New scramble for Africa

Ines Schumacher | Thu, 21 May 2009 14:07
[miningmx.com] -- HALF of African mining projects have been mothballed and commodity-rich countries on the continent are waiting for the Chinese economic recovery to kick in to raise demand, a panel of mining experts said on Thursday.

“Global mining has been just as hard hit as global banks,” Heinz Pley, sub-Saharan Africa principal at Mckinsey, said at the Frontier Advisory and JSE Africa Board seminar.

“Half of African mining projects have been mothballed,” he said, using his estimate of 90 projects spread throughout the continent.

Pley showed a historical graph of how European post-war reconstruction and Japanese industrialisation drove commodity prices up after a period of depression. He predicts China will bring the next big boom, followed by India.

Frontier Advisory CEO Martyn Davies said: “If you believe in the long-term urbanisation success story of China and India then buy Africa, because that’s where the mining opportunities are going to come from.”

Africa senior consultant for Frontier Advisory Paul Runge said China has high liquidity and access to cheap debt, giving it a competitive advantage over other investors. “China comes with the whole package,” Runge said. He explained that China often builds its own infrastructure, on top of developing its projects.

The panel agreed mining companies operating in Africa have to do more nowadays than just mine. They also need to participate in social awareness programmes, develop infrastructure and invest in energy initiatives to stay in the good graces of local government.

China is engaging with Africa in a counter-cyclical fashion by investing money during the economic slump. “The principle is buy low, sell high. The West just can’t keep up with China’s liquidity,” said Nivaash Singh from Mining & Resources Investment Banking at Nedbank Capital.

Commodities in Africa

Runge said it is a common misconception that the whole range of commodity projects has been suspended. “It’s very wrong to blanket all commodities. There is a push to supply energy into the South African grid or stop relying on it, so coal and uranium projects are all over the show,” he said, citing examples in Namibia, Malawi, Niger, Tanzania and Gaborone.

There is also no shortage of iron ore projects – a commodity mainly Indian investors finance, Runge said.

The panellists warned that once the upswing starts, mining companies will scramble to fill the demand. “There is a good chance that the mining industry will be unprepared for the upswing,” Pley said. He predicted a supply shortfall in most commodities.

Runge said the mining industry is waiting with bated breath for the next upswing. “Until then, we will see a lot of consolidation among juniors and further mothballing of projects,” he said.