While the SADC region has significant quantities of minerals, and these are the drivers of the member country’s economies, the mining sector is experiencing the same problems as its counterparts worldwide.
With increasing energy demand, fluctuating precious metals markets, a shifting exploration landscape, subdued commodity prices and a gradual – not steep – recovery forecast, among others, the region will still have to find answers if it is to survive, never mind be sustainable.
The inaugural SADC Africa Mining Conference explored these opportunities through the insights from various industry experts.
The industry is in a tough place, concurs Roger Baxter, CEO of the Chamber of Mines of South Africa. He believes the big challenge is that we continue to use conventional mining methods while we view modernisation as a threat; one that will do away with people. The answer, he says, is far more complicated than that and if we are to realise the potential of the SADC region we will need to migrate to modernisation.
“Modernisation holds massive cost benefits and will mean that mining can contribute to the economic development of region as a whole. If we modernised we would have 11 large gold mines and nine platinum mines that could be mined safety.”
However, without it what we have is a rapidly depleting resource that is costly but with declining jobs and limited export opportunities.
In fact the opposite is true. With modernisation, bigger ore bodies can be mined, job losses will be slowed down, skills will be developed, investment will flow in, and, if we manufacture the technology here, it will further mitigate job losses. “While this will take time – about 20 years – the impact on growth will be significant.”
Charles Siwana, CEO of the Botswana Chamber of Mines, says mining companies need to position themselves into the lower quartile of the cost curve. He acknowledges that this is an easy statement to make, but a difficult one to carry out.
Next he says we need to tackle the infrastructure constraints we face, such as power interruptions. “Both the private and public sectors need to make themselves attractive to attract FDI. The private sector must indicate its ability to have a sustainable business that yields high returns, while governments must facilitate a conducive environment for such funds.”
The biggest opportunity for the region, in his opinion, is to beneficiate its raw materials instead of exporting them. “Africa has a history of exporting its raw materials and then importing the beneficiated goods back at a higher price. This has to stop.”
He adds that this will also help to close the gap when commodity prices do rise.
Mining community development is not succeeding, despite legislation and the intent of policies, with the benefits not being seen by the supposed beneficiaries.
So says Deepa Vallabh, director: cross border mergers & acquisitions: Africa & Asia, Cliffe Dekker Hofmeyer. She has counselled mining companies for 17 years and, in her experience, the social labour plan (SLP) of many mining companies is a tick-box exercise, not a strategic plan for long-term sustainable development.
Government shares her view that community development as not working. “If the community is not seeing the benefit or correlation than it means it is not working and this includes mining communities that form part of the equity structure. When mines have sustained losses no dividends are paid. To properly benefit communities, long-term investment is needed.”
Given the above, she says there are other questions that also need to be asked. “When it comes to community development, what is the end goal of that community… do they want to stay there, or is it about developing skills that will take them to urbanised areas?”
If urbanisation is key for our future growth, she asks, why are we continuing to develop communities as if they are going to live there forever? It will only be there for as long as the life of the mine.”
Most infrastructure investments on the continent are in the energy sector, but power plants and transmission lines across Africa, most of which were erected in the 1950s and 1960s, operate today at just a fraction of installed capacity due to insufficient maintenance and lack of modernisation.
Across the continent, infrastructure is either disrupted, damaged or non-existent. However, investment in energy infrastructure is critical to the continent reaching its economic potential and exploiting its current growth trends.
Meeting the demands for Africa’s critical energy infrastructure was in the spotlight at the annual Infrastructure Africa Business Forum, which concluded on Wednesday at the Sandton Convention Centre. According to the Africa Progress Panel (APP) in its recent “Power, People, Planet” report, Sub-Saharan African governments should be aiming to increase electricity generation capacity tenfold and achieve universal access to electricity by 2030. The International Energy Agency (IEA) recommends that Africa raise energy generation by 4% per year to 2040.
Sub-Saharan Africa has only 90GW of electricity generation capacity and energy constraints are costing the continent 2%-4% of GDP per year. But some progress is evident. There are now 130 independent power providers in sub-Saharan Africa and about 27 private equity investments were made in energy between 2010 and 2013, valued at $1,2bn. This boost is partly due to President Barack Obama’s Power Africa initiative, increased energy cooperation between Europe and Africa, Chinese project finance for large-scale power projects, and South Africa’s renewable energy programme.
“Energy infrastructure changes the economy, it adds from a jobs and employment perspective. It’s a key enabler and the rest follows. Good infrastructure also makes us more competitive at a global level. Energy infrastructure needs to lead rather than lag,” said Kribs Govender, vice president for business development for power & new energy at Sasol.
According to Romain Py, head of transactions at African Infrastructure Investment Managers (AIIM), “Africa’s lack of infrastructure development comes down to policy failures and the stability of the regulatory environment. No one will invest without clear policy environment. We are talking long-term investments of large amounts of money. If we as investors feel the policy is unclear or not sustainable, we will not invest.”
Ian Curry from Basil Read Energy, an IPP with projects in South Africa and projects in development in Zambia, Botswana and Namibia said, “We need to meet the needs of energy in Africa from an African perspective. The challenges that Africa has from primary resources through to consumers must be solved by Africans and on a regional basis. This historical nationalistic focus we have in South Africa and Sub-Saharan Africa is not healthy and we must think beyond our borders, not just as South Africans, or Zimbabweans, but as Africans.”
“From a policy and consumer level and from a planning perspective, three things need to be looked at with regards to energy infrastructure, namely 1) security of energy supply, secondly: how affordable your energy source is and lastly what is the impact of your energy source on local environment and sustainability? Keeping these three in balance is important in policy considerations”, says Shaun Nel, director at the Energy Intensive Users Group (EIUG).
In conclusion, Mr Curry added that, “We need to align ourselves regionally. Regional integration needs to be looked at right down to the consumer level, but national pride often stands in the way. But our wealth and economic prospects lie within the region.”
Regional integration will come under the spotlight and will further be explored at the 2016 Africa Energy Indaba, the sister event to the Infrastructure Africa conference and taking place in Johannesburg at 16 – 17 February 2016. The annual African Energy Ministers Roundtable to be hosted at the Indaba will lead with this key issue and will include the financing of Africa’s criticial energy infrastructure supported by skills development in Africa.