Rationalisation and the resulting consolidation in the mining industry will become a key industry imperative, since little significant improvement is expected in commodity prices this year, states mining consultancy Core Consultants MD Lara Smith.

“The mining industry will have to see the start of some consolidation and the rationalisation of bulk commodities, such as iron-ore, over the next three to five years.”

Smith reasons that mining companies and commodities will consolidate as a result of current overproduction, which, to date, has not been scaled back sufficiently. Moreover, consumption has not adequately improved to result in a material change in commodity prices and, thereby, returning investment, she laments.

“The effects of the commodity price slump and oversupply are evident in several incidents, where mining majors, such as Anglo American, Lonmin and Glencore, opted for divesting shares and assets, cutting costs, or closing or idling mining shafts.”

These challenges have also been exacerbated by a prolonged period of “cheap money” being driven into the industry by China, in which the buying of commodities – regardless of whether necessary – is promoted, Smith tells Mining Weekly, arguing that this hampers the promotion of fundamental buying.

“Consequently, the market will require an extended period, possibly to 2017, for the excess commodity stocks to filter through the global supply chain,” states Smith, who will speak at the 121 Mining Investment Cape Town Conference this year. The conference is one of several conferences running in parallel with the Investing in African Mining Indaba – which will run from February 8 to 11 at the Cape Town International Convention Centre – to target and facilitate interaction among key mining industry stakeholders and role-players.

Smith, therefore, deems the Mining Indaba to be a purposeful platform for the dissemination of key discussion points on supply chain issues facing the mining industry, as well as to provide some clarity on the future of the mining sector in South Africa and the rest of Africa.

End-User Investment
Consolidation will also be driven by the lack of investment capital from traditional sources and miners in the mining industry, coupled with an expanding modern world driving technological advancements, Smith says.

Technological developments, in particular, require critical commodities such as cobalt, lithium, bauxite, tantalum and tungsten. Bauxite is used extensively in aluminium for the automotive industry. “While some of these critical metals are mined and used in small quantities, they play a critical role in technologi- cal advancement, as they are used in batteries, cellphones, light-emitting diodes and wind power, as well as electric and hybrid vehicle technology.”

Smith, therefore, believes that a new wave of mining investment will be boosted and facilitated by the more “unlikely” critical metals end-users further down the value chain, which are likely to invest in the early- stage development of mines or in those producing mining companies that are now marginal and need further investment to carry them through the cycle.

“These end-users, [as] the custodians of their own value chain, will have to source clean raw material, as well as secure supply or offtake for these sources.”

End-users that have recognised the benefit of such investments include automotive producer Toyota, which spent $150-million on Argentina-based chemicals and minerals company Oro Cobre’s lithium mining project in 2012, and steel producer Sinosteel’s acquisition of Zimbabwe Mining & Smelting Company in 2007. Most recently, electrical automotive manufacturer Tesla Motors announced that it will be investing in lithium assets to supply its electric vehicle gigafactory.

There has also been a rise in enquiries from end-users expressing interest in the mining industry and requesting commodity reports from Core Consultants, Smith adds.

The consultancy has consequently been involved in determining supply chain origins for several multinational end-users. To expand business, these companies are re-evaluating the source of their supply chains and pursuing collaboration with ethical partners to support clean sources and potential offtakes.

“Africa, being home to several of the critical metals . . . [and] yet untapped commodities, has a distinct role to play in providing supply chain origins, such as for bauxite, tungsten and tantalum,” Smith avers.

She highlights bauxite, which is currently sourced from Australia, as a potential critical metal that will attract great demand in the near future. Increased production of the commodity will be kick-started by the opening of new bauxite mines in Guinea in the next year, with new projects also earmarked for Cameroon and Ghana.

“Bauxite’s outperforming other commodi- ties being mined in West Africa could be attributed to current challenges, such as the difficulty of acquiring mining rights to mine bauxite in Australia, thereby creating dependence on new sources from Africa,” Smith concludes.