The future of mineral exploration – contributions from Africa

Primary author, Patrick Richards, geologist and Mineral Project analyst and contributing authors, Teboho Sebetlela, geologist and manager and Neil McKenna, geologist and director – Deloitte Technical Mining Advisory.

With a pronounced upsurge in interest in discovering critical mineral deposits for the green energy transition (GET), Africa, with its significant mineral endowment, could strategically position itself to maximise the benefits of this revolution. This presents an opportunity for the continent to play an increasingly significant role in the future of the global economy. As such, there is a growing imperative for the government and private sector to work towards ensuring that the continent is perceived as a politically, economically and geologically appealing jurisdiction for current and future exploration.

It is currently estimated that Africa hosts 30% of the world’s critical mineral reserves. However, historical exploration budgets throughout the continent remain disproportionately low, with the Americas, Australasia and Asia all attracting substantially more exploration investment over the past decade. Although there was a 16% year-on year increase in exploration spend in 2022, only 10% of the global exploration budget was spent exploring Africa’s resources (S&P Global, 2023) – with much of this being highly focused on specific geographies within Africa and mostly within the gold and copper sectors. Gold continues to enjoy a disproportionate share of exploration expenditure.

According to the United Nations, the demand for nickel, cobalt and lithium is predicted to double, triple and rise ten-fold, respectively, between 2022 and 2050, creating a compelling growth opportunity for exploration in the African continent. Due to the variety and quantity of underdeveloped critical mineral deposits across the continent, Africa is well placed to become an increasingly important supplier. Against this backdrop, the continent has a significant opportunity to benefit from the GET if it can attract appropriate investment into critical minerals exploration and project development.

 

Exploration trends in Africa

Who are the explorers?

In 2023, approximately 29% of the annual exploration budget expended in Africa was by Canadian-owned companies, followed by Australian- and United Kingdom-owned companies, which contributed 26% and 18% of the budget, respectively. Surprisingly, Chinese explorers only accounted for 3% of the budget while African based exploration companies contributed 7%.

 

Snubbed greenfields exploration

According to S&P Global (2024), there has been a sharp decline in greenfields exploration over the past 10 years with a corresponding increase in M&A activity. Large mining companies are acquiring developed assets and focusing on brownfields exploration, rather than developing a project from the ground up. Despite the M&A strategy generally being more expensive, it reduces the risk of coming up empty-handed, which is often associated with greenfields exploration. The acquisition of developed operations lays the foundation for rapid expansion and expedites entry into new market spaces. While increased M&A activity is considered a contributor for decreased greenfield exploration budget, it is important to note that this is not the only avenue for growth and expansion that has snubbed greenfields exploration budgets. Other growth avenues that have diluted the greenfields budgets include increased brownfields exploration without M&A, the investment in new technologies, capital growth projects for existing projects, investment in new ventures, as well as increased greenfields exploration in continents other than Africa. However, these transactions can undermine investment in mineral exploration, which is needed for the discovery of new deposits.

 

Substitution risk

Exploring for critical minerals has the potential for high return on investment. However, mineral substitution poses a significant risk for certain critical minerals. Efforts are continuously being made to find and substitute these minerals for more readily available and abundant alternatives. The U.S Department of Energy (DOE) has issued a notice of intent to fund and support bench- and pilot-scale initiatives to secure a domestic supply of critical minerals, which includes research, innovation and design of alternatives for minerals that are not significantly abundant within the United States. Furthermore, the DOE has set a 2030 goal to eliminate cobalt and lithium-ion batteries from its market. These ambitious trends are now being mirrored within the private sector. A case in point is the electric vehicle market where major Original Equipment Manufacturers (OEMs) such as VW and Tesla have made public their intent to reduced reliance on cobalt within their Li-ion battery packs, in favour of manganese and nickel (electrec, 2022; IDTechEx, 2021). Though substitution can undermine the current boom in exploration for some critical minerals, opportunities may be created through increased exploration investment interest for the substituting metal.

