MAPUTO (miningweekly.com) – As high costs, thinning margins, commodity price volatility and labour relations weigh on mining companies, multistakeholder collaboration was becoming a necessity for project survival, KPMG partner and global head of metals and mining corporate finance Rama Ayman said on Wednesday.
Companies, governments, labour and community stakeholders were starting to realise that cooperation and compromise could lower cash costs and reduce the related challenges.
“The demise of a project is usually caused by unilateral action of one of the stakeholders,” he said, citing, besides others, governments’ regulating or guiding terms of development without concern for companies’ requirements, excessive and unsustainable labour and community demands and companies not taking into account the other parties’ requirements.
He believed that, by necessity, convergence was a trend that would – and must – occur within the next five years.
Stakeholders would be forced to get together to create successful operations, delivering shared values and benefiting all parties.
“Failure to do this would lead to the failure of the project,” he said, as government would pull back benefits, while labour strikes and communities protest, threatened security.
This would, in turn, lead to delayed projects, companies facing bankruptcy, the closure of operations, job losses, an inability to attract funding and overspent budgets, as was currently seen in South Africa.
The embattled mining sector in Africa’s biggest economy had recently seen the mothballing of several operations as the industry came under pressure from high costs, including wage and electricity hikes, volatile commodity prices, staggered demand and labour unrest.
KPMG partner Manuel Fernandes Rodrigues de Sousa said it was imperative that the extraction of mineral resources benefited a country, in the form of education for its people and infrastructure development, for example, long after the ore was depleted.
Africa was richly endowed with mineral resources, holding the world’s second-largest or largest reserves of manganese, diamonds, platinum, bauxite, cobalt and zirconium.
Brazil-based companies, such as Petrobras and Vale, were maximising “Africa’s momentum” as they moved to invest and develop projects throughout the continent.
De Sousa noted that Africa offered similar potential to that of South America, with “good opportunities” and that countries in Africa could learn lessons from Brazil, as the South American country had experienced similar tribulations in the development of a successful mining industry.
Educating investors about the risks of mining, developing a stable political environment and staying consistent, particularly with contracts, was key in an increasingly volatile industry.
The continent had experienced a surge in investment appetite over the past decade, from attracting only 5% of global exploration and mining development expenditure in 2000, to 15% by 2012.
KPMG noted that the future of Africa’s mining sector remained bright and “huge tracts” of the continent remained “unprobed”.
An earlier KPMG report had suggested that the continent’s commodity boom would, in part, be dependent on China, which was Africa’s largest mineral importer and fastest-growing trading partner.
China continued to satiate its appetite for the world’s resources and accounted for between 35% and 60% of global demand of each commodity as it built its nation.
China, which had now reached a population similar to that of the global population a few decades ago, would continue to grow at an above-average growth rate, which had resulted in the Asian country’s import of a vast majority of the world’s minerals, Ayman noted.