Despite low commodity prices and the political turmoil engulfing many African states, the mood at this year’s Investing in African Mining conference (also known as Indaba) was guardedly optimistic, as many speakers and delegates spoke of an “African renaissance” in mining and pointed to the pivotal role South Africa will play in unlocking the continent’s mineral wealth.
Over the past two years, South Africa’s formerly stodgy mining houses have slashed costs, boosted productivity and undergone dramatic restructuring.
Combined with a weakened rand, these changes have reinvigorated South Africa’s mining industry, which still maintains huge reserves and produces 77% of the value of Africa’s mineral output.
Several conference speakers predicted that the biggest challenges facing South African mining companies are controlling costs and negotiating relief from high borrowing rates. As well, there is the nagging problem that mining stocks in South Africa, owing to the country’s classification as an “emerging country,” continue to trade at a discount compared with North American mining stocks.
The bustling hallways and booths at Indaba attest to a growing number of junior African mining companies and consulting firms, many of which are staffed by former employees of the big South African houses. According to the Metals Economic Group, junior and senior companies together spent some US$494 million on exploration in Africa in 1998, representing 17% of global exploration spending. The same study showed that the growth of exploration in Africa was unsurpassed by any other region. All the South African majors represented at the conference expressed a desire to continue seeking partners in the junior sector.
Robert Danchin, chairman of
Following the restructuring, Anglo American will own 55% of
The major will concentrate mainly on base metals, especially copper and zinc, with exploration planned for West Africa’s Birimian rocks, which Anglo considers to be underexplored for base metals.
Ian Cockerill, executive officer of business development for the world’s largest gold producer,
He then tried to assuage South Africans’ fears that Anglogold is quietly slipping out of Africa. “It is in Africa where our history is firmly rooted,” he told the crowd. “Our commitment to this vast continent is unwavering, and it is from here that we will spearhead our global advance.” Cockerill outlined Anglogold’s new “triple-two” criteria for acquisitions: the potential acquisition must have a minimum resource of 2 million oz.
gold; it must be capable of producing 200,000 oz. gold annually; and the total production cost must be below US$200 per oz. gold. He stressed that the overriding principle will be one of double-digit returns, stating: “The days of single-digit returns for gold companies are over.”
In South Africa, Anglogold will spend US$17 million over the next four years exploring the Western Ultra Deep Levels in the Wits basin. The company, which is also exploring in Mali, Senegal, Tanzania and the Democratic Republic of Congo (DRC), pegs its cost of discovery at about US$8 per oz.
gold and intends to keep that figure below US$20 per oz. Anglogold has allocated US$10 per oz. of gold production towards exploration for 1999 and will strive to maintain production levels at about 7 million oz. annually.
The company adds, however, that in order to keep annual output above 6 million oz., a new project will have to come on stream by 2007.
Speakers from LaSource, a subsidiary of
Meanwhile, through its vehicle
Andrew Woollett, chairman of Britain’s
n At the Skorpion zinc project in Namibia, Reunion and partner Anglo American have completed a feasibility study that calls for development of a US$279-million mine to exploit reserves of 19.5 million tonnes grading 10.1% zinc. The operation, which would crank out more than 150,000 tonnes of zinc annually during the first seven years, has the potential to be one of the industry’s lowest-cost producers.
n In Gabon, Reunion has reached an agreement with two European firms to develop the large Mabounie niobium deposit.
n In Zambia, the company has agreed to acquire a major stake in the Mufulira copper mine-smelter-refinery complex, which was spun off during the privatization of Zambia Consolidated Copper Mines (ZCCM). While conceding that Mufulira requires a major overhaul, Woollett said the complex is a “class asset” that will produce “sweet, clean concentrate” in a region that can only grow in importance.
