Mining in Africa

Most are unprepared for the boom times and there is often a lag between high prices and increased resource nationalism, as is currently happening. Predictably, resource nationalism was a hot topic at the Mining Indaba, which was attended by many African governments.

David Humphreys of DaiEcon Advisors said that while producers and consumers were once both located within a country, providing clear self-interest for mine development, this was no longer the case.

Now producers tended to be in one country and consumers in another, which has empowered the producers. As a result they have become more assertive in their demands.

The list of requirements with which mining companies have to comply is not only growing, it is a moving feast, creating uncertainties for long-term players. Mining investors still have an array of choices about where to put their money and they will shy away from countries that are perceived to be too demanding, too difficult or unpredictable.

SA is one of those at present. In Guinea, two of the world’s biggest miners — Vale and BHP Billiton — are reviewing their involvement in the iron -ore mine at Simandou, citing concerns about unclear regulations, shifting goalposts and political uncertainty in an era of cooling iron-ore prices.

Despite their resource wealth, African states are still competing for shrinking investment with countries elsewhere that have more attractive conditions for that investment.

In most African countries, companies have to factor enormous infrastructure projects into their plans. In West Africa alone, about 5,000km of railway lines and at least six new ports will be built in the next decade to move resources out of the continent.

In Southern Africa there is significant infrastructure development in Zambia, Angola and Mozambique driven by resources companies that do not have the time to wait for governments, donors and others.

Nearly a dozen African governments were at the Mining Indaba, but they failed to speak about the issues raised by mining companies. Presentations by mining ministers showed impressive mineral deposits, details of mining operations, infrastructure plans and other information designed to lure investors to their shores.

They did highlight the important role mining plays in their economies. Sierra Leone’s mining minister said the country’s gross domestic product would increase by 35 per cent in 2012-13, with mining’s contributing up to 40 per cent of this growth. In Ghana, mining contributes nearly 30 per cent of government revenue.

This highlights the need for a realistic partnership between miners and governments. The principle is well accepted, but companies need governments first to recognise that they are already major beneficiaries of mining activities in their countries.

This should not just be measured in direct payments to governments but also in the long tail of benefits through the economy, which often go unnoticed. The question is not just about what companies should give but how governments can leverage these revenues better.

The ad hoc, short-term and consumption-driven spending of most African countries is not an investment in the future. Politicians tend to forget they are the custodians (and not the owners) of their country’s resources and they need to use mineral wealth as a catalyst for growth, not a fund to plug fiscal gaps.

But one thing is clear: miners are going to have to get used to operating in a much more politicised environment that requires them to not just extract minerals but to become collaborators in development. Mining.com/GB