The forecast currency movements over the next decade are likely to deliver mixed impacts for African mining operations, with South Africa’s currency expected to depreciate against the dollar over a ten-year horizon.
BMI Research’s latest report, ‘Currency movements to 2027: Winners and losers in the mining industry’, indicates that currency movements remain an important factor determining mining company profits over the next few years.
The report shows varying currency forecasts among countries for the ten-year forecast period, with Australia benefiting the most from currency movements, while margins on projects in Latin America continued to face pressure from appreciating local currencies.
“As local currencies depreciate relative to the US dollar, operating costs, which include wages and electricity, become less expensive relative to the sales revenue earned and vice versa,” the group says.
The outlook for currencies in Africa, as well as Asia, is mixed.
“The biggest benefactors will be mining companies operating in Guinea, Senegal, Mauritania, Côte d’Ivoire and Zambia, as these countries will see the biggest declines in their currency,” BMI explains.
South Africa, ranking fourth on BMI’s list of the greatest number of projects, at 175, excluding idled projects, will see its currencies appreciate up to 2020 before “changing course” and depreciating, offering miners cost advantages.
“Tanzania, Mozambique, Botswana and Ghana’s appreciating currencies will not add to any cost savings for miners operating in these countries, but may increase equity as the value of their assets will increase,” the report notes.
Operations in Latin America are likely to suffer from stronger currencies, with most major mining countries, such as Chile, Peru and Mexico, experiencing an exchange rate appreciation for the forecast period 2018 to 2027.
“This is opposed to the previous five years, when the depreciating currencies of these very countries offered miners significant cost advantages,” BMI says.
Brazil’s currency, however, will depreciate over the ten-year forecast period.
While the outlook for Asian currencies remains mixed, most major mining nations, including India and China, will benefit from a currency appreciation, bolstered further by significant government benefits already provided, effectively ensuring significant cost savings.
Indonesia, the Philippines, Malaysia and Mongolia will see their real effective exchange rates appreciate against the dollar in the years ahead.
Australian miners will gain the most from a depreciating local currency in the next decade, while Canada’s steady to mildly depreciating exchange rate will curb increases in costs.