South Africa has lost its lustre

South Africa is no longer the envy of African countries at the annual Mining Indaba, writes Leon Louw.

Investing in African Mining Indaba is one of the biggest global mining events in the world. Come February, executives, dealmakers, dealbreakers, bankers and hangers-on all congregate in Cape Town to clinch deals, network, listen to industry leaders or alternatively, sip a few glasses of wine over lunch at the Westin or Cullinan hotels.

For the past five years or so Mining Indaba coincided with the President of South Africa’s State of the Nation Address. This year it didn’t.

For whatever reason, it was a blessing in disguise. For once, the focus was on mining in Africa and not on South Africa, despite the opening address by South African Minister of Mineral Resources and Energy, Gwede Mantashe.

Under pressure to appease international investors, Mantashe, a hard line communist, lost his ideological verve, and momentarily became a free marketeer calling for more competition in the South African energy space. Mantashe is a chameleon, and what you see in a tight-fitting black suit on the main stage at Mining Indaba on the third day of February, is not what you get a week later at the ruling party’s NEC meeting. Mantashe’s brief appearance was quickly forgotten though, and is, in a way, symbolic of South Africa’s waning status as a top mining producer in Africa.

South Africa hardly features in talk on the side lines of Indaba. It is no longer the envy of the global mining world. The country has become just another troubled jurisdiction, with the same deposits and the same risks, but under the illusion that it is still superior. Mantashe told delegates at a session on the second day, that exploration in the country has doubled in the last year. But if the number of big-ticket, greenfield exploration projects, even after it has doubled, number fewer than five, how can you claim that you are a top mining destination attracting international investors?  

The rise of Africa north of the Zambezi

The economies of many African countries in east, west, central and north Africa have grown significantly over the past five years. Most of them host substantial reserves of mineral resources, and with technology, it has become easier to discover and unearth deposits. Moreover, it has become much easier to do business in countries previously regarded as no-go areas.

On the other hand, the economies of countries in Southern Africa, especially South Africa, is expected to remain stagnant. While the South African government remains at sixes and sevens about regulations, and stumbles about trying to generate enough electricity to keep the lights on, what Mantashe and Co don’t seem to understand is that investors and exploration companies have forsaken the country a long time ago.

Countries like the DRC, Ghana, Ethiopia, Uganda, Tanzania and Senegal (the list goes on) are making great discoveries and have done a lot to attract foreign investment. Many companies would rather do business in countries like Ghana, Senegal or even the DRC than in South Africa.

Mark Bristow, CEO and president of global giant Barrick Gold, has on numerous occasions said that he would not do any exploration work in South Africa. While Canadian, Australian, Chinese, Russian, Turkish, Indian, and yes, even some South African junior miners and exploration companies flock to make the next big discovery elsewhere in Africa, the South African government, despite its commitment to attract exploration outfits, has not done so.

The bottom line is that there are much better opportunities north of the Zambezi River. South Africa has dropped from the radar and no matter how President Cyril Ramaphosa and Minister Mantashe try to spin themselves out of a tight situation, investors have lost faith.

Sierra Leone’s geophysical survey

The Mining Indaba is a wonderful event about mining in Africa, and that’s where the focus should be. It was thus encouraging to have a speaker from elsewhere in Africa delivering his speech after Mantashe’s address. President Julius Bio from Sierra Leone invited foreign companies to invest in Sierra Leone, which boasts great deposits of diamonds, bauxite, rutile, iron ore, gold, and even traces of platinum.

A first of its kind geophysical survey was recently conducted in Sierra Leone and could change the fortunes in a country first ravaged by civil war and then by the Ebola virus.

The survey was flown by South African company Xcalibur Airborne Geophysics, with supervision and quality control provided by UK-based Reid Geophysics, and survey design by Geofocus, another South African based company.

Tim Archer, director of Reid Geophysics, tells me in an exclusive interview, that the survey included a combination of technically attractive features, in particular tight line spacing that created excellent data resolution.

Archer said the results of these surveys are extremely positive, but that a long road is still ahead for the mining industry to find its feet again. According to Karl Smithson, CEO of Sierra Diamonds, and a veteran explorer in Sierra Leone, this is a game changer for the country. Sierra Diamonds’ Tongo mines are in the final stages of completing its underground decline and will be operational early in March 2020. Meanwhile, Jan Joubert, CEO of Meya Mining, another stalwart in the Sierra Leone mining industry, says a lot of new projects will now be fast tracked, because of the more detailed information available. Joubert believes that Sierra Leone will become one of the top diamond producers in the world. Smithson says Tongo, which has a mine life of about 18 years, is only utilising three of the 11 Kimberlite pipes present on its mining area. The government of Sierra Leone is on a major drive to reform the economy, and to change perceptions about a country that has been backstage for so long.   

