Sam Jonah, entrepreneur extraordinaire

THE London Stock Exchange's Alternative Investment Market (AIM) has seen the listing of African mining companies with a combined value of more than R1bn in the last 18 months. According to Finance Week research, roughly one-third of all new mining listings on AIM - 10 in total - have enterprises in Africa. It appears that there's no better time for Africa to capitalise on its natural resources.

International investors and entrepreneurs have recognised a happy coincidence between a synchronous bull run in world metal prices and signs of growing stability in Africa, where many of the resources are located.

Within a decade, the war torn Democratic Republic of Congo (DRC), Angola and Mozambique have emerged - albeit blinking and spluttering - from the clouds of war. Yet the sense that Africa is an ideal opportunity continues to be obscured by the perception of risk. Not even South African business has a concise understanding of whether Africa is best positioned for an economic renaissance.

For example, Metallon Resources, the unlisted entity owned by SA businessman Mzi Khumalo, may well abandon plans to list the company's Zimbabwean gold assets on the Toronto Stock Exchange. Metallon CEO Greg Hunter says that every hurdle demanded of the company prior to a Toronto listing has been cleared. However, the company's directors worry that it will take too long to convince offshore investors of Zimbabwe's investment appeal, such is the wariness regarding its political and economic direction.

Metallon's purpose in listing offshore is to command the regular gold premium of other Canadian-listed companies and then quickly mobilise the paper to fund deals in southern Africa. But attracting a premium is a process that must happen rapidly.

However, Hunter now believes that it might make more sense to take a primary listing on the JSE Securities Exchange and attract the investment interest of SA's quasi-Government funds, such as the Transnet Pension Fund or the Industrial Development Corporation.

A key element to the political risk debate - and Africa's attractiveness as an investment destination - is that developed world investors don't believe there's enough certainty concerning the continent's governments' intentions.

Falconbridge SA, a Canadian company that specialises in identifying promising nickel and platinum group metals deposits before selling a stake to interested partners, is reviewing the extent of its interest in SA following relatively fresh proposals on 51% State ownership of unprospected land.

Dean MacEachern, regional exploration manager, confirms that Falconbridge SA is conducting a review of its activities in SA and whether legislated restrictions meet or hinder its business model. 'I'm not saying we're pulling out of SA, but whether we keep an office here is up for question.'

If Government controls a particular asset on which Falconbridge has an exploration permit it may obstruct its chances of attracting an investor. Some are major mining companies that would prefer an option to control the resource itself rather than ceding that control to Government. Says MacEachern: 'We agree with the transformation issue in SA. It's why we moved here, because we saw land opening up. But now the extent of the business opportunity is not so clear.'

However, an analyst is unconvinced with regard to Falconbridge's motives. It's operating in an area of the Bushveld that has marginal platinum orebodies at the current rand platinum price. 'If they had anything really meaty, they'd be staying in SA,' he says. The fact of the matter is that money talks: the higher the potential returns, the more willing investors are to shoulder the burden of political risk.

Ghanaian Sam Jonah, the imposing and genial president of AngloGold Ashanti, believes that Africa needs to be grandfathered. 'There's no economy that has not benefited from some kind of Marshall Plan,' he says. 'We're not talking about debt forgiveness but about harnessing a new market and important development projects.'

Jonah acknowledges the Blair government's Commission for Africa initiative - under which millions of British pounds are to be pumped into the continent - is laudable but not enough.

In the meantime, Africa is fighting a perception war, Jonah says. 'Coups d'état are not exclusive to Africa. Look at the events in Greece, Spain and Portugal in the Seventies. But like it or not, these perceptions regarding Africa exist.'

Several years ago, a portion of Ontario, a state in Canada, attracted more investment than the entire African continent. While that has since changed, SA in particular is still not attracting its fair share of foreign investment, even though it has many of the attributes that would make it a nation of choice, Jonah says.

AngloGold Ashanti has encountered its own version of African instability after management of a gold mine in Guinea, called Siguiri, decided to embargo gold exports from the mine without notice or explanation. The impasse has since been resolved after AngloGold Ashanti pledged to negotiate the matter that appears to revolve around the size of the Guinea government's mine royalty.

Says Jonah: 'We've got no problem with sitting down with any of the government representatives. It's a shame that in their haste certain decisions were made that cost the company dearly. But now we're back at the table.'

While there are many undeveloped minerals in Africa, the search for economically mineable gold is proving not as easy. Jonah says that all the low hanging fruit - the easily discovered orebodies - are probably long gone. 'In Ghana, we're looking for the hidden orebodies,' he says.

However, it hasn't proved difficult to find precious metals in Zimbabwe. The extent of platinum finds has been so successful that Impala Platinum can now claim more than 50% of its reserves and resources from that country. But the company has embarked on a cautious modular approach to its expansion plans, enabling it to manage its risk on a stepped basis. Impala's exposure to Zimbabwe is via its 88,4% direct and indirect holding in Makwiro Platinum and its 50% stake in Mimosa, an operation it shares with Australian-listed Aquarius Platinum.

A statement from the Zimbabwean Chamber of Mines last week regarding plans to 'indigenise' the country's mining assets has come as some relief to international companies operating there. Initial suggestions were that the Zimbabwean government was seeking control of mining assets - 51% control, or effective nationalisation - a fear provoked by statements by President Robert Mugabe even though the chamber had earlier indicated its interest in negotiating down from that position.

It now appears (in new government draft legislation) as if a three-phase indigenisation programme is to be implemented, resulting in 30% control by local companies within a 10-year timeframe.

David Brown, financial director of Impala Platinum, says that the new proposal is workable. However, he's concerned about the ability of Zimbabwean companies to fund their entry into Impala's highly rated assets and to avoid excessive dilution as shareholders in Zimbabwean assets seek to draw down on capital as the company embarks on its expansion programme.

Stuart Murray, CEO of Aquarius Platinum, says his company was long committed to a 15% indigenisation programme. He believes the initial demand for 51% local ownership is part of tactics to shock and then negotiate - a situation he compares to the advent of SA's own mining empowerment legislation. In SA, a leaked Mining Charter showed that Government's opening negotiating position was to effectively nationalise the mining industry.

Simon Malone, CEO of Metorex, a Johannesburg- and London-listed mid-tier mining company, has just returned from Britain scouting interest for the company's potential investment in the DRC's Ruashi-Etoile, a cobalt and copper venture in the south of the country that has stood idle for years as civil war ravaged that country.

It's understood that Metorex may raise up to R300m in cash for shares. It's one of the first occasions Metorex hasn't used debt to fund growth. However, company insiders say that it can place scrip for its DRC adventure at a premium to its current share price. If it does, it will be an index of the interest among the funds in Africa's role in plugging the world's commodity supply deficits.

The world's commodity markets are uniform in their demand for more supply following years of underexploration. In the copper industry alone, a supply deficit of refined copper is expected to grow to 700 000t/year from 376 000t, according to the Statistical Committee of the International Copper Study Group. That's despite substantial increases in production during 2004.