The principal risks affecting mining in Africa – by Christy Filen (Mineweb.com – February 16, 2012)

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Two risk analysis experts shared their views on the principal risks facing investment in mining in Africa on the fringes of the recent Indaba conference in Cape Town.

JOHANNESBURG (Mineweb) –  Government intervention is a recurring theme in an analysis of the top risks for the mining industry on the African continent as identified by experts in their fields.

Ironically the nationalisation research report by South Africa’s ruling African National Congress (ANC) party is entitled SIMS (State Intervention in the Minerals Sector).

Not surprisingly, the risk of war and strife to business is taking a back seat to the instigations of power wielding politicians in an effort to assuage the electorate.

On the fringes of the Invest in African Mining Indaba, Control Risks managing director for southern and east Africa, Dave Butler and Robert Besseling, the head of business development for Exclusive Analysis in South Africa, shared their views on the top risks facing the mining industry on the African continent.

Political and violent risk – war, civil war, coups d’état and violent regime change. The great news here is that the frequency has reduced but it is still remains a risk (e.g. Côte d’Ivoire and Libya).

“Make provision for a black swan event. A low frequency but high impact event. Nobody foresaw Libya or Egypt. Companies must have contingencies” said Butler.

“War is out of fashion with sanctions and funding drying up. Terrorism is more fashionable.”

“Look out for civil unrest and industrial action, especially in South Africa” said Besseling.

The recent strikes at Implats operations is a case in point.

Government changes, contract frustration and legislative reforms e.g. the review and reneging of licences under the guise of anti-corruption drives.

Resource nationalisation/expropriation – fuelled by inequality. The irony here is that the higher the inequality amidst increased calls for nationalisation, the higher the perceived risk. With the higher perceived risk comes an increased expectation of returns from investors. This means less is ultimately available to put back into local communities creating yet more dissatisfaction – a self defeating situation.

“It won’t stop investors from investing on the continent, they just adjust their financial models” said Butler.

Policy uncertainty – this elevates the risk significantly and South Africa is developing a reputation in this regard said Butler. 

“It leads to investors not being able to work out their financial models and raise funding. It is government’s prerogative to for example charge taxes, but investors need certainty” emphasised Butler.

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