Competition

African mining opportunities

Summary: Africa is well-known to be rich in commodities. However, up to now there has been a strong divide between south and north. While South Africa‘s mining industry is highly developed, other countries that are rich in commodities have long remained ­forgotten. Now, intense competition has broken out between established global mining companies and Chinese companies for the natural resources of Africa. This report presents examples indicating what countries are currently leading the field and what resources and projects are involved.

1 Introduction

A presentation by Dr. Dambisa Moyo at the “African Mining Indaba 2013”, the world‘s most important congress of the mining industry, with 7500 participants in February of this year, caused a great commotion. The doctor of economics, nominated by Time Magazine as one of the TOP 100 most influential persons in 2009, had given the “keynote speech” with the title of „Winner Takes All: China’s Race for Resources and What it Means to the World“. A year previously, she had published a book with the same title. In her speech, Dr. Moyo, originally from Zambia and known for her critical and controversial views, characterized the role of China in the securing of resources in Africa as a symbiotic relationship between China and the countries of Africa. China was in the process of achieving what the West, and particularly the USA and Europe had neglected or failed to do.

It is a fact that in recent years Africa‘s mining industry has gained influence due to the increasing worldwide scarcity of resources, and this is due in large part to China‘s hunger for commodities. The mineral contents of ore deposits in China are often below the standards of deposits in Australia, Brazil, Canada and South Africa [1]. Possibly, China is also pursuing a policy of preserving her own commodity resources and keeping them off the market for as long as possible – maybe until such a time as commodity prices have again doubled or tripled. At present, not only the global mining industry is viewing China‘s economic growth – which has weakened to below 8 % – with apprehension. But how long is the boom on the commodities market going to last, and what significance does this have for Africa?

2 Africa‘s mining industry

In simplified terms, the “African Mining Vision 2050” published by the African Union, the “United Nations Economic Commission for Africa” (ECA) and the United Nations Conference on Trade and Development (UNCTAD) is concerned with bringing African countries more benefit from their rich mineral resources and thus promoting development and growth in Africa. Of the 54 African countries, 24 can be described as dependent on their mineral resources, as these account for more than 75 % of their commodity exports. Despite this fact, exports have so far contributed little to the achievement of sustainable development in the countries of Africa. In most countries the mining industry is only poorly developed and there are generally no downstream processing or dressing facilities subsequent to the preparation of the commodity. The countries concerned consequently miss out on a portion of the revenue. Until now, the average spending on exploration in Africa has been 5 US$/km2, which is more than one tenth less than the expenditure in Australia or South America.

At least with regard to the mining industry, South Africa has an exceptional position on the African continent in several respects. Firstly, unlike the other countries, South Africa‘s mining industry is so well developed [2] that it is on a world-class level. This is demonstrated by the presence of such top-ranking mining companies as De Beers, Anglo Gold Ashanti and Anglo American Platinum. Secondly, some important mineral resources in South Africa have already been exploited to an extent where their production quantities have been decreasing for years (Fig. 1). For diamonds, the peak output figures were achieved in 2005, for gold in 1993, for copper in 1991 and for platinum group metals (PGM) in 2006. The decline of over 70 % in the case of gold production is particularly dramatic, although the country has the largest gold deposits in the world.

In the recent past, a number of companies in the mining industry, as well as analysts and journalists, have portrayed South Africa as an increasingly unstable country, particularly in comparison to other important mining countries in Africa (see for instance [3]). This judgement is based on recent strikes, acts of violence and bloody clashes, as well as discussions within the ruling ANC party regarding nationalization of the mining industry and the imposition of higher taxes. Last year alone, strikes are stated to have caused production losses amounting to US$ 1.5 billion. In contrast, other countries like Botswana, Zambia and Ghana have stable economic policies, their political parties and laws are industry-friendly and the risk for mining industry investors is therefore smaller. However, it must not be forgotten that these countries often have considerably worse infrastructure conditions that demand additional investments in order to provide the prerequisites for mining and exportation of the mineral resources.

3 Raw materials and resources

Africa is rich in mineral resources and natural commodities. The continent has around 30 % of worldwide reserves. Both in terms of production and worldwide reserves, Africa is the global leader for diamonds, gold, platinum group metals, chromium, manganese, cobalt and vanadium (Fig. 2). In 2005, the continent had 88 % of the worldwide diamond reserves, 42 % of the gold reserves, 60 % of the platinum group metal (PGM) reserves, 82 % of the manganese reserves and 95 % of the vanadium reserves, putting it in first place in each case. For the above mineral resources, Africa also takes first place in the mining output statistics, but output is disproportionately small compared to the reserves in the case of gold (22 % of global mining output in 2005), cobalt (18 %), manganese (36 %) and vanadium (51 %).