Anglo American is emerging as the big winner in ZCCM’s long-delayed privatization program. Just before the conference, a ground-breaking memorandum was signed between ZCCM, the Zambian government and Anglo-American subsidiary Zambia Copper Investments (ZCI). The subsidiary, along with its partners, will pay US$90 million for an 80% interest in the Nkana and Nchanga divisions, as well as the Nampundwe mine and Konkola Deep project. ZCCM will hold the remainder.
Despite weakness in the rough diamond market, the Indaba conference provided an opportunity for Namibia’s marine-diamond miners to show off their recent successes in this new frontier. In just 10 months, newcomer
Michael Carrick, chairman of Australian-based
Prior to the opening of Golden Pride, Resolute’s largest gold mine in Africa was the 160,000-oz.-per-year Obotan mine in Ghana. That mine, acquired two years ago, was developed and commissioned in only eight months, ahead of schedule and under budget.
Last year’s overall performance — 360,000 oz. gold at a cash cost of US$160 per oz. — was Resolute’s best yet, and the company’s new alliance with
200,000-oz.-per-year producers. For its part, Resolute hopes to be producing 750,000 attributable ounce
s annually within five years.
Tanzania has emerged as one of the brightest stars of African mineral development, with some 26 million oz. having been discovered within its borders during the 1990s. This success is attributed not only to the country’s prospective geology, but also to government policies aimed at stimulating foreign investment. Last year, exploration spending in Tanzania topped US$58 million, or 13% of the African total — more than any other country, including South Africa.
Striving to be the next gold mine in Tanzania are
Ashanti’s chief operating officer, Trevor Schultz, said construction at Geita will get under way shortly, with the first gold scheduled to be poured next year. He touted Ashanti’s growing status as an African powerhouse and said his company plans to produce about 1.5 million oz. per year over the next two years. Production will come from new areas at Ashanti’s flagship Obuasi mine in Ghana and from its five other mines in Africa.
There was widespread approval among delegates for
Gordon Miller, Western Areas’ chief operating officer, said an optimization study would soon get under way and that Placer Dome’s on-site due diligence work was proceeding well. Shareholders have yet to approve the deal.
One analyst in attendance said Placer Dome’s team in South Africa seemed to have a “missionary zeal” in its approach to Western Areas and wondered how Placer Dome, with its zero-tolerance policy for mining deaths, would cope with an entrenched South African gold mining culture that seems to accept the occasional fatality as inevitable.
Mines ministers from most of Africa’s mining countries could be heard promoting the geological prospects of their respective districts, as well as their governments’ attempts to attract foreign investment. Especially encouraging is an accord signed last year by 16 francophone African countries that promises to harmonize rules for foreign investment.
Several speakers described Africa’s francophone countries — particularly those in West Africa — as underexplored. However, Paris-based lawyer Stephane Brabant warned of the ramifications of operating in countries that use civil rather than common law. In these countries, which are in the majority worldwide, a signed contract can be easily overruled at the government’s discretion, he said.
Conspicuous by its absence was the Congolese government delegation. As well, many of the companies involved in projects in the DRC kept a low profile.
Just before the conference, the Congolese government imposed added restrictions on foreign involvement in the DRC’s diamond industry. The government is demanding that all expatriates leave diamond mining areas and return to the capital, Kinshasa. The government has reportedly created a diamond bourse through which diamonds must be purchased in Congolese francs.
Dampening any enthusiasm for mining in Africa is the fact that roughly 40% of the continent’s land mass is currently considered hazardous to mining companies, including a wide swath that stretches from Cairo to Luanda. The war in the DRC has sucked in most of its neighbors and destabilized much of Central Africa; renewed warfare between Eritrea and Ethiopia has forced Anglogold to pull out from a promising Eritrean gold play; and there are fears that the continued withdrawal of French troops from West Africa will contribute to that region’s destabilization.
Another major concern is devastation wrought by AIDS in sub-Saharan Africa.
An estimated 58% of the world’s AIDS cases occur in this region, and some 15-25% of South Africa’s mine workers are believed to be carriers. On a brighter note, increased awareness has caused the number of new cases in Uganda to decline.
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