Emerging opportunities

In the rest of Africa, a different picture has emerged, with renewed interest in elements like lithium, uranium, copper, gold, and other historically underexplored commodities. These hold immense potential, especially those required for the energy transition and clean technology sectors.

 

However, the traditional discoverers of these projects are no longer the global diversified mining companies. The rise of mid-tier miners and Chinese conglomerates signifies a shift in who is driving exploration and resource extraction across Africa (excluding South Africa).

 

The mid-tier miners are often nimbler, more adaptable to changing market conditions, and tend to chase those future-focused commodities. However, they often do not have access to the required capital, and are reliant on commercial banks, strategic equity partners and private equity funding to develop these assets.

 

Investment imbalance

In recent times, investment in copper assets was focused on South America, and Australia and Brazil for iron ore. However, as global demand for copper grows, renewed interest in the copperbelt is emerging.

 

One of the key issues obstructing Africa from unlocking its mineral wealth is the lack of developed infrastructure capable of handling the volumes of equipment, consumables, material and ore to be moved between the mine and the ports. There is a general lack of developed infrastructure once you move away from coastal regions in Africa, where projects are often separated from the coastal regions by jungle and dense bush.

 

China’s Belt and Road Initiative – a global infrastructure development strategy adopted by the Chinese government in 2013 to invest in more than 150 countries and international organisations – has funneled billions of dollars into African infrastructure projects, often tied to securing access to mineral resources. However, there remains a need for significant investment in infrastructure development across the continent.

 

Perception vs reality

Negative narratives often dominate discussions around African mining, obscuring the continent’s diverse investment opportunities. Images of conflict zones and environmental degradation often overshadow the progress being made in areas like governance and transparency.

 

Focusing solely on regional risk overlooks the unique landscape of individual countries, where there are success stories to be found, like Botswana’s transformation into a major diamond producer and exporter, demonstrating that responsible mining can contribute to economic development.

 

It is important that boards and investors carefully consider new investment jurisdictions on an objective basis, free from perceptual bias. Perception should be taken out of the mix, and the focus should be on the realities. There is a lot of ‘pure perception’ driving incorrect decisions, resulting in missed opportunities.

 

Political instability

Investors require a stable and predictable political environment to justify the substantial upfront costs of developing mining projects.

 

Frequent regime changes and ideology-driven policies create uncertainty for long-term investments in some African countries. This is particularly problematic in the West African region, where coups have become a worrying trend. However, in some instances, coups have resulted in an improved environment, more focused on investment and the introduction and application of good policy.

 

Beyond the project

Investment decisions require careful consideration of several factors beyond the project itself. The political environment, legislation (application and consistency), and the ability to repatriate capital are all crucial aspects to evaluate.

 

Safety for investors and employees, along with infrastructure development (especially outside Southern Africa), are crucial factors. Reliable access to electricity, water and transportation links are essential for mine construction and operation.

 

M&A in the mining sector

Junior and mid-tier miners from Australia and Canada are presently leading exploration and development of key projects on the continent. These companies are often more willing to take calculated risks on new discoveries in Africa.

 

Future M&A activity will likely focus on these players, unless major diversified producers make a significant shift towards Africa. These junior and mid-tier miners become the classic M&A targets as they progress their projects up the value curve and search for capital to bring the project to account. Major mining companies are likely to gain a foothold in Africa’s emerging metals space through the acquisition of these companies.

 

To ensure that South African companies are not missing opportunities in their own backyard, it is critical that boards objectively assess new investment opportunities based on a country’s specific mineral endowment, not just perceptions of the operating environment. A thorough evaluation of the technical/operational merits, political climate and investment framework is essential.

 

A balanced scorecard approach is needed, weighing project merits against potential jurisdictional risks, compared to alternatives. This will allow investors to make informed decisions that maximise returns while mitigating risks.

 

The bottom line

Africa has the potential for a significant mining boom, but overcoming these challenges and attracting responsible investment is critical.

By focusing on exploration, policy transparency, infrastructure development, and crafting an attractive investment climate, African nations can unlock their

true resource potential and share in the benefits of their resource endowment. 

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Ballington is a Senior Transactor and Hattingh is Head of the Mining and Resources Advisory | RMB.