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Miners set sights on West Africa as the next big iron-ore destination

25th October 2013

By: Chantelle Kotze

  

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West Africa’s significant untapped resources of high-grade iron-ore are attracting significant international attention, which has resulted in a withdrawn interest in Australia’s iron-rich Pilbara region.

West Africa-focused iron-ore exploration company West African Iron Ore CEO Guy Duport tells Mining Weekly that the addi- tional interest in West Africa from iron-ore majors such as mining giant BHP Billiton, Brazilian mining company Vale and diversified miners Rio Tinto and GlencoreXstrata, has highlighted West Africa’s emerging as the next significant iron-ore region.

He says these companies are taking West Africa seriously and all have a presence in the region, owing to the wealth of iron-ore deposits, the low entry barriers and future revenue potential, as a result of expending market economies in China and India.

“There is general consensus that global demand for iron-ore is increasing and will potentially double by 2030. In light of this, it is unlikely that Australia and Brazil alone will be able to meet this massive demand. West Africa, however, looks capable of filling this deficit,” notes Duport.

Junior miners from Canada, Australia and the UK have been active all over West Africa, having made some important discoveries in the last three years.

Duport says there is a minimum of 20 potential mines that could open in West Africa, in Liberia, Guinea, Sierra Leone and Mauritania, from 2015 to 2020. These mines may produce a combined output of up to 600-million tons a year.

Several companies have already started ope- rations in West Africa, such as Rio Tinto, with its Simandou project, in Guinea; exploration company Sable Mining Africa, with its Nimba iron-ore project, in Guinea Vale, with its acquisition of 51% of diversified natural resources business BSG Resources, in Guinea, and the Mount Coffey Hydro Plant restoration, in Liberia; BHP Billiton, with its Garmu mine, in Liberia; and GlencoreXstrata, with its Zanaga and Guelb El Aouj projects, in Mauritania, and the Marampa mine, in Sierra Leone.

Global steel and mining company ArcelorMittal is also considering potential acquisitions in West Africa, he notes.

Duport maintains that over the next five to ten years, steelmakers are expected to continue integrating vertically with suppliers by acquiring iron-ore operations, which will benefit West Africa.

While there may not be any outright acquisition, Duport says more strategic alliances between junior iron-ore companies operating in West Africa, major mining companies and Chinese steelmakers will be forged.

“Steelmakers, pressured by high iron-ore prices driven by growing demand, are interested in operations outside Australia and Brazil, and West Africa seems to be their number one destination, having invested several billion dollars over the last five years in mining and infrastructure projects in West Africa.”

Political Climate
Although there is some political uncertainty in the region, West Africa is becoming more attractive as mining companies look for the next frontier. “Many countries in West Africa are struggling with their democratic process, as did the developed world since the early twentieth century.

Political risk remains a primary concern for businesses in West Africa, and although demo- cracy is more firmly established with coups and civil war becoming less frequent, ethnic, religious and socioeconomic rifts still give rise to terrorism and political violence.

Foreign companies must assess and mitigate a myriad of risks, such as political instability, unequal development, poverty, disease and violence, to play a role in West Africa’s growth.

Duport says that African countries welcome the investment, but are always suspicious of foreign companies “coming in, taking the resources out of the ground and causing environmental damage”.

Other risks facing the mining industry in West Africa include the nonapplication of good governance and transparency policies by companies and governments, which is a must for such newly rooted democracies.

While West African countries adhere to international codes of ethics, these are not always respected and this can create a climate of suspicion and insecurity for mining companies and their management.

Duport suggests that a better understanding of the parties’ cultural differences can mitigate some of the difficulties currently faced by mining companies in West Africa.

The implementation of corpo- rate social responsibility programmes can also assist in mitigating risks, says Duport, adding that “as foreign companies or investors, it must always be remembered that companies and investors are only welcomed guests in the country”.

Local communities need to be encouraged to understand that mining companies aim to create sustainable development that will result in not only value for shareholders but also economic growth and stability.

Other challenges prevalent in West Africa include a lack of infrastructure to transport iron-ore from the mine site to the port for export, a lack of stable and cost-effective power supply, climatic risk factors and limited access to a skilled workforce.

Despite these issues, Duport says the increased development of mines will result in the parallel development of roads, rail and ports or the rehabilitation of existing infrastructure.

To solve the infrastructural challenges, mining companies can also cluster their projects, which would enable them to share infrastructure costs.

While West Africa’s mining industry may have barriers to entry, the region provides several opportunities and advantages for the mining industry. These include access to large, high-grade reserves of iron-ore, which lowers production costs and typically yields higher prices; a mining-friendly approach with supportive legislations that benefits the extractive industry in most West African countries; economies of scale; and ownership links with steel manufacturers in Europe, China and India that permit easier access to markets when demand is weak.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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