Coal production still largely depends on South Africa, although it is mined in around 15 African countries. Fig. 3 shows the development of tonnage mined since the year 2000 with a forecast up to 2017 for South Africa and the other African coal mining countries. Among the most important of those other countries are Mozambique, Tanzania, Botswana and Zimbabwe. In 2010, South Africa‘s tonnage of 254.5 million tonnes (Mt) gave her a 98.3 % share in the total coal mining output of the continent of Africa. The other countries only accounted for 4.5 Mt or 1.7 %. In the coming years it is expected that – besides South Africa – the biggest mining outputs will be achieved by Mozambique, Tanzania and Zimbabwe. The output rates of the remaining coal mining countries are expected to stagnate. The forecasts anticipate that South Africa‘s share will have fallen to 86.3 % by 2017, while that of the other countries will have risen to 13.3 %.

In 2010, the countries of Africa mined 45.4 Mt of iron ore. Here, too, South Africa was the leader with a share of 81.3 % or 36.9 Mt (Fig. 4). Iron ore is mined in 16 African countries. Aside from South Africa, the most important countries up to now include Mauritania, Egypt and Algeria. In 2013, large mining outputs have already been achieved in Guinea, Sierra Leone and Gabon. According to the forecasts, the picture is going to change considerably by 2017. It is expected that a total annual iron ore mining output of 212 Mt will have been achieved by then, which represents a 5-fold increase. Guinea appears set to become the most important iron ore exporting country with an anticipated quantity of 119 Mt in 2017. With her exports of 49.5 Mt, South Africa will be pushed into 2nd place. Gabon, Mauritania and Sierra Leone are also expected to export more than 10 Mt. The above statistics do not even include Cameroon, although some of the most interesting projects are currently being implemented there.

On the gold production sector, South Africa lost its former dominance to the other countries in 2010 (Fig. 5). The graph also shows that gold production fell from 605 t in 2000 to 479 t in 2010. In the course of this decline, South Africa had to reduce her output from 430.8 t (71.2 %) to 188.7 t (39.4 %). The countries that emerged by 2010 as newly-important gold producers are Ghana (76.3 t), Tanzania (39.4 t), Mali (36.3 t), the Sudan (26.3 t), Burkina Faso (24.1 t) and Guinea (15.2 t). The expected gold mining output rate for 2017 is 737 t. By 2017, 223 t (30.3 %) will be produced by South Africa, 116 t by Ghana, 56.3 t by Tanzania, 51.8 t by Burkina Faso, 49 t by Mauritania and 45.6 t by Mali. In 2017, a total of 25 African countries will be mining gold.

On the diamond production sector, South Africa lost its former dominant position quite a long time ago (Fig. 6). In 2000 the country was still mining 10.8 million carats (Mcts) and had a share of 18 % in the total output. By 2010 South Africa‘s output had fallen to 8.9 Mcts (12.4 %). In 2010, Botswana (21.0 Mcts), the Democratic Republic of the Congo (16.8 Mcts), Angola (13 Mcts) and Zimbabwe (8.4 Mcts) had already taken leading places. By 2017, Zimbabwe is expected to produce 10 Mcts, thus overtaking South Africa with her forecast output of 9.1 Mcts. By then, the leading countries are expected to be Botswana (28 Mcts), the Democratic Republic of the Congo (19.5 Mcts) and Angola (10 Mcts). Eight further countries will be producing significant quantities of diamonds: the Central African Republic, the Republic of the Congo, the Ivory Coast, Ghana, Guinea, Lesotho, Sierra Leone and Tanzania.

The situation on the copper mining sector is similar to that of diamond production. In 2000, South Africa produced 137 000 t of copper, giving her a 29.1 % share in the total African output of 430 000 t (Fig. 7). However, in 2010 South Africa‘s copper production had dropped to 103 000 t and her share in the total output was only 6.9 %. Zambia (820 000 t in 2010) and the Democratic Republic of the Congo (440 000 t in 2010) have become the two most important copper mining countries in Africa. Copper is mined in 7 other African countries. It is forecast that by 2017 South Africa‘s more-or-less constant production rate of 106 000 t will mean that the country only has a 3.8 % share in the total mining output. The lion‘s share in 2017 will still be supplied by Zambia, with 1 600 000 t and the Democratic Republic of the Congo with 991 000 t. No other mining country is expected to achieve a position of significance.

