Saturday, April 26, 2014

West Africa – a New Mining Focus


West Africa – a New Mining Focus

West Africa these days is an important part of current economic picture. A lot of attention is devoted to its various economic problems, mining industry being one of the crucial elements.
Over the years the World Bank exercised a lot of projects on West Africa, and here I would ike to present this graph:

The same study notes the challenges for mining in the area:
"- Not well-integrated mineral legislations across the countries lead to:
- Smuggling of gold and diamonds
- Mining companies leveraging on differences in legislations to negotiate more favorable terms
- There is a need to capture and promote synergies at regional level for mining-sector driven
development (i.e., infrastructure and industrial service clusters)
- Review of mining taxation regimes in the new market situation
- Overall mining sector governance needing improvement"

General description of West Africa can be viewedWest Africa Today ,and this paper is useful to read - West Africa Mineral Sector Strategic Assessment (WAMSSA) - An Environmental and Social Strategic Assessment for the Development of the Mineral Sector in the Mano River Union, 2010.

Detailed analysis of the situation with mining is represented by The West Africa Resource Watch (WARW) in its note: Natural Resource Management in West Africa: The Role of the Public Sector :
“Sierra Leone, Chad, Nigeria and Côte d’Ivoire show clear symptoms of the natural resource-curse,
especially in terms of violent conflicts and underdevelopment, notably in the areas where extraction is taking place.
All the countries, especially those that depend on solid minerals (Ghana and Sierra Leone) are 10 per cent sleeping partners and act as rent collectors (royalties and taxes). Guinea Conakry is slightly
better with a minimum 20 per cent equity, with 49 per cent in CBG and 15 per cent in SAG, and also
has higher royalty rate than the other two countries. The Guinea Conakry royalty is 10 per cent FOB (free on board) for bauxite, 5 per cent FOB for aluminium, 7 per cent FOB for iron and 3.5 per cent for mineral concentrates and 5 per cent for gold.
The extractives sector is dominated by foreign international companies. None of the solid mineral countries sampled (Ghana, Guinea Bissau, Guinea Conakry and Sierra Leone) has a national company engaged in mining, even though a number of them are holding licences for exploration. Neither is there a viable local company capable of competing with international companies.”

Mining industry in West Africa is supplying 9% of the world’s bauxite, 8% of the world’s gold, and is expected to continue to grow with a number of large gold, iron ore, and bauxite projects in advanced planning stages. Furthermore, there are significant unexploited mineral resources across the region, including uranium, copper and diamonds. This is the reason why a lot of international players in the market come to the scene. Just a few recent news reports:

  •  More than $36.2 billion in the 53 active mining related projects are invested in West Africa by mining companies: Azumah Resources Limited, ArcelorMittal, Vale SA, African Minerals Limited, Rio Tinto plc, Anglo American plc, Vedanta Resources plc
  •  Although most parts of West Africa are still unexplored, it seems that it may become one of the biggest sources of iron ore. Total production of iron ore in West Africa could reach 500 million metric tons per annum over the next four or five years -- almost a quarter of the current global output
  •  China recently increased it efforts in investing in iron ore mining projects in West Africa – starting a number of joint ventures and M&A deals. These projects could produce up to nearly 250 million tons of ore annually in the medium to long term. Just a few to mention: SUNDANCE RESOURCES/HANLONG - MBALAM PROJECT, CAMEROON;  AFRICAN MINERALS/SHANDONG - TONKOLILI, SIERRA LEONE;     RIO/CHINALCO - SIMANDOU JOINT VENTURE PROJECT IN GUINEA;  BELLZONE/CHINA INVESTMENT FUND - KALIA IN GUINEA; CMEC - BELINGA PROJECT, GABON.
  • Brazilian diversified mining company Vale plans to invest more than $12-billion over the next five years in African projects. Much attention is focused on Mozambique, Guinea, Zambia, Malawi, Congo and Liberia.

Speaking about West Africa, I would like to point to two recent sources that discuss investments in Africa in general.
A very practical advice by the manager of the World Bank is produced in this news report: Africa: How to Attract Investment in Mining (it is a bit long, but worth to cite):
“- Observe budget discipline to achieve macro-economic stability
- Demonstrate policy consistency and stability vs. political expediency in decision making
- Undertake business regulation reform to lighten the regulatory burden of doing business
- Invest in infrastructure of forge public-private partnerships for the provision of critical infrastructure (roads, railway, ports, energy and water systems)
- Develop human capital to increase the supply of skilled labour and technical and managerial workers
- Carry out an image building and promotion program to showcase reforms being undertaken
In order to attract investors to mining projects, de Sa advises governments to have the following:
- Well defined targets with reserves certified according to international standards
- Experienced operators with clearly defined title rights
- Freedom to mine, market and handle foreign currency
- Stable fiscal obligations
- Capacity to sell, lease or mortgage the title without excessive red tape
- Strong institutions responsible for mining development
- Mineral potential: does the country offer good geological prospects? Does it offer good data to guide investors?
- Policy stability: is policy driven by stable institutions or by political expediency? How strong is the governance framework?
- Sector management: what is the quality of the institutions responsible for managing the sector? Does the legal and regulatory framework offer consistency and predictability?
- Tax burden: is the effective tax rate a deterrent to new investment? Are there hidden taxes?
- Infrastructure availability: are there any roads, railway, ports, energy and water systems which could be used for the mining operations?
- Skilled labor supply: what is the availability of skilled technical and managerial workers?”

In tune with above is the just released by PwC  “10 Minutes on Investing in Africa” that states:
“Africa, for many global investors, no longer conjures up images of war, famine, and poverty, but rather promises opportunity and growth.”

And some useful links:

A very detailed study of uranium mining in Africa can be downloaded from the page of Uranium Rush Strategic Environmental Assessment - Final Report
Mineral Sands project to pay off investment in 23 months – Australian Base Resources mineral sands developer with the Kwale project in Kenya

No comments:

Post a Comment