Guinea gears up

Meanwhile, in neighbouring Guinea -- a major producer of bauxite – mining companies are gearing up to bring the controversial Simandou iron ore project into production. The greatest iron ore deposit on earth has been lying idol amidst court cases, corruption charges and a depressed market.

The mining sector in the West African state, nonetheless, is booming, and has prompted the establishment of a Central Corridor, which entails a collaborative effort among mining companies, agriculture, the government, regional communities and other stakeholders to drive economic growth in the region and in the country.

Guinea has the biggest bauxite and iron ore deposits in the world, but the benefits have yet to trickle down to local communities. Mining as a catalyst for regional development in Guinea was the topic of a panel discussion at an event organised by the UK Department of International Trade at Indaba.

The lack of efficient rail roads and big enough ports has been a constraint for the mining industry in Guinea. Bauxite and iron ore are both bulk materials and have to be shipped long distances by road or rail from pit to port. With more than 400km of rainforest between an iron ore deposit like Simandou and the ocean, it becomes an extremely costly exercise to export raw materials.

Simandou has a chequered history and various battles have been fought over the mining rights to this rich ore body. Global giant Rio Tinto and mining mogul Benny Steinmetz have been prominent at Simandou, and rumours about Rio Tinto exiting Guinea continue to resurface.

However, in a strong statement at the Central Corridor discussion, Lawrence Dechambenoit, Vice President of Corporate Relations Europe, Middle East and Africa for Rio Tinto said unequivocally that Rio Tinto will remain in the country and that it is seeking ways to develop Block 3 and Block 4 at Simandou. “We are working on a solution to develop Simandou. We will not sell our share in Simandou. It is extremely difficult to fund a project of this magnitude, and the main reason we still haven’t developed a mine, is that we were not able to raise the financing. Next year, when we sit here again, I hope to tell you that we have found a solution to export ore from Simandou,” he said. Rio Tinto also has bauxite interests in Guinea.

Meanwhile, Guinea Aluminium Corporation exported its first shipment of bauxite from its mine in north west Guinea early last year. The company hopes to produce at a rate of 12 million tonnes per year. Furthermore, the government has organised a late 2019 bidding round for Simandou’s Block 1 and Block 2, where activities have been on ice for close on ten years. The Singaporean-Guinean Société Minière de Boké won the rights to the 369km2 concession.    

Angola opens the floodgates

Angola is another country that has made great progress in opening its doors to foreign investment. Recent reforms by Angolan president, Jo?o Louren?o, has hit a chord with investors, with a lot of interest shown at the country’s presentation in the Westlin Ballroom across the road from the Cape Town International Conference Centre on day two of the Indaba.

Jo?o Louren?o started cleaning up government as soon as he was appointed president a little more than two years ago. One of his aims was to diversify the economy and focus specifically on the minerals and mining sector. Angola is extremely rich in mineral resources, but the State of Angola controlled all land and mining operations before Louren?o came into power. However, the country is in the process of selling off state assets and up to now has privatised 195 government-owned companies. This, of course, has opened the floodgates, and exploration companies are flocking to Angola to secure their claims.

The Angolan Minister of Mineral Resources, Diamantino Azevedo, reiterated his government’s commitment to get rid of corruption in its bid to lure foreign exploration companies to the country. “We are committed to fighting corruption and transparency is the new ethos,” he said at the presentation at Indaba. Azevedo called on especially African plant and equipment suppliers to set up shop in Angola, as there are many great opportunities. 

The Angolan government recently put out tenders for a number of iron ore, phosphate and diamond projects and received 17 proposals from across the globe. Last year, Anglo American announced that it has taken up five exploration licenses for copper, cobalt, nickel and silver in Angola.

This year, there was a big delegation of African mining ministers at Indaba. This indicates the importance of mining to the growth of these countries. Technology and improved infrastructure have made it easier for exploration companies to operate in remote areas. This is good news for countries like Sierra Leone and Guinea, for example, where inaccessibility and a lack of a proper understanding of the geology has limited the mining industry in that troubled part of the world.

Hopefully, more and more good deposits are discovered in Africa, and Mining Indaba becomes even more Africa focused, with thousands of competitors trying to entice foreign investors, and all 54 Ministers telling delegates about how investor-friendly their countries have become. Wouldn’t Minister Mantashe just love that?                                

Leon Louw is a specialist in African affairs and mining. For more about doing business in Africa and fragile states, politics, mining in Africa, and the political risk of operating in Africa, please send Leon a message.