As South Africa loses its mining lustre, these countries are waiting to pounce, and some of the region's biggest players

Reports place East Africa as the new upcoming mining destination, as other stalwarts angle for a slice of the pie.

THE Investing in African Mining Indaba, the region’s biggest conference on mining, is always a big deal, and this year’s event at Cape Town, South Africa attracted big names such as former UK premier Tony Blair, recognised global economist Dambisa Moyo and among others a host of industry gurus and chief executives. 

Blair’s keynote address urged more investment in infrastructure by mining companies in Africa. He has since rebranded himself as an authority on the region and describing himself as an “African Optimist”, pointed out the basis of successful African development: availability of energy, education and transparency. 

Possibly the most representative perception of the South African mining sector was expressed by Justin Froneman from Credit Suisse, who noted that investors are beginning to turn away from the country, which is increasingly perceived as unstable and challenging. 

South Africa’s Black Economic Empowerment (BEE) programme, launched in 2001 to address post-Apartheid racial inequalities, was cited for the perceived instability. Pretoria recently added new codes of good practice to the BEE, which target employment equity and management. 

This legislation assumes a 26% ownership by local black economic partners and 40% Africans at the management level. It is not easy for some mining companies to comply.  

The redrafted bill passed in the National Assembly and would enter into force next year. Naturally, it caused a great degree of skepticism and spurred debate. “BEE is a big question”, said Froneman, “Mining companies need to know what their ownership structures have to look like […]”

It is unclear whether the Department of Mineral Resources would revoke licenses from all companies that do not comply. Would such an approach send companies unable to make par abroad?

The negativity of investors and miners at the Indaba towards South African industry policy was hard to miss, with Blair’s optimism message finding little fertile ground. However, the country’s reduced competitiveness may present opportunities for other countries:   

DR Congo—high return

Democratic Republic of Congo (DRC) with its staggering $24 trillion reserves of cobalt, diamonds, gold and copper is one potential alternative for the unhappy South African companies to turn their eyes to. It is a riskier choice considering political unpredictability and social unrest, but compared to South Africa’s estimated wealth of reserves of just $2.5 trillion, the DRC offers 10 times more potential, and fewer regulation.

Companies such as the Minerals and Metals Group (MMG) —with its Chinese funding, la Societe Miniere Du Karonga (Somika), Lundin Mining and Invanhoe Mines are all successful examples of private sector mining in DRC. 

Angola—for the curious

In Angola, a country infamous for corruption and human rights violations, almost 60% of the diamond rich territory remains unexplored. Problems with attracting foreign companies are at the heart of its problem.

However, Australian-based Lucapa Diamond operating in Angola has just gained 4% in value after it announced its diamond mining Lulo project in the country’s northern mining district. Angola is ranked as the seventh largest diamond producer in the world, generating around 5% of global diamonds. It is a smaller share compared with South Africa, but as a considerably safer environment than in DRC, Angola may be an option for a curious, but not reckless, exploring entrepreneur.

Rwanda—worth the punt

According to KPMG the African mining destination with the highest potential is Rwanda. Safe, regulated and with exceptionally optimistic economic prospects, Rwanda is a regional investment hub – and it seems equally lucrative for the mining sector.

The World Bank praises Rwanda’s mining production capacity, which has been growing steadily over the years, surpassing $225 million export earnings. Today the falling prices of some of the commodities mined in Rwanda have decreased its profits, but the government stresses that this should not deter investors as the country’s mining sector is only operating at about 20% of full potential, leaving substantial space for new players.

Who are the biggest players in the field?

The top ten richest mining companies are all non-African: Gelncore Xtrata (Swtizerland), BHP Billiton (UK/Australia), Vale (Brazil), Anglo American (UK/USA) and Barrick Gold (Canada) are only a few of the list. However, all work in Africa.

The 2014 mining reports in China place East Africa as the new upcoming mining destination, with an emphasis on Tanzania, Uganda, Kenya and Rwanda.

In southern Africa, the long-known mining giants of Botswana, Zimbabwe and South Africa are joined by Zambia, Madagascar and Mozambique. The latter is home to world’s fourth biggest coal mine by reserve, which is already in the hands of the Brazilian Vale.

In West Africa, Ghana and Burkina Faso have been on the radar of the mining companies for quite some time already due to their gold projects. Senegal, however, is a less popular player trying to lure investors to explore its high quality phosphate, zircon and titanium. With the government firmly dedicated to use unexploited minerals to drive Senegal’s growth, the potential investor may feel safe the government is playing in the same team.

Today most of the African mining companies still come from South Africa. However, Sierra Leone’s African Minerals Limited (AML), chaired by its co-founder Gibril Bangura, is expanding and has potential to become the region’s mining reference point.

Endiama, a national diamond company of Angola, is another example of the continent’s ability to harvest its resources without foreign ownership.

One of the biggest ventures of all, Australian-African Mining Industry Group (AAMIG), shows that perhaps a merger of foreign capital and local field expertise may prove the ideal cocktail for making profits off the underground.

South Africa remains a big player but its competitiveness is decreasing, giving other countries an opportunity to lure needed foreign investments. Some governments, like Rwanda, offer more lucrative incentives than others.

A Singapore-based research titled Global Business Report cites: “Where Rwanda’s mining sector lacks volume and capacity, the country has made significant strides in implementing regulatory reform in an effort to woo international investors.” 

In 2009, Rwanda officially started speaking English. After six years of practice it should find it easy to welcome its South African mining friends who may just find a new mining heaven in the Rwandan mountains.

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