4 Emerging mining countries and projects

In addition to South Africa, more than 15 other countries are at the centre of focus for the international mining industry. Table 1 provides an overview of the growth countries where significant expansion of mining activities for particular mineral resources is taking place. Aside from the listed countries, interesting projects are currently being implemented in numerous other countries, such as Ethiopia, Egypt, the Ivory Coast, Kenya, Lesotho, Liberia, Morocco, Namibia, Niger, Nigeria, Senegal, Uganda and the Central African Republic. Mining legislation differs greatly from country to country. In more recent mining laws (Table 2) attempts have been made to increase the respective state‘s share of the mining revenues. In general, however, government taxes in most countries are still moderate compared to those of South Africa where the so-called “Royalty Rate” is up to 7 % and the rate of corporate income tax is 37 %. In the following section, some countries and projects are described by way of example:

4.1 Coal mining in Mozambique

It is possible that Mozambique will be able to expand her coal production from the 2010 figure of 0.05 Mt to 42 Mt in 2017. The largest coal fields are located in the interior of the country in the province of Tete, about 600 km from the port of Beira. Vale and Rio Tinto own the biggest coal mining concessions. A further project is being implemented by the company Minas de Revuboè, in which Anglo American has acquired a 59 % holding. The Brazilian company Vale has been active in the country since 2004 and has implemented the Moatize project. The Moatize 1 coal mine (Fig. 8) has been in operation since 2011. The mine‘s production capacity is 11 million tonnes per year (Mta), of which 70 % is metallurgical coal and 30 % is steam coal. The Moatize 2 mine, at present under construction, is expected to double Vale‘s coal production capacity. The problem is that the railway line to Beira can only manage a capacity of 6 Mta.

Indeed, in February 2013 railway traffic came to a complete standstill because torrential rainfall and flooding had undermined the railway tracks. Vale is therefore building a second railway line from Tete to the port of Nacala in the north of Mozambique. This railroad will be 912 km long, of which 237 km will be routed through neighbouring Malawi. When this railway line is completed, it will allow the transportation of 18 Mta of coal. Rio Tinto, who have already invested US$ 4 billion in a coal mining project in Mozambique, faces a similar problem to Vale. Experts estimate that the country will need to spend US$ 20 billion to improve the country‘s railway and shipping infrastructure. As the coal transportation problem has not yet been solved, Rio Tinto is considering the possibility of withdrawing from Mozambique, having already written off US$ 3 billion. Coal India is said to be one of the interested parties.

4.2 Iron ore mining in Cameroon

West Africa is developing into one of the most interesting iron ore mining regions. The hematite and magnesite deposits have high iron ore contents that sometimes even exceed 60 % and therefore allow direct ore shipping (DSO = Direct Shipping Ore), which has aroused the interest of numerous large mining companies. The deposits in Cameroon are particularly rich, bringing the country the title of “The New Pilbara” (Pilbara being the most important iron ore deposit in Australia). Fig. 9 shows the iron ore belt in Cameroon, Gabon and the Republic of the Congo with the most important current projects. In Cameroon, a large number of companies are working so-called high-grade deposits, including Affero, Aluvance, Legend Mining, Sinosteel, Sundance Resources and, last but not least, West African Minerals (WAFM). In the Republic of the Congo, projects are being implemented by Core Mining, Equatorial Resources and Sundance Resources. In Gabon, the Chinese company CMEC is implementing a project. The map does not show the iron ore projects of Rio Tinto, Xstrata and Cape Lambert in Gabon and the Republic of the Congo.

As regards the prices for iron ore transportation by sea, Cameroon should be able to compete reasonably well against Brazil, Australia, India and South Africa, particularly with respect to shipments destined for Europe (Fig. 10). With regard to consignments for China, Australia is unbeatable because of her market proximity. However, it should not be forgotten that China is aiming to reduce its dependence on Australia as a source of iron ore. It is therefore not particularly surprising that Sinosteel is investing in an iron ore project in Lobe, which is located only 40 km from the deepwater port of Kribi. This port is being constructed by the China ­Harbour Engineering Company in several development phases. Phase 1 is scheduled to go into service in 2014. Up to now, US$ 660 million have been invested in the project. Meanwhile, a deal between the Australian company Sundance Resources and the Chinese Sichuan Hanlong Group to jointly implement the Mbarga-Nabeba iron ore project was called off in April 2013, presumably because the Chinese side failed to observe deadlines for the financing.

