Resources are the key factor driving investment demand in mining operations worldwide, with Africa hosting an abundance of mineral wealth to attract investors. However, African countries need to decrease the risk of investing in their mining industries to improve investor interest, says African mining platform MineAfrica president and Canada-South Africa Chamber of Business president Bruce Shapiro.

He mentions that, when considering whether or not to invest in the mining sector of a particular African country, it is recommended that investors become familiar with, and understand, the country’s risk profile.

“Africa is not homogenous and therefore there is no single solution to solving the same problem experienced in different African countries. Each country has its own factors that have to be taken into consideration,” explains Shapiro.

“After deeming the country’s risk pro- file to be acceptable, and taking into account various methods of offsetting some of this risk through insurance and legal structures, then the return on investment (ROI) is the next criterion to evaluate. In that calculation, all the other factors, such as infrastructure, the tax regime, transferability of earnings and capital, come into play,” he says.

The time required before production starts and the various environmental issues experienced by the country are also dealt with in establishing the ROI.

If the return is sufficient to cover the risk, then an investment is made, says Shapiro. However, a changing political landscape or even a higher tax rate can change things rapidly and risk mitigation strategies need to be in place for these types of occurrences. The availability of skilled labour is also a significant factor to consider.

Meanwhile, Shaprio notes that MineAfrica was started in 2002 as there was no platform for Africa-focused mining companies, service providers and governments to cost-effectively communicate with North America, the mining finance capital of the world, and Canada specifically.

“Many of these companies, and particularly the African governments, did not have the ability to network successfully as they had few contacts in Canada,” he adds.

He explains that the Canada-South Africa Chamber of Business’ and MineAfrica’s databases are Africa friendly, and both organisations enjoy good relationships with most of the companies and finance houses that deal with Africa. As a result, MineAfrica is able to offer the benefit of its Africa-friendly audience to anyone presenting or taking booth space at events held by the organisation to improve business relations between mining companies and the African mining industry.

“To develop a prescreened contact and network base would typically take several years of hard work. Our success in Canada, and requests from our clients, led us to start the Investing in African Mining seminar, in London, UK, which we run the day before mining exposition Mines and Money, in late November or early December,” says Shapiro.

He says that investment in the African mining industry has increased signifi- cantly over the past ten years.

“The origin of these investments is both from the West and the East, with China leading the way in the last several years. Some western countries are ham- pered by shareholders who will not sanc- tion investments in African jurisdictions that do not have the transparency that is expected and, in some cases, western companies have had to exit certain jurisdictions as a result of shareholder pressure,” explains Shapiro.

However, he says that Eastern investors are not hampered in this way.

Therefore, Shapiro suggests that each jurisdiction determine the type of investment most beneficial to its country. He asks whether this is investment that is sustainable and helps the country and communities to grow, or investment without social commitment.

“All jurisdictions lost investment during the recession, with more risky jurisdictions losing the most. Banks and investors are now looking for high- quality, low-risk investments. Independent international research and educational organisation the Fraser Institute, in Canada, issues an annual mining survey, which ranks 71 jurisdictions.

“This survey is widely used in the mining industry and those jurisdictions that were viewed as less or least attractive suffered the most during the recession. There was a drive to improve quality and many junior mining companies worldwide disappeared,” says Shapiro.

The Fraser Institute currently ranks Botswana as the most attractive African country for investment in mining, followed by Mali, Ghana, Burkina Faso and Namibia.
Shapiro adds that investment in African mining operations has increased in 2010, but the current uncertainty arising from the potential economic problems in Europe is a serious concern. This will move money to the more stable jurisdictions or put some investments on hold.

Meanwhile, he believes that there have only been minor structural changes in the financing world since global economies were hit by the recession of 2008 and, therefore, the road ahead is uncertain and potentially rocky.

“However, commodities like gold do well in this environment, as do all commo- dities that are considered a hedge against uncertainty, so there will still be investment in these areas,” Shapriro concludes.

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