African Mining in a volatile and uncertain world: How we help you stay ahead

The fluctuating prices of key minerals like gold, copper and cobalt, along with crude oil, threatens to destabilise economies, deter investment, and slow down regional development. Coupled with the backdrop of unpredictable government policies and actions, this presents a multifaceted challenge for mining companies to navigate.

However, Africa's mineral wealth is unparalleled; with countries like South Africa, Ghana, Botswana, and the Democratic Republic of Congo (DRC) boasting vast deposits of copper, gold, diamonds, platinum and cobalt. These resources are the backbone of export revenues and local economies that drive job creation and infrastructure development. Yet these rich mineral reserves are besieged by demand-supply mismatches, currency fluctuations, geopolitical risks, infrastructure and logistics challenges, energy crises and political instability.

Turbulent Markets: The Challenge of Commodity Price Volatility

The future prices of commodities such as cobalt, manganese, copper and nickel are inextricably linked to their roles in industrial processes and the energy transition. Cobalt, indispensable for lithium-ion batteries in electric vehicles (EVs), is a prime example of price volatility driven by overdependence on the DRC, which is grappling with widespread civil unrest, and sustainability issues. While alternative battery chemistries may reduce cobalt content, the near-term demand remains strong.

Manganese, primarily used in steelmaking, is now catching the eye of battery manufacturers, particularly for Nickel-Manganese-Cobalt (NMC) batteries in EVs.

Copper, essential for electrical infrastructure and renewable energy systems, is in high demand due to urbanisation and cleaner energy technologies. However, supply constraints from major producers like Chile and Peru add to the price volatility.

Nickel, crucial for stainless steel and high-performance alloys, faces price instability due to geopolitical risks in key producing countries like Indonesia and the Philippines.

Volatile commodity prices create problems for mining firms in Africa, leading to unstable revenues, profit erosion and forecasting difficulties. This unpredictability reverberates through the broader economy, as seen in Nigeria's economic collapse following the 2020 oil price crash. Price volatility also creates a hostile investment environment, causing project delays or cancellations, destabilising regional economies, and triggering inflation and currency depreciation. The resulting uncertainty makes it difficult for companies to plan long-term investments, further exacerbating economic instability. Additionally, the volatility can lead to increased borrowing costs and reduced access to capital, making it even harder for mining firms to sustain operations and invest in new projects.

Paul Cliff, Partner, Contentious Valuations, comments: “In an era where commodity price volatility is here to stay, valuation experts should evaluate the strengths and weaknesses of traded futures prices and consensus price forecasts on a case-by-case basis, considering factors such as the liquidity of longer-term traded futures prices and the ability of commodity price analysts to react quickly to sudden changes in supply or demand.”

Legal and Regulatory Turbulence: The Political Minefield

Political upheavals across Africa add another layer of uncertainty. Recent regime changes often bring radical shifts in policy, mining regulations, tax systems and ownership requirements. These changes, while seemingly aimed at enhancing national benefits through resource nationalism, disrupt existing agreements and deter foreign investors. This situation underscores the precarious balance between pursuing national interests and maintaining a stable, attractive investment climate.

For instance, we have seen recent examples of governments launching wholesale reviews of natural resource agreements and introducing new mining codes to allow the state to claim significant ownership of projects. Additionally, governments are scrutinising transactions entered into when licenses were awarded, particularly for bribery, corruption and fraud infractions. Such retrospective and retaliatory policies raise investor concerns over stability and operational uncertainty, significantly impacting mining companies' ability to operate effectively. ?For instance, the DRC has intensified its scrutiny of mining contracts, leading to the revocation of licenses and fines for companies found guilty of bribery and corruption Similarly, Zambia has been active in investigating and penalising mining firms for environmental violations and non-compliance with local regulations. The increased scrutiny can lead to lengthy investigations and legal battles creating an environment of mistrust, deterring future investments and hindering the industry's growth potential.

Amaechi Nsofor, Partner, Head of Africa Business Group, comments: “These actions, while aimed at addressing past wrongs, create a climate of uncertainty that is detrimental to the sector. Stability and transparency in the regulatory environment are crucial for ensuring sustainable growth and development in the mining industry."

How Grant Thornton Supports The Mining Industry

Grant Thornton's extensive local market knowledge, combined with a strong global footprint, positions us to help mining companies navigate the complexities of the African market. By leveraging our expertise, we aim to support the African mining industry in building resilience and contributing sustainably to economic development and growth.?

Resolving Disputes

We work seamlessly across Africa and key offshore centres to provide innovative strategies to meet your requirements. Our Africa Business Group (ABG) services clients with UK/Africa cross-border business affairs and we can support mining companies in navigating disputes, whether in relation to suppliers, customers, or joint venture partners.

Undertaking Investigations

In times of economic uncertainty, we conduct thorough investigations into financial irregularities, fraud and compliance issues within mining companies. Our forensic accounting services help identify and address any discrepancies, ensuring transparency and trust among stakeholders. Our forensic investigation and corporate intelligence specialists have substantial experience working within Africa to investigate suspected wrongdoing, including fraud, bribery and corruption, money laundering, and breaches of law and regulations. This provides a platform to deploy asset tracing and recovery experts to identify hidden assets and repatriate funds.

Debt Advisory

Our Debt Advisory team provides guidance to the mining industry when seeking to raise, refinance, or restructure debt facilities. This service can be customised to focus on either corporate or creditor needs, and we are adept at working in non-stressed, stressed, or distressed situations. We support mining companies in restructuring existing debt, negotiating with creditors, and exploring alternative financing options to maintain liquidity and financial stability.

Equity Capital Markets Advisory (for Listing)

We offer expert advisory services for mining companies aiming to go public or already listed in London. Our team ensures smooth IPO readiness, regulatory compliance and project management, enabling management to focus on attracting investors. We support AIM-quoted, Main Market and AQSE companies, providing comprehensive M&A and takeover advice across the entire London ECM environment.

Restructuring

We support mining companies in financial restructuring to adapt to challenges with debt levels and financial uncertainty. This includes options analysis, independent business reviews, restructuring plans and rescue proceedings. Our restructuring services help companies address and right-size their balance sheets in order to secure long-term viability

Paving the Way for a Resilient and Sustainable Future in African Mining

Grant Thornton is well-positioned to assist you in situations of political, economic and regulatory uncertainty. ?With a balance of local market knowledge spread across over 20 African member firms and strong global footprint with market-leading expertise, we work with you to appraise your situation and create tailored solutions while navigating risk and industry specific challenges. We align our teams with the dynamics of the engagement and business environment. By leveraging these strategies, we aim to support the African mining industry in building resilience and contribute sustainably to its economic development and growth.

Please do reach out to Grant Thornton UK Insolvency and Asset Recovery Partner and Head of Africa Business Group Amaechi Nsofor to learn more.