The main concerns in Africa revolve around policy and regulatory uncertainties, along with increasing royalties and taxes, writes independent consultant Nicolaas Steenkamp.
International investors and major mining companies will invest in countries that offer incentives for investment and that are politically stable. Mining majors will most likely continue to develop their tier one prospects in these countries. These companies will continue to monitor the situation in other countries or may opt to place their operations under care-and-maintenance or in extreme circumstances exit the country.
A prime example is Zimbabwe after the coup of 2017, the new government made all the right noises to attract investment, but has failed to change the conditions on the ground and in fact are now back in the situation of the early 2000s with no food in the shops and no fuel at the pumps along with health concerns, for example the cholera outbreak in late 2018.
Several countries have moved to taking more control of the existing mines, raising taxes and royalties, but offering very little in return. Most African countries have also not implemented any plans for benefitting from a potential market upswing projected in 2020 and may miss the boat again. The trend of ethical sourcing, especially in the DRC and its neighbouring countries will remain high on the agenda, especially with the Dodd-Franks act (gold, tin, tungsten and tantalum) requiring all operators and refineries to declare that their ore was obtained in an ethical manner and are not conflict minerals. The Kimberley Process is also looking to expand the definition of “blood diamonds”. Another concern is the influence of loans from China, where countries defaulting on payments end up handing over key infrastructure, for example ZESCO in Zambia.
Diversification is the key to mitigating most of these risks. Mining companies should, for every high-risk country, have an operation, or at least a joint venture in place in a more stable region. Putting the correct measures in place, such as blockchain platforms as soon as possible will also put them in a good position in the eyes of end-users. Companies should remain vigilant and develop a strong anti-corruption culture when operating in Africa.
The countries that have tried to attract investors and put regulatory and tax certainties in place are expected to do well in 2019. Nigeria and Burundi have made huge strides in developing their mining policies of the past couple of years and investing in the development their solid mineral resources.
Namibia has also dropped its black empowerment requirements for prospecting licences after heeding the warning that it will result in a reduction in investment, this may result in renewed interest in Namibian exploration projects. Mauritius has emerged as the go-to country for registration of businesses due to its investor friendly policies and attractive tax regime.