Investors will always gravitate towards good orebodies and, owing to the quality of prospectivity in certain African regions, the continent still holds the interest of investors, says financial services provider Nedbank Corporate and Investment Banking mining analyst Arnold van Graan.

“However, with the increase in resource nationalism, increased tax and royalty burdens, as well as other challenges, investors may avoid certain high-risk jurisdictions.”

Notwithstanding these potential difficulties, investors will continue to favour higher-grade orebodies with low technical risk, low start-up capital expenditure and short payback periods.

He says investors aim to fund the construction of mines, recoup their money, and earn a return, before a regime change, which could impact on potential earnings.

“If the mine is still going after that, it is an added bonus.”

Investor sentiment is influenced by resource prices, global risk, trade wars, and geopolitical tensions, among other factors, says Van Graan, who will speak at the Investing in African Mining Indaba in Cape Town from February 3 to 6.

“The bottom line, however, is that investor sentiment seems to change quite frequently these days, with the market going from ‘risk on’ to ‘risk off’ in a matter of days, largely owing to global geopolitical factors.”

This is not ideal, as the industry has long decision-making timelines and, requires long-term commitment.

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”, he adds.

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

Battery- and electric vehicle- (EV-) related commodities are on investors’ radar, as many believe that EVs and battery technology could play a major part in the global drive to reduce carbon dioxide emissions.

Some of the jurisdictions in which many of these commodities are found, however, are regarded as less investor friendly, including Burundi, Zambia and Zimbabwe, notes Van Graan.

“As a result of the challenges in the majority of these jurisdictions, many investors perceive them to be high risk, making it difficult for some projects to attract capital. These jurisdictions also lack the infrastructure to support the mining of these resources.”

Consequently, mining companies need to construct the power stations and transport infrastructure.

“This adds significant complexity and execution risk and, ultimately, inflates the capital costs of these projects. Investors want to be compensated for this additional risk, which essentially adds to funding costs, eroding the economics of projects even further,” states Van Graan.

However, the quality of the orebody remains the primary deciding factor.

If the orebody is good enough to absorb these costs and still deliver a decent return, it should attract the investment needed, explains Van Graan.