The current outlook for the mining industry in Africa is characterised by cautious optimism, with several areas of concern and key challenges to be overcome, investment and development adviser Africa Practice analyst Kathryn Brooks tells Mining Weekly.

“Many operators in Africa are facing weaker commodity prices and rising costs, which are squeezing companies’ profit margins,” she says.

Brooks adds that governments are going to have to carefully navigate the tougher market conditions to ensure that investment in the sector continues, while also ensuring that a greater share of the benefits of the mining industry reach the right people in the countries in which the mining companies operate.

“Some countries, such as Ghana and Zambia, are striking the right balance thus far, as they implemented mining royalty rates in 2010 and 2011,” notes Brooks.

Mining Weekly reported in May 2012 that, in recent years, Ghana has increased its gold royalty from 3% to 5%, with the company tax rate also increasing from 30% to 35%, while Zambia’s tax revenues from copper mining have increased by 46% to ZK35-billion (R64.4-million) a month, since the mineral royalties came into effect last April, according to Zambia’s Deputy Finance Minister, Miles Sampa.

The government of Zambia has also doubled the royalties for copper mines to 6% this year.

However, Brooks adds that discussions in other African countries about super- profit taxes have not been clarified, with South Africa being one such example.

Mining Weekly reported in July 2012 that the ruling African National Congress’s (ANC’s) ‘State Intervention in the Minerals Sector’ (Sims) report advocated the implementation of a super-profit tax for the mining industry.

The Sims report proposes the introduction of a 50% resource rent, once a return on investment threshold of 15% is achieved. To date, none of the recommendations of the report have been implemented, highlights Brooks.

Further, she points out that, although the African continent is resource rich, its general lack of infrastructure is one of several factors that make the deposits riskier, and more costly to extract, com- pared with North America and Central America.

“The export of iron-ore deposits, for example, from the Mano river region, which encompasses Sierra Leone, Guinea, Liberia and Côte d’Ivoire, will require substantial infrastructural investment,” states Brooks, who adds that the effective export of nickel reserves from Tanzania will also require significant infrastructural investment.

She says the four most significant challenges facing the African mining sector are regulatory uncertainty, infra- structural deficits, tumultuous labour relations and a lack of technical expertise and/or capacity on the part of African governments.

Zambia in Focus

“The outlook for Zambia remains good, despite the rising costs many companies are facing, as there are high-grade deposits in the country and production capacity has increased,” says Brooks.

She adds that, while the Zambian government could decide to increase taxes for mines when its mining legislation is reviewed later this year, a focus on implementing beneficiation and local-content quotas is more likely.

Brooks believes this to be the case, as a royalty-rate rise, implemented by the Zambian government in 2011, relieved some of the pressure on the mining industry.

“Despite the populist rhetoric of the governing Patriotic Front party, it has proved to be more moderate and pragmatic in practice, thereby strengthening investor confidence in the country,” she concludes.