Disappointing returns over the previous commodity supercycle have resulted in declining investor confidence in the global mining industry, subsequently reducing capital inflows and negatively impacting on the African mining industry, professional services firm KPMG global head of mining Wayne Jansen tells Mining Weekly.
“There has been a definite downturn in the development of new mining projects world-wide, as a result of declining global com-modity prices,” says Jansen.
This presents a significant challenge for the African mining industry, which continues to face the challenges of a lack of infrastructure and violent conflict, impacting on investor confidence in the development of new mining projects on the continent.
He notes that countries, such as South Africa, the Democratic Republic of Congo, Burkina Faso, Ghana, Guinea, Mali, Zambia and Zimbabwe tried to take advantage of the recent commodity boom, which ended with a sudden decline in commodity prices in 2012, but has not stopped these States from pursuing various forms of resource nationalism.
“However, the cancellation or deferral of many mining projects has resulted in governments currently having to reassess their policies to re-attract investment capital to their local mining industries.
“The South African mining industry – which is, historically, a global mining power- house – has also suffered setbacks, with continued policy clarification and application issues, as well as labour unrest,” Jansen explains.
He comments that, owing to low levels of investor confidence in the mining sector, access to capital has diminished significantly and that “as a consequence, only quality projects with low levels of investment risk are being funded”.
Jansen notes that governments still pur-suing resource nationalism have a lower chance of securing investment. “KPMG is noting that certain African countries, such as Guinea, are beginning to relax their tax policies and free-equity require- ments, as they are actively considering ways to compete for investment capital.”
He adds that two fundamentally important criteria – the availability of sufficient quality deposits and the ease of doing business in a country – help enhance an African country’s attractiveness for investors.
Jansen cites Botswana, Ghana, Mozam-bique, Namibia, Tanzania and Zambia as having the necessary mineral deposits to warrant the development of new projects, but notes, however, that the ease of doing business varies from country to country.
“Generally speaking, I believe all these countries have two positive aspects in common – they are politically stable and are actively trying to attract capital to develop their mining industries. “These governments have recognised the value of their country’s undeveloped assets and their need to attract foreign and regional capital to unlock this value,” he adds.
According to the ‘Survey of Mining Companies’ report, which was published in February by Canada-based independent nonpartisan research and education organ-isation Fraser Institute, Botswana ranks as the most attractive mining destination in Africa, followed by Morocco and Namibia.
“What investors are looking for is the clari-fication of mining and tax policies, followed by the consistent and transparent application of these policies. “This eases the decision-making process with regard to large, long-term investments.
“I still believe Africa has some way to go to mature as a mining destination of choice, but the key will be to avoid overregulation and for investors to be equitably rewarded for the risks they are taking,” says Jansen.
Meanwhile, investments from China con-tinue to flow into the African mining industry, although the impact of these investments on the continent is yet to be fully determined.
“Chinese investments have largely been made on a government-to-government basis, as African governments have financed infra- structure development in return for resources,” he says, noting that there are rumours of dissatisfaction among communities and labour in Ghana and Zambia with regard to using Chinese labour as opposed to indigenous labour for African projects and noncompliance with labour policy.
“This is similar to the Australian situation about two years ago, which had Australian labour unions push back on the Australian government relaxing their foreign labour laws to allow Chinese workers to work on Australia-based mining company Hancock Prospect’s Roy Hill iron-ore project. “It seems that because of the slowdown in the economy they may no longer need these Chinese workers, which is now causing ten-sion,” notes Jansen.
From a geographical perspective, he says the greatest potential for the African mining industry lies in West Africa’s iron-ore deposits, as demand for iron-ore is expected to increase over the next 30 to 40 years, based on an Asian lifestyle adjustment.
“Going forward, this will equally apply to Africa, as the African market develops and urbanisation increases. However, power infra-structure backlogs have hindered further pro-cessing of resources,” he comments.
Jansen further highlights that the iron-ore sector is a future opportunity for the mining industry, as Africa will move towards higher levels of industrialisation – away from exporting only raw materials – and exporting value-added processed products.
He adds that one of the greatest challenges currently facing the African mining industry is the need to restore its cost competitiveness, which has deteriorated as a result of an out-dated labour model leading to increasing levels of labour unrest and lower levels of productivity.
“In the context of the South African mining environment, the restoration of trust between government, labour and business is a significant challenge. “Government needs to take a strong leader-ship role in getting all parties to collaborate to develop a shared vision for a new mining industry.”
Jansen adds that skills shortages, govern-ment bureaucracy and corruption, as well as infrastructure backlogs in power supply, road, rail and port, are key issues that continue to pose challenges in the development of the mining industry in Africa.