By Jeremy Shepherd Smith
It seems unlikely that this year, or the first part of it anyway, will mark the big resources comeback.
After three years characterised by a halving of the oil price, slowing demand, shaft closures, stalled projects, write-downs, mergers, price collapses and increased costs, there is no light yet at the end of the mine shaft. In South Africa, add electricity woes, water shortages, lower productivity and lengthy labour strikes to that list.
World GDP growth expectations were again lowered at the Davos WEF meeting last month, from 3.4% to 3%. The US is the only major economy showing real improvements in economic indicators such as productivity and employment, with global engine room China growing at its slowest pace in 24 years.
Africa, the world’s investment darling in the past few years, with growth in many countries and regions into double digits, is experiencing a sudden slowdown, with oil-producing nations particularly hard hit. These include our neighbours Mozambique and Angola.
Also on our doorstep, Zambia’s recently elected government faces severe economic and political headwinds after the sudden 16% fall in copper prices three weeks ago.
Zambia, the only African country in the top 10 of global copper producers (830000 tons in 2013), started several new copper projects that year, boosting production by 20%. These and more established mines in the highly copper-dependent country are in jeopardy, and the government, with paper-thin support in the recent elections, could see a backlash as jobs are shed.
As mining ministers, investors and analysts gather in Cape Town this week for the annual Investing in African Mining Indaba, these and other issues will be top of mind as they pitch for business.
As the indaba’s group marketing director, Maria Palombini, says, the indaba is about deal-making. More than 40 government ministers and 50 mining companies will be among the 7000 delegates jostling shoulders at the world’s largest mining investment conference as they try to grab a slice of the mining pie.
It is clear that the development of oil and gas projects in sub-Saharan Africa is on hold, at least for now.
Mark Essex, director of oil and gas for KPMG in Kenya, says host countries will be disappointed by the postponements of projects as they have worked hard at making their countries attractive investment destinations.
“The exploration boom that took place in sub-Saharan and east Africa over the past four years has brought a sense of expectation in governments and communities. They have set their sights on goals such as energy independence and job creation,” Essex said.
Governments have learnt from others’ mistakes and have worked hard at fiscal, regulatory and institutional reforms. But Essex believes progress may be unravelled if “everyone now sits back regarding putting regulatory and institutional frameworks in place”.
He says in order to continue to entice investors governments need to work even harder at these reforms.
“Governments need to make the investment environment even more attractive for when the project economics improve. All the preconditions for significant investments in infrastructure need to be in place as and when exploration and development expenditure does return.”
Essex warns that countries with more assertive local content policies could find it harder to remain cost-competitive, potentially becoming less attractive investment destinations in an even more cost-conscious environment.
South Africa’s focus at the indaba will be its mining industry in relation to investment, innovation, competitiveness and sustainability.
Hit by low commodity prices, rising mining costs and falling productivity, the environment needs careful handling, says SRK chairperson and corporate consultant Roger Dixon.
“Tough economic conditions are making it harder to fund new mines or even sustain existing operations, so explorers, developers and operators must ensure that the risks are well understood and mitigated,” Dixon said.
There’s growing awareness that innovation is needed to help both new and existing mines remain sustainable.
Karen Dobson, global director for mining, Dow Oil, Gas & Mining, says the water crisis affects all South Africans, including businesses.
“Sustaining water is everyone’s responsibility, especially an industry such as mining where millions of litres of water are used daily which in turn has a significant impact on the surrounding communities,” she says.
Source: The New Age
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There is a bright future in the mining sector; this is according to the Mining Indaba’s managing director Jonathan Moore.
Moore in an exclusive interview with CNBC Africa said he believes that there is potential to grow the mining investment in Africa.
“The resource opportunities here in South Africa are some of the best in the World and that is not disputable,” said Moore.
“When you couple that with long term supply and demand economics that drives this industry there is a very bright future.”
Moore said South Africa was in a down cycle now but all indications suggested that mining will continue to be a positive thing for the country for years to come.
He added that what investors needed in any decision making process was understanding what the supply and demand economics were and what the risk-reward economics are and make intelligent decisions from that knowledge.
Moore said the Mining Indaba creates that perfect platform from a combination of economists that understand the industry, ministers who speak on jurisdictions and also mining executives who understand the sector well.
He also said the current headwinds faced in the sector presented opportunities for the sector in the future.
“The commodity sector has been hit hard, mining stocks have been particularly hit hard and the Indaba will speak about long term proposition of those affected companies,” he said.
Moore said the jurisdictional uncertainties vary from country to country adding that this was going to be discussed at the Indaba.
A diverse group of investors are expected at the Indaba next year with some coming from Europe, China and Canada.
According to the SA chamber of mines, the mining sector accounted for eight per cent of the country’s GDP in 2012 demonstrating the importance of the sector to the South African economy.
Source: CNBC Africa