Exploration sector “feels it” when sovereign risk rears head

REGULATORS and governments should take note: public perceptions count, and investors vote with their feet and cheque books.

Errol Smart, CEO of Orion Minerals, and chair of the Junior and Emerging Miners Leadership Forum of the South African Minerals Council, said explorers and smaller miners “feel it” every time there’s bad press in a country.

He participated in a panel discussion on Africa’s empty exploration pipelines at the annual Invest in African Mining Indaba held in Cape Town.

Smart said the risk of mining in Africa is highly cyclical. “Today the DRC and Zambia are in a honeymoon phase. They are back in favour. A few years ago, they were at the bottom (of the list of attractive mining destinations).”

Africa is still considered a high-risk investment destination for mining, despite being endowed with 30% of the world’s mineral reserves. According to S&P Global World Exploration Trends 2023, Africa attracted 11.6% of exploration allocation ­– below the global average.

The continent is critical in the world’s race to secure green minerals to decarbonise, but investors believe it’s difficult to do business in Africa and if there’s a similar resource elsewhere, they would prefer to take their money there, said Sonia Scarselli, leader of BHP’s Metals Exploration Division, who facilitated the panel discussion.

Africa is still beset with infrastructure gaps, frequent changes in their regulatory framework, and often unstable regimes, she said.

Al Cook, CEO of De Beers Group, said with exploration there’s only a “one in 10 chance” that you’ll get your money back. Therefore, conditions need to be favourable above and below the ground. He referred to De Beers’ renewed exploration of diamonds in Angola since December 2022, after a 10-year absence.

“We believe in Angola the conditions below the ground are good with tier one deposits, and the risks have come down. We’re spending millions of dollars, but we believe we’ll get our money back.”

Marna Cloete, president of Ivanhoe Mines, said a mining company can help shape the jurisdiction in which it operates. “We undertake projects to improve people’s livelihoods before we even put a drill in the ground.”

According to Cloete, there should be better cooperation among mining companies operating in Africa to share what they’ve learned. “Such as which mining codes work and the kind of infrastructure that is required.” She also believes there’s an opportunity for more significant cooperation on infrastructure projects.