The current state of the local mining and exploration industry is not healthy, owing to a combination of unrest in the labour sector and low com- modity prices, professional services firm Venmyn Deloitte exploration analyst Andrew de Klerk tells Mining Weekly.
He notes that if there is trouble in the mining sector, it will have an effect on the exploration sector.
“Labour disputes and wage strikes create unease and worry within the sector with regard to productivity. This is having an effect particularly on local gold and copper exploration,” de Klerk says.
He explains that investment in exploration comes down to government creating an atmosphere of confidence for investors wishing to invest in South Africa, adding that, in this regard, a lot of work is being done by both government and the private sector to avoid clashes and disputes between unions and employees.
“If there is no confidence in a govern- ment’s ability to provide mining and exploration permits in the name of those who wish to produce or explore, that is, without tenure being secure, there will not be a lot of investment in the sector – security of tenure is paramount,” De Klerk notes, adding that investment in exploration requires “a confident environment that investors can warm to”.
“If there is a lack of confidence in tenure security, investors are likely to look north of South Africa’s borders for more viable exploration opportunities,” he states.
In Africa, there are large regions that are synonymous with certain commodities, notes De Klerk, pointing out that West Africa is becoming one of the largest gold provinces of the world.
“There has been a lot of interest from foreign investors in gold and bulk commodities in that region, which remains largely untouched, particularly bauxite, in Guinea, and iron-ore, in Liberia,” De Klerk notes.
He explains that, despite its checkered past, West Africa has become more politically stable, considering countries such as Sierra Leone, Liberia, Guinea and Côte d’Ivoire.
De Klerk further points out that large companies, including diversified majors BHP Billiton and AngloGold Ashanti, are active in these countries.
“In East Africa, there are a lot of exploration opportunities and a lot of active exploration projects. There are also large ongoing projects, including uranium exploration projects in Tanzania, and gold exploration projects in northern Mozambique and northern Tanzania. Ethiopia is currently one of the most prospective ‘hot’ properties of Africa,” he notes.
He states that Ethiopia is an investor-friendly jurisdiction to work in, as the country’s infrastructure is rapidly developing. The country also hosts a variety of commodities in the Danikil Depression, including the mining of potash, while there are gold development opportunities in its northern and southern regions.
De Klerk adds that there are base metal exploration opportunities in Namibia, Botswana, Zambia and the Democratic Republic of Congo (DRC).
“There are investor-friendly environments in those regions, with, perhaps, the exception of the DRC. The DRC is a very prospective country, owing to its size and favourable geological setting. However, it is a remote area with largely no infrastructure,” he states.
He adds that the DRC, in conjunction with Uganda and Tanzania, has one of the biggest oil and gas exploration opportunities in Africa, including Lake Tanganyika, Lake Albert and Lake Edward, in the East African Great Lakes area.
De Klerk notes that there is a justified perception that the various jurisdictions of Africa regularly undergo often destabilising political sea changes. An area of Africa may be stable, only for it to become politically unstable a few years later.
“Political reform studies pertaining to Central Africa have indicated that, every 12 years, one of these countries suffers political unrest or civil war, and it’s this kind of unstable environment that can make an area difficult to operate in,” he says, adding that there is minimal long-term political stability in many areas on the continent.
This is a challenge for exploration companies attempting to get projects under way in such areas, he says, adding that many exploration fringe projects in these jurisdictions are often mothballed early on owing to such political unease. This is especially prevalent in many of the francophone African countries.
“Low commodity prices are also a big challenge for exploration companies. If there is low demand for a specific commod-ity, companies will inevitably not explore for it, or explore for it in cheaper areas. Essentially, commodity prices dictate exploration project localities.
“For example, if the commodity price of gold is low, gold exploration projects may be focused in other jurisdictions where support infrastructure is well established, access is easier, security of tenure is not a concern and where it is easier to raise project funding. In such market circumstances exploration companies would rather conduct exploration for the commodity where it is easier to do so,” he explains.
Potential for growth
De Klerk points out that bulk commodities have great potential for growth in Africa, especially bauxite, in West Africa, and copper, in Southern Africa, Zambia and the DRC.
“Copper is driven by the Chinese economy, which is currently not faring well, and a lot of reliance for construction is placed on the demand from China,” he concludes.