Nonetheless, the net result is increased risk for potential investors in early-stage mineral assets. Indeed, substitution is often a necessary route to keep downstream manufacturing economically viable with raw materials that have acceptable ESG credentials. However, it also creates a dilemma for explorers which must make investment decisions with a long-term view.

 

Spend versus discovery

Although the year-on-year exploration spend for Africa has steadily increased from approximately USD923-million in 2016 to USD1.27-billion in 2023, this has not resulted in a proportionate uptick in the discovery of new deposits. According to S&P Global, only three new significant copper deposits have been discovered globally in the past five years, with the global increase in copper production being attributable to the expansion of current operating mines discovered pre-21st century. In an effort to improve exploration efficiencies and the probability of success, explorers are now turning to technology (machine learning, artificial intelligence, and data analytics). These innovations are intended to result in improved target identification, reduced turnaround times and more efficient expenditure.

 

Africa’s resource base

According to the United Nations, the most important critical minerals to support the GET include copper, nickel, lithium, cobalt, graphite, vanadium and rare earth elements. For many of these metals, Africa has and will continue to be a key supplier (Figure 1). However, this rich and diverse endowment still lacks the downstream processing capabilities that are needed to maximise the full potential of socio-economic growth linked to metal demand stemming from the GET. Furthermore, developing in-country processing capabilities has the ability to significantly reduce the global carbon footprint by reducing the amount of emissions from shipping raw and processed materials around the globe.

Over the past 10 years, the key commodities that have been explored for throughout Africa have remained relatively unchanged. Gold and copper have been the primary focus of exploration efforts, with gold accounting for most of the budget (Figure 2). Post 2020, there has been a marked increase in the budget for copper and lithium, as well as a resurgence in exploration spend for nickel and uranium, as well as drop in cobalt and platinum. However, increases in exploration budget for these aforementioned critical minerals has not offset the decline observed in gold exploration budgets, resulting in a net decrease in exploration budget for 2023. According to S&P Global (2024), gold and base metal projects still remain the main contributors to the greenfields project pipeline with the two categories accounting for more than 50% of exploration projects across the African continent. While the observed trends mirror the current market dynamics, exploration budgets are still disproportionately weighted towards gold and copper while most other critical minerals remain poorly represented.

 

Current inhibitors for exploring Africa

One of the biggest factors deterring exploration companies and investors is the lack of, or the rate of decline of the current infrastructure including power supply and availability. The challenges are not unique to any one country. Such challenges can complicate the viability of exploiting deposits of certain commodities with otherwise strong geological merits; and thus, potentially deter investment. Similarly, the challenge of inland logistics is a common denominator across much of Africa, which presents a major challenge not only in accessing under-explored areas, but it also undermines the viability of exploiting deposits that would otherwise have strong credentials. For Africa, creating a stable link between infrastructure and the extractive economy is key to realising value from the continent’s mineral wealth.

Other factors undermining exploration in Africa include sovereign risk; laborious and opaque permitting processes; Environmental, Social and Governance (ESG) challenges; lack of down-stream processing capability and the absence of technically sound geological databases. Collectively these factors create an environment of heightened risk for prospective investors, setting the stage for diversion of capital to other continents where the geological fundamentals may not be as appealing.

Indeed, analysis of data demonstrates that the allure of conducting business in certain jurisdictions is broadly correlated to the country risk and economic risk of the respective jurisdictions (BMI Fitch Solutions, 2024; S&P Global 2024). The analysis demonstrates that countries that have higher risk ratings have typically had a lower proportion of mining and metals transaction activity within the past 10 years – though South Africa is a distinct outlier.

