African mining conference draws masses

Cape Town, South Africa — On strong commodity prices and a sustained bull market, the opening day of the 12th annual Mining Indaba conference attracted more than 4,000 delegates to hear about the ongoing efforts of explorers and miners active in Africa.

An official welcome came from South Africa’s Minister of Mines, Buyelwa Sonjica, just as the country’s National Treasury announced that it is studying the idea of introducing a flow-through share program to stimulate further exploration. In fact, the treasury is studying the Canadian model.

Following that news, the heads of major mining companies with African operations took the stage in succession. CEOs from Anglo American (AAUK-Q, AAL-L), Rio Tinto (RTP-N, RIO-L), Barrick Gold (ABX-T, ABX-N), Newmont Mining (NMC-T, NEM-N), AngloGold Ashanti (AU-N, AGD-L), Gold Fields (GFI-N, GOF-L), Harmony Gold Mining (HMY-N, HRM-L) and Randgold Resources (GOLD-Q, RRS-L) talked about their respective projects and ongoing exploration activity.

Barrick highlighted operations at its North Mara, Bulyanhulu and Tulawaka gold mines in Tanzania and touched on its Sedibelo platinum project in South Africa’s Bushveld complex.

Jeffrey Huspeni, Newmont’s vice-president of worldwide exploration, discussed his company’s gold mines in Ghana — Ahafo and Akyem — calling them “cornerstones of growth.”

A common theme among the group of senior gold producers was reserve replacement, as mine output is pushed to ever-increasing levels.

AngloGold Ashanti CEO Bobby Godsell said Africa is home to most of the company’s 21 mines and 90% of its workforce. He also discussed the challenges of remaining profitable as AngloGold Ashanti hunts for about 6 million oz. of gold annually to replace reserves.

Gold Fields’ CEO Ian Cockerill was up next and offered similar themes, mainly cutting costs and hunting for ounces.

“The addition of South Deeps elevates Gold Fields to the top tier,” he said.

After its recent takeover of Western Areas, and its half interest in South Deeps, Gold Fields bought Barrick’s remaining share of South Deeps for US$1.2 billion cash and 18.7 million Gold Fields shares. All in all, the purchase was completed for US$104 per reserve ounce of gold and added about 30.7 million oz. to Gold Fields’ reserves and another 67 million oz. to the resource category — a boost of 47% and 37%, respectively.

With advanced development, South Deeps is expected to contribute about 800,000 oz. gold annually at low cash costs when it enters production in roughly seven years.

While Cockerill acknowledged that South Deeps poses some risk, he noted that his company chooses to manage risk rather than be risk averse.

Randgold CEO Mark Bristow asked whether companies are “exploiting market opportunities or building profitable businesses.” He reviewed gold’s price rise from the US$252.80-per-oz.-level in 1999 to its current spot price of around US$650. But Bristow was quick to point out that today’s increasingly higher cash costs are chipping away at producers’ margins.

Bristow trumpeted Randgold’s organic growth strategy as the path to deliver profit on a long-term basis, eschewing the mergers-and-acquisition approach.

Rounding out the top-tier club was Harmony Gold CEO Bernard Swanepoel, also a member of the “organic growth” camp, who abides by the strategy of growing assets through exploration. While Harmony’s South African mines are its “anchor producers,” it sees significant growth potential at four projects in Papua New Guinea.

As the first African head of state to address the Indaba conference, Tanzanian President Jakaya Mrisho Kikwete’s keynote presentation highlighted his country’s successes following changes made to its investment climate in the mid-1980s. Kikwete went on numerous marketing missions to the world’s key mining centres as part of an effort to sell mineral exploration in Tanzania.

The message seemed to work. Tanzania is now Africa’s third-largest gold producer, cranking out about 50 tonnes (1.6 million oz.) annually. The country also produces significant amounts of coal, iron and industrial minerals plus gemstones, including diamonds and tanzanite. In fact, mining is now Tanzania’s second-largest employer after agriculture, and accounts for 42% of the country’s exports.