Africa's mineral wealth
still beckons
When international mining groups believe the time is
right they will find the money to realise some of
Africa's wealth, writes Ken Gooding of the Financial
Times
MINING represents one of Africa's few real areas of
progress. This is partly because miners have no
alternative but to go where nature placed its rich
mineral deposits.
Africa already provides most of the world's gold and
gem diamonds as well as those more useful precious
metals - platinum and palladium. Most of the world's
cobalt, copper, chrome and titanium dioxide is also
mined in Africa.
There is a great deal left.
The US Bureau of Mines estimates that deposits in
southern Africa alone hold nearly 90% of the world's
platinum and palladium, 85% of the chromium, 75%
of the manganese, 50% of the gold and 50% of the
vanadium.
Until recently, however, these riches were unavailable
to the international mining companies which had the
money and expertise to dig them out. But since the end
of the 1980s, change has been sweeping through the
continent.
From Algeria to Zimbabwe, more than 30 African
countries have made substantial changes to their
mining codes.
Governments that once treated international mining
groups with deep suspicion have started competing for
their favours. Many have watered down or abolished
foreign ownership restrictions or punitive taxes that
previously discouraged companies from exploring.
Mining groups are also being invited to bid for
state-owned mining assets.
Governments in Africa, as elsewhere in the developing
world, recognise that mining can play a vital role in
improving a country's infrastructure. Road and rail
links must often be established, water and power
provided and the "human" infrastructure improved
through the provision of medical and educational
facilities.
Moreover, because the credit rating of large foreign
mining companies is often higher than that of the host
government, they may be able to provide this
infrastructure more cheaply than can the state.
However, despite these benefits, there is still a
tendency for some African governments to treat
mining by foreign companies differently from other
industrial activities, says Ian Emsley, an economist
with Anglo American Corporation who has studied
long-term mining and development in Africa.
Some African governments still treat mining as a
special case because they retain the perception that
mining involves the plunder of the country's patrimony
and creates little wealth for the government or
employment for the population.
Emsley argues, however, that over the next 10 years
or so mining probably holds the best hope for African
industrialisation and prosperity.
There are the obvious benefits of foreign exchange
earnings, tax revenue and employment as well as
those involving the development of infrastructure.
Mining groups have to bear in mind that not only do
they have the challenge of digging out ore in remote
areas, they are involved in an activity subject to
political risks. Construction of a mine involves a heavy
commitment of capital and long lead times before any
reasonable financial return can be generated. So
foreign mining groups will go ahead with large-scale
projects only if they have reasonable confidence that a
government's attitude towards inward investment is
likely to be maintained.
That confidence has been creeping back. Whereas
during the 1970s and 1980s scarcely a dollar was
spent in Africa on mining exploration, spending has
accelerated rapidly in the 1990s.
This year, Africa has drawn level with Australia in
second place in the nonferrous exploration league.
Latin America remains the most favoured region.
According to the Metals Economics Group (MEG), a
Canadian consultancy, exploration spending allocated
this year for Africa was $493,4m which represents
17,4% of the $3,5bn that mining groups will spend
worldwide.
Low commodity prices have forced mining companies
to cut exploration budgets, so the global total will be
down 31% from $5,1bn last year, MEG predicts.
Spending in Africa also fell from $662,6m last year.
Nevertheless, MEG says Africa is making the biggest
advance in its percentage of the total because that
17,4% compares with 16,5% last year.
Mining companies have also shifted their targets
within the African region. There is a massive cut in
exploration spending in SA, for example, because
mining companies in the country have been
concentrating mainly on restructuring and it has not
been clear until recently how government's new
minerals policy would pan out.
No sector has changed more than SA's gold mining
industry. Two years ago the industry consisted of six
mining houses holding management control over 32
operating mines. By the middle of this year the
industry had reorganised and now consists of
Anglogold, Avgold, Goldfields, JCI Gold, Harmony,
Durban Deep and smaller operations.
SA gold companies are now more intent on exploring
elsewhere in Africa and other parts of the world in a
quest to become global mining groups.
MEG's statistics show exploration spending in SA this
year will fall from $120,5m to only $4,8m and its
share of the total African cake will be down from 20%
to 10%.
At the same time, Tanzania has replaced Ghana in
second place in the African exploration league.
Spending there this year will be $57,7m or 13,2% of
the African total, compared with $59,3m or 9,8% in
1997. Spending in Ghana last year was $75,1m, for a
12,4% share, against this year's $48,6m or 11,1%.
Much of the money being spent in Africa is being used
to search for gold which once found, can usually be
easily extracted and quickly sold.
A survey of planned capital expenditure, as distinct
from exploration spending, of mining groups
conducted last year by Mining Journal using its
Metallica 2000 database, showed that capital
expenditure in Africa had jumped 36% since 1995 to
$4,46bn. About $1,95bn of the latest total was for gold
projects and $1,43bn for copper.
Not so long ago Africa was the world's prime source of
copper. If the so-called African copper belt is to
regain something like its former importance, the
privatisation of Zambia Consolidated Copper Mines
(ZCCM) needs to progress more smoothly than it has
so far and stability must return to the Democratic
Republic of Congo.
The copper belt's main undeveloped resource is
Konkola Deep, which has the potential to produce
340000 tons a year of copper, roughly 3,5% of today's
western mined output and more than the present
production from the whole of the copper belt.
The cost of developing this resource could be as high
as $800m. On top of this, some estimates put the cost
of bringing the existing ZCCM operations up to
modern standards at $2bn.
At present, capital for mining and exploration is hard
to come by. The Bre-X scandal last year - when claims
by this small Canadian company that it had found the
world's biggest gold deposit in Indonesia proved to be
a gigantic fraud - made it difficult for other small and
medium-sized mining organisations to raise fresh
capital.
This year, the collapse in commodity prices to levels
not seen since the 1930s recession, and the resulting
impact on share prices, is giving even big mining
groups problems.
These are relatively short-term difficulties, however,
and do not alter the fact that Africa has a
mouth-watering treasure chest of minerals waiting to
be unlocked.
When mining groups believe the time is right, they will
find the money to try to claim some of that wealth.
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