Africa is attracting growing volumes of international mining capital, following the global economic downturn, which impacted favourably on international investors’ perception of the continent as a favourable and reliable region for investment, claims international law firm Allen & Overy.

Partner Meredith Campion tells Mining Weekly that, this year, Allen & Overy was involved in several African mining transactions across a variety of jurisdictions and commodities. This included advising the government of an East African country on drafting and negotiating model mining concession agreements; advising a miner on the acquisition of a bauxite project, in Guinea, and a copper project, in Morocco; and advising an iron-ore miner on the development of a new project in South Africa.

Campion says several African States have recently adopted or are in the process of adopting new mining laws with provisions that facilitate participation in mining activities by international companies. “However, this also creates a more prescriptive regime for local and State participation in mining projects, and for community development.”

African governments are increasingly promoting private investment and are aiming to create transparent legislative, regulatory and contractual frameworks for investment, says Campion.

She adds that, in addition to the introduction of improved legal regimes to promote international investment, the law firm has noticed a shift in the mix of foreign investment coming into Africa.

“While China has dominated African investment in recent years, there is currently growing interest from . . . India, Japan, South Korea, the Persian Gulf and Latin America, as well as from Europe, the US and Australia.”

Key Challenges
Allen & Overy partner and joint global mining head Geoff Simpson highlights the Ebola epidemic as one of the most topical and publicised challenges currently facing mining companies in Africa.

“Nevertheless, most mining operations have continued in West Africa, although there are practical, financial and humanitarian risks involved in continued production,” he says, adding, however, that mining costs have risen, as supplies have been delayed.

“The [workforce] has also been significantly disrupted, as some workers are quarantined while others, mostly those comprising the foreign workforce, attempt to leave the affected countries.”

Traditionally, investing in Africa entails different risks, compared with investing in more developed markets. “Political risk and government instability also remain important considerations,” says Simpson.

He highlights insufficient infrastructure as another practical challenge for mining companies investing and operating in Africa. “Infrastructure for transport, water and energy is a significant portion of any capital allocated to a mining project in Africa.”

Remedies
Campion says it is important for investors to understand the risks inherent in every stage of a mining project. “Each stage of development comes with its own challenges and opportunities. How investors account for those risks and minimise their impact will depend on the stage of the development.”

Greenfield sites require more relationship management with key government personnel, she adds, stating, however, that brownfield projects have fewer uncertainties to mitigate.

“It will, nevertheless, be important to maintain open dialogue with government Ministers and regulators,” concludes Campion.