Africa's share of global mining deal flows tripled from 5% in 2009 to 15% in 2010, according to a report released on Wednesday by Ernst & Young.
The bulk of these deals was inbound and showed a significant growth in volume, signifying the increased interest of the rest of the world in Africa.
“In one major deal, Rio Tinto offered US$3.9 billion to buy Mozambican coal miner Riversdale, while Xstrata is paying US$513 million for Sphere Minerals, with the goal of gaining three iron ore projects in Mauritania,” said Adrian Macartney, mining sector leader for Africa at Ernst & Young.
“When one takes into account the increasing interest in Africa's mining sector from companies in China, India, Brazil and Russia, it is easy to see why the future looks rosy,” added Macartney.
When it was suggested a year ago that Africa's economic recovery was on track, many thought this premature. However, a quick look at current figures shows that there can be little doubt that the continent is definitely “open for business”.
In early January 2011, the International Monetary Fund (IMF) forecast that Africa would take seven of the top ten places over the next five years.
And with Africa once again presenting good value to investors, its mining economies are once more in the spotlight.
“Taking SA as an example, about 31 mining and metals transactions were completed during 2010, either in SA or by South African-based firms abroad, with the total value of these transactions amounting to $2.9 billion,” he added.
“Of course, the local industry was negatively affected by the ongoing nationalisation debate, as well as concerns over licensing and the availability of energy.”
However, noted Macartney, by early 2011, a note of positive sentiment had been underlined by the news of increased mining output for 2010, coupled to expected announcements on licensing, as well as the commitment of organised labour, corporations and government to ensure that the country capitalised on the current high demand for minerals.
He added that, elsewhere in Africa, there was also much to be positive about. Following the inauguration of a new president in December 2010 and the stability it brought with it, Guinea was expected to figure high on the radar of potential investors.
“The IMF was also upbeat in its assessment of Namibia's economic prospects, indicating that the mining sector will play a key role in leading the country's growth.”
He added that the Chamber of Mines of Namibia had suggested that a reduced royalty tax, along with alignment of the diamond corporate tax with the tax rate for other minerals, would release additional resources into the economy. It also expected this to ensure the sustainability of the diamond industry. No doubt, a positive change in the tax regime would spur additional investment as well, Macartney added.
Tanzania continues to be a rising star in east Africa, with geophysical surveys finding more gold and coal reserves in areas where these were not expected. In addition to these reserves, Tanzania's ability to attract investments in mining equipment manufacturing has been highlighted by the signing of a large deal.
Jinchuan Mining with Beijing Songshanheli Mining Investment recently signed an option agreement to become a partner on Tanzanian Royalty Exploration's Kabanga nickel property. The country lacks infrastructure, but government has embarked on a substantial port improvement programme, with the help of the Investment Climate Facility.
“Zambia has long been viewed as a low-risk investment destination, and its copper-based mining sector has thus attracted high levels of foreign investment in recent years. With copper demand set to outstrip supply from next year until at least 2013, things are looking up for the country. Further good news is that the Zambian government has confirmed that it will not reintroduce its proposed 25% mining windfall tax, provided for in the 2008 Mining Act,” he said.
“Perhaps the biggest clue to how well Africa's mining industry is doing is the fact that even Zimbabwe's economy is stabilising. Official figures indicate that after a contraction of 17.1% in 2008 in its mining industry - the largest decline in five successive years of negative figures - the sector grew by 8.5% in 2009. Furthermore, it was expected to grow by an additional 31% in 2010. The government has also issued more licences for diamond mining and has completely liberalised its gold market.”
“The good news for Africa's mining industry is that mining and metals continues to attract investment and drive economic growth in most African countries. The focus on new-era minerals such as coltan and cassiterite, which are used in modern communication technology equipment like cellular phones and computers, is increasingly significant.”
“Ultimately, the abundance of mineral resources on the continent, coupled with the lack of local capital and capacity, opens the door to mutually beneficial opportunities for local and foreign firms to work together in identifying and realising the enormous mineral potential of Africa,” concluded Macartney. - I-Net Bridge