Africa meant that contracts were set up in the foreign currency of the investor’s country of origin. However, countries are now beginning to shift to local currencies, which makes mining in Africa cost effective for the international companies involved, but places the burden of exchange rates and currency risk on Africa.
Bouch and Ngubane also note the lack of skills in Africa, especially for highly specialised mining service providers such as Fraser Alexander. Training new workers to deliver services in accordance with the company’s standards takes time and, although this is a worthwhile investment, there are not many such workers in Africa who have the skills required to deliver specialised mining services.
The final challenge facing investors in the African mining industry is insufficient logistics. Moving minerals and mining equipment from inland countries to ports continues to dull the allure of mining in Africa, owing to the limited transport-related infrastructure of remotely situated mining projects.
Not surprisingly, Bouch says the bulk of infrastructure developments around mining involve logistics. Owing to the inland locations of most mineral-rich African regions, railway lines are being built in, for example, Mozambique and Zambia, to ease the burden of logistics.
Electronic news platform Lusakatimes reported in March that feasibility studies to the value of $2.5-million would start in September for the construction of a fast freight railway line to connect the Luapula and Northern provinces, in Zambia, to Lubumbashi, in the DRC, following the signing of a memorandum of understanding.
Online shipping news platform Hellenic Shipping News also reported last year that the construction to build a 500 km railway line between Moatize and the Sophino region of Mozambique, including the deep-water Port of Macuse, was due to begin in the first quarter of 2017. Construction is currently under way.
Transporting minerals mined in bulk, namely iron-ore, copper and coal, compared with minerals mined in smaller quantities, such as gold, is a costly and laborious process; and one of the main issues, especially in the DRC and Zambia, is having to transport copper to the coast or transport it by truck to South Africa for export, Ngubane concludes.