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Along with the Arctic, sub-Saharan Africa remains the most underexplored and highly prospective mineralised region on earth. However, despite its ‘open for business’ approach and myriad investment opportunities – in terms of greenfield and brownfield projects across the commodity spectrum – Africa’s mining sector has, over the past several years, experienced limited growth.
This year proved no exception to that general trend, with Standard Bank global head of mining and metals Rajat Kohli describing it as a challenging year for the African mining sector. This is a result of a number of factors, ranging from the uncertain global macroeconomic environment, the loss of confidence in the mining sector, lower commodity prices and, most importantly, Africa’s challenging operating environment and lack of cost competitiveness.
EXTERNAL CHALLENGES
Broadly speaking, external factors beyond the control of African industry stakeholders are limiting the trajectory of mining growth on the continent, says Kohli, elaborating that this year has seen a deepening decline in investment capital for mining projects.
“Equity markets have largely closed up, while debt, though available, has been more selective,” he says.
Kohli adds that the difficulty in securing project capital has been most noticeable in the junior African mining space, with lenders exercising caution. This has prompted users of capital to seek alternative forms of funding.
Compounding the shrinking pool of project capital is the global loss of investor confidence in the mining sector.
“Many investors believe they did not substantially benefit from mining portfolio investments during the supercycle of the early 2000s. As a result, their confidence and willingness to invest in exploration and mining projects have largely dried up,” KPMG mining head Wayne Jansen tells Mining Weekly.
While Jansen acknowledges that there are some investors with substantial mining portfolios, he highlights the incongruence between shareholders’ short-term demands and the mining investments’ long-term requirements.
“‘Short termism’ is playing an increasingly influential role in an industry that requires long-term thinking, patience and investment across the cycles,” notes Jansen.
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