Following a decade of over-exuberance, the mining industry is now picking up the pieces, and is in full re-structuring mode. More than half of the top 40 global mining companies’ chief executives have either left or have been replaced over the past two years, the industry has taken a cumulative US$57-billion in impairments in 2013 alone, and the market is in the middle of experiencing the after-effect of the capital splurge on new projects through over-supply risks in several key commodities.
The impact of this on African resource projects has been significant. The junior mining market, be it in Canada, UK or Australia has been starved of capital for several years now, with little appetite by equity investors to support projects in risky jurisdictions, particularly when requiring multi-billion dollar infrastructure solutions. “The companies with the balance sheet strength that could have carried some of the more promising projects through the cycle have put many of their capital intensive greenfield projects on hold or are in the process of disposing of them– shareholders have taken nasty value blows through capital overruns and heavy impairments,” says RMB business development director: Resources Henk de Hoop. “The mood has shifted sharply towards cost cutting, capital preservation and enhanced dividend yields.”
The impression that China will take on anything resource rich in Africa needs an adjustment. The bulk of the Chinese overseas ventures into the African resources industry have been similarly painful, with the Chinese estimating that some 70% of all transactions have not provided adequate returns to shareholders.
One important aspect that is often missed in the assessment of the post-boom Africa resources landscape is that the rapid acceleration of exploration expenditure and footprint across the continent seemingly proved an enormous hidden resource wealth. However, this in-the-ground wealth will still require globally competitive capital, operating and regulatory costs in order to be extracted profitably and with adequate returns – particularly to remain competitive in more ‘normalised’ commodity markets. And this is where Africa (as well as many other resource-rich regions like Australia and South America) is going through a particularly hard reality check.
However, in downward cycles, it is easy to get too over-pessimistic and, as a result, be unprepared for the next cycle. RMB, one of the sponsors of the upcoming Joburg Indaba, is therefore actively driving its African strategy, broadening its country footprint, and sourcing new transactions aggressively. “We have become more selective about which commodities to support from a funding perspective,” De Hoop says. “We consider attractive commodities to support as West African gold, copper, diamonds, manganese, coal (the latter two particularly in South Africa) and oil and gas.”