African investment strategies reviewed

MineAfrica's 3rd Annual Investing in African Mining Seminar in London in November, 2009 drew 136 participants to hear a blend of corporate presentations by mining companies and technical presentations by financial, legal and engineering experts.

No doubt some of these were essentially self-promotions but the organizers had put together a programme that provided useful guidance for the less experienced on some crucial requirements for successful development of viable mining operations.
The keynote address was given by Mark Bristow, on "Exploitation or investment? The challenge facing Africa's mining industry". As Chief Executive Officer of Randgold Resources, Bristow spoke with some authority as the company has made itself a welcome mine developer in Mali, Senegal, Burkina Faso and Côte d’Ivoire and may well do the same at its new Kibali project in the DR Congo. He stressed that incoming mining companies should avoid an exploitative approach. The door is open, he pointed out: African governments have mainly adopted mineral exploration, mining and investment regulations that encourage inward investment in mineral resource development. But this investment should be long-term (typically only speculators make money from the early stages of a project, Bristow commented) and take into account all the stakeholders’ preferred outcomes, with wide accountability ensured.
It is important, he argued, to forge transparent links with host governments; equally the governments must make and stick to fair rules and have an enabling platform of regulation and regulators. There must be shared long-term commitments. If a company builds up a good relationship with government and local communities while developing and later mining a resource, then new risks can yield sustainable value.
A number of junior mining company speakers described portfolios that sought to reduce risk. Like Randgold, Canada’s MDN have established a producing mine in Africa, in this case Tulawaka in Tanzania, but only as the smaller stakeholder in a joint venture development with Barrick. Nevertheless the cash flow is helping fund further projects in Tanzania and also a tantalum-niobium project back home in Canada. Sunridge Gold Corp., working up in Eritrea, is another company that has brought in a partner. On the other hand, in DR Congo, Banro Corp. has worked hard on the community relations front during the early stages of its project, setting up the BANRO Social Fund in the area where the company has its right to mine.
Ian Saunders made a very encouraging contribution. He is president and CEO of New Dawn Mining, a Canadian based gold producer focused on Zimbabwe. He explained that changes in the financial regulations there had enabled New Dawn to restart production at the Turk gold mine in March 2009 after almost six months on care and maintenance. Gold is being exported to South Africa for refining, with payment in US dollars and rapid progress has been made on expanding the mine.
Other presenters provided practical advice. For example, Greg Ferron of the Toronto Stock Exchange outlined how junior companies can access a large number of institutions and individuals who are experienced investors in mining ventures – there are apparently 147 Toronto Stock Exchange and Venture Exchange-listed mining companies currently active in Africa. While setting up a project can seem like climbing a mountain, that’s just the start said Lancelot Stilwell, a mining consultant with Read, Swatman & Voight (Pty) Ltd, in his presentation “Why investors in mining projects need engineers”. He had several cautionary tales to tell.
In the final presentation, Peter von Klemperer of Standard Bank asked: "How Important are China and Africa to Each Other".
The answer, not received with wild enthusiasm by some members of the audience, was: very. China is now Africa’s second largest trading partner after the USA and this worries quite a few investors and politicians. Indian, Russian and Brazilian companies are also making substantial investments.


Development prescriptions in Kigali
The African applecart has been well and truly upset. Now, healthy competition between BRIC investors and the mining companies from Europe and North America that have previously financed and managed mineral development in much of the continent can open up new opportunities for mineral-rich African countries as well as helping to keep mineral prices at high levels for at least another decade. This view was widely expressed at a workshop held in Kigali, Rwanda in early December 2009.
In this situation, the African Union (AU) and the UN Economic Commission for Africa (UNECA) are pushing ahead with an initiative to review the region’s mining regimes. Effective regulatory regimes are (as Mark Bristow said) essential if mining, minerals and metals are to catalyze economic and social developments in a way that has not been possible so far.
The Kigali workshop reviewed prerequisites for such a development. A report, which will be presented to the mining ministers of the AU in 2010, was scrutinized by stakeholders from all over East Africa.
This report, the result of a two-year effort headed by the UNECA secretariat in Addis Ababa, highlighted a number of areas for action by governments and other stakeholders all over Africa in cooperation with mining companies and metal consuming countries.
The report takes the view that the fundamental objective of harnessing Africa's mineral resources to promote its economic and social development calls for a much broader planning and regulatory framework than is currently used in most nations.
 This includes a cross-sectoral approach – one that: integrates the primary sector into the broader economy and mining and processing into local supply chains; introduces new models for local participation and empowerment and finds ways to channel mineral rents into capital accumulation; makes best use of development corridors, improved infrastructure and appropriate levels of technology; explores means to foster innovation; and applies many other models and processes.
Most of the approaches are not new but they are, for the first time, being packaged together in Africa by Africans -- in a cooperative manner including all real, potential cooperative partners in the process.
Based on the findings of the report, the second phase of the review project will aim to develop toolkits, templates, guidelines, briefing notes and other instruments with regard to specific matters of significance and concern in the formulation or revision of African mineral regimes. 

Kyran Casteel

Alain Charles Publishing, University House, 11-13 Lower Grosvenor Place, London, SW1W 0EX, UK
T: +44 20 7834 7676, F: +44 20 7973 0076, W: www.alaincharles.com

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