African governments should prioritise infrastructure development to attract foreign investment to the continent, which boasts a wealth of mineral resources, says South Africa-based midtier mining consultancy Ukwazi Group.
Company director Hugo Tukker tells Mining Weekly that a lack of sufficient infrastructure and clear legislation remains a significant challenge for Africa, causing prospective mining projects not to be initiated at times.
“Angola, for example, has extremely good deposits of diamonds and iron-ore, but most of these deposits are in remote locations. In most instances, when considering business feasibility, the cost of accessing these remote areas – in terms of building a road to get to the area, constructing power lines or simply transporting diesel to the site for generators – is huge.”
He also cites a lack of predictable legislation as a challenge, which results from governmental changes, as new governments may want to enforce certain rules that were not enforced by a previous government.
Tukker advises African countries to work on creating standardised legislation that cuts across all mining operations and clearly outlines regulations that stipulate mining companies’ responsibilities in terms of job creation, infrastructure development, community development, beneficiation, royalties and taxes.
These regulations must ensure that communities, and not just governments, benefit from mining operations, says Tukker, adding that the benefits should include training, education and job opportunities. Companies should also ensure that taxes and royalties are used to build the necessary community infrastructure, such as schools, clinics and roads.
Tukker tells Mining Weekly that industry stakeholders need to take into account Africa’s historical context to fully grasp the challenges facing the continent’s mining industry. They also need to have a thorough understanding of the risks associated with mining on the continent to be able to formulate working and lasting solutions.
“Zimbabwe, Zambia and the Democratic Republic of Congo, for instance, had fairly large mining operations that were run by international mining houses during the colonisation period. “These assets went through a transition period, where most of these mines were nationalised and mined by government institutions during the independence period.
“This led to a decline in the operations’ profits and contribution to the countries’ economies. In the mid-1990s, these governments started to open their doors to foreign investment. Initially, most of the major investments – from the mid-1990s to about 2008 – were from Canada- and UK-based private companies,” explains Hugo.
He adds that there has recently been increased interest in investing in Africa from China- and India-based mining houses, with the traditional Canada- and UK-based companies being more cautious in their investment decisions.
“This is mostly because Chinese and Indian companies have a larger appetite for risk, as opposed to traditional Toronto- and UK-based companies that have strict profiles they like to adhere to and, therefore, take on minimal risk,” he details.
Tukker mentions that the initial fears of African industry stakeholders – that Chinese and Indian companies would sideline locals in favour of using their own labour complements to work on Africa-based projects – have been allayed.
“However, these companies do tend to use Chinese equipment, which is usually cheaper than typical European-manufactured equipment.”
Tukker explains that the cost of mining in Africa remains high, even for companies with an appetite for high risk, because of the expense incurred when acquiring mining machinery for mining projects and the continent’s lack of infrastructure. This is usually compounded by a site levy of between 15% and 20%.
However, he highlights that, with African democracies becoming more stable, the mining industry is showing a renewed interest in preindependence mines and deposits and is also exploring for new discoveries, which Tukker says is important for growth in Africa’s mining industry.
About Ukwazi Group
Ukwazi Group is a mine planning and engineering services provider in Africa, established in South Africa in 2004. The company specialises in using and interpreting various mine planning software systems.
Tukker says that, in terms of mine design, Ukwazi Group’s services include advising clients on the feasibility of projects.
“Considering all forms of taxes, an African project should typically have an operating margin of 35% at concept level for start-up mines to justify capital investment, when one considers the cost of funding, payback and risk profile.”
Ukwazi has several major min- ing companies as its clients, includ- ing gold major AngloGold Ashanti; platinum producers Anglo Ameri-can Platinum, Impala Platinum (Implats) and Lonmin; copper/cobalt producer Glencore – under Kamoto Copper Company; iron-ore major Kumba Iron Ore; diamond producer Gem Diamonds; and diversified mining groups BHP Billiton, Exxaro and Glencore.
In recent months, the consultancy has worked on projects for Implats, Glencore, Kumba Iron Ore, China iron and steel trader China Minmetals Corporation, diamond producers Petra Diamonds and Gem Diamonds and midtier mining group Metorex.
Ukwazi Group boasts a staff complement of 28 employees, including 14 mining engineers, 11 mine planners and three administrative employees.