Some African countries have already begun taking the necessary steps to improve their appeal to exploration companies and investors. Kenya has recently conducted a large-scale geological mapping exercise of the country’s mineral deposits to reduce potential geological risks during exploration and mining in the hope of attracting explorers. Botswana has undertaken a complete digitisation and overhaul of their permitting process, which has reduced turnaround times for exploration permits to within 20 to 40 days. The prospects of junior explorers rely heavily on the consistent delivery of exploration results to the market to generate the funding needed to support working capital requirements. Decreasing the geological risk and improving prospecting licensing turnaround increases the appeal to junior explorers, who are crucial for mineral deposit discovery.

In general, consistent exploration activity and tenure of greenfields exploration companies, including through market down-cycles, will bring greater success in discovering new mineral deposits.

Projections of tight long-term supply-demand balances for many critical minerals will also exert an important influence on the appetite of investors to fund new exploration projects. Not only will this generate support for higher prices, but it has and will continue to encourage government incentives for the discovery and development of resources containing metals that are seen to have strategic importance.

Perhaps most prominently, this has been exemplified by the United States Inflation Reduction Act (IRA), which contains provisions for tax credits on electric vehicles if raw materials are sourced from partner countries which participate in the Free Trade Agreement (FTA). Though African countries are largely excluded from this grouping, there are hopes that eligibility could be extended to participants of the African Growth and Opportunity Act – which include key critical minerals producers in Africa.

With the demand for critical minerals set to experience sustained growth, there will be a need for supply growth to match this. However, as a result of a sluggish macroeconomic environment with an uncertain investment climate through most of the early 2020’s, investors have tended to deprioritise spending on exploration globally. Africa has been among those areas which have borne the brunt of this trend, with the 2023 exploration budget decreasing by 3.4% year-on-year, compared to the global average decline of 2.5%.

Tight market balances create clear incentives for exploration, which Africa can benefit from. Although the potential upside is not unique to Africa, the prevalence of historically under-explored land packages within the continent lays a foundation for heightened exploration focus on Africa in particular.

Forward-looking: Africa’s role in mineral exploration

According to the United Nations, the global demand for many critical minerals is expected to increase in multiples over the coming decades. Africa is in a potentially advantageous position due its diverse and significant critical mineral endowment. However, despite the clear geological advantages, key headwinds facing the continent’s extractive sector threaten to undermine the continent’s drive to become the preferred supplier of critical raw materials to global markets. As such, how Africa reaps the benefits of the GET will depend heavily on the ability and willingness of governments to implement key reforms in an efficient and timely manner.

The specific nature and urgency of reforms necessary may vary between specific African jurisdictions, but there are undoubtedly common areas that require attention:

1. Permitting processes need to be made faster, simpler and more streamlined to increase appeal toward junior and major exploration companies;
2. Geological databases containing mineral deposit information throughout Africa need to be regularly updated and made publicly available by the respective countries;
3. Developing down-stream processing capabilities should be made a priority by governments, together with the upskilling of its people throughout the mining and metals value chain; and
4. Perhaps most importantly, African countries need to emphasise developing or maintaining infrastructure to support not only mineral exploration, but mineral extraction and down-stream processing.

Through initiatives such as the African Continental Free Trade Area (AfCFTA), African countries are now also incentivised to support one another and collaborate in this sector. However, how enthusiastically and efficiently they adopt this mindset and implement reforms will play an important role in how beneficial the GET truly becomes for the continent.

 

About the Deloitte Technical Mining Advisory Team:

The Deloitte Technical Mining Advisory team is Deloitte’s specialist team that provides techno-economic and technostrategic services to the mining and metals sectors. The team is recognised for their technical abilities in the evaluation of acquisition and divestiture opportunities and preparation of corporate project disclosure. A combination of technical mining advisory skills with strong financial and commercial due diligence skills positions the team favourably within the industry covering mineral projects from early stage greenfields exploration and targeting to mine closure and rehabilitation. With significant and credible experience advising mining companies and investors on the techno-economic merits of mineral projects and extensive experience in mineral project transactions, the team is able to assist clients in accelerating their business to a better mining future.

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