Africa is endowed with abundant natural resources; however, while mining prospects are undeniably very positive across the continent, opening and operating a mine comes with a set of fairly unique risks.

Conducting business in Africa includes challenges such as relatively fluid regulations, unpredictable cashflows, a lack of infrastructure and corruption. Moreover, many parts of Africa are also subjected to political violence, ethnic tensions, civil unrest and terrorist activities. These types of activities present very real challenges for mining exploration and development.

This ‘resource curse’, law firm Herbert Smith Freehills partner Peter Leon contends, is primarily owing to market-related factors – particularly commodity-price fluctuation – which are, in turn, aggravated by political factors, most notably institutional quality and rent seeking, he says.

Further, increasing resource nationalism, tax and royalty burdens have resulted in many investors perceiving certain parts of Africa as high-risk ventures.

Nedbank Corporate and Investment Banking mining analyst Arnold van Graan argues that, to improve investor confidence in the African mining sector, governments need to “stop seeing mining companies as cash cows that fund bailouts every time a financial crisis hits”.

Instead he advocates that governments provide a stable, business-friendly operating environment, and secure and clear mining legislation to attract investments from responsible mining companies.

Such efforts would create the opportunity to invest in, for example, the battery- and electric vehicle-related commodities that are in many investors’ sights, but which are located in jurisdictions such as Burundi, the Democratic Republic of Congo, Zambia and Zimbabwe, which are currently not very investor friendly.

Nonetheless, Africa currently offers a very compelling mining proposition, with several excellent prospects in many parts of the continent. These include very strong growth, particularly in the gold sector, in West Africa, solid momentum building in the East African corridor, particularly in Tanzania and Ethiopia, and even Eritrea, which has recently opened its doors to mining investment.

This report is a summary of information published in Engineering News and Mining Weekly, as well as of information available in the public domain over the past 12 months.

The report does not purport to provide analysis of market trends.

Published on 12 March 2020.