4.3 Iron ore mining in Sierra Leone

One of the 10 biggest iron ore projects worldwide is currently being developed by African Minerals Limited (AML) in Sierra Leone. The Tonkolili Project is to be implemented in three phases. Phase 1 involves a planned production rate of 20 Mta and has been in operation since the 4th quarter of 2011 (Fig. 11). This initial phase is scheduled to reach its full production capacity in the 2nd quarter of 2013. Up to now, US$ 1.9 billion have been invested in this project. For phase 2, with its production capacity of 30 Mta, a further US$ 3.0 billion have been earmarked. The project includes the construction of a 200 km-long railway line to Pepel Port and a ship-loading facility. The production capacity of 20 Mta requires 8 trains per day, each with 100 wagons and pulled by 4 narrow-gauge locomotives (Fig. 12), transporting a load of 7000 t each. China Railways Materials (CRM) was contracted as implementation partner for the railway project. CRM invested US$ 300 million in the project and in return received a 12.3 % holding in AML. The even greater sum of US$ 1.5 billion was invested by Shandong Iron & Steel Group (SISG) for the development of phase 2 of the project. One of the incentives for SISG was a discount on iron ore delivery quantities of up to 10 Mta.

A second, not quite so large project, is being undertaken by London Mining. This is the Marampa hematite iron ore mine, which is located around 150 km north-east of the capital city Freetown. This is a brownfield project, which had been worked until 1975 by the Development Corporation of Sierra Leone (DELCO) with an iron ore production rate of 2.5 Mta. Project development commenced in 2010, and in 2011 a mining output of 1.5 Mta had already been achieved. The company aimed to increase the mining capa­city to 5.0 Mta by 2017. To achieve this objective, new dressing plants (Fig. 13) were constructed. The remaining mineral reserves are estimated to be approx. 123 Mt, holding an iron ore content of 31.2 %. In addition, the company is going to process approx. 42.5 Mt of tailings from the previous mine operation, which have a residual iron content of 21.7 %. The iron ore concentrate is transported by trucks and river barges to the nearest port of shipment.

4.4 Gold production in Tanzania

Tanzania‘s mining industry has increased its export rate in the last 10 years from US$ 254 million to more than US$ 1 billion. The country‘s most important new projects involve the coal, diamond and nickel mining sectors. Gold production is one of the success stories of recent years. Tanzania has become the fourth largest gold producing country in Africa, after South Africa, Ghana and Mali. At present, the leading gold producers in Tanzania include African Barrick Gold, AngloGold Ashanti and Resolute Mining. Exploration projects are also being carried out by Shanta Gold, Lake Victory Mining, Gallery Gold, MDN Northern Mining, Sub-Sahara Resources and Tan Range Exploration. Geita (Fig. 14) is the biggest open-pit gold mine operated in Africa by AngloGold Ashanti. In 2012, the mine produced approx. 531 kOz of gold, which corresponds to 13.5 % of the production quantity of the no. 5 company in the world rankings that year.

However, the company with the biggest gold-production volume in Tanzania is African Barrick Gold (ABG), which owns the 4 mines Bulyanhulu, Buzwagi, North Mara and Tulawaka. ABG produced approx. 626 kOz of gold in 2012. The Bulyanhuhu mine, which works the largest reserves of approx. 10.6 MOz, produced 236 kOz. The open-pit mine North Mara (Fig. 15) produced 193 kOz. North Mara‘s reserves are reckoned to be 3.0 MOz. The open-pit mine Buzwagi (Fig. 16), working estimated reserves of 2.7 MOz, contributed 166 kOz to the company‘s production volume. Bringing up the rear, Tulawaka is the company‘s smallest mine with an output of just 31.0 kOz. It is scheduled for closure in 2013. ABG is the biggest foreign investor in ­Tanzania and has spent about US$ 2.25 billion there since 2012. In 2012, the state derived tax revenue of US$ 150 million from ABG alone. In 2013, AGB intends to invest a further US$ 445 million in expanding the production facilities.

4.5 Diamonds in Botswana

More than 95 % of the national revenue earned by Botswana from her mineral resources originate from the diamond industry, although gold, copper and nickel are also mined in addition to diamonds. However, most recently the country only sold raw diamonds to a value of US$ 3.06 billion, which is a decrease of 28.7 % compared to 2011 (Fig. 17). Nevertheless, it should not be forgotten that 2011 was an extraordinarily good year with a jump of 54.3 % in diamond exports. In value terms, Botswana is the world‘s leading vendor of diamonds. In addition to the mined raw diamonds, there is the trading business of the Diamond Trading Company Botswana (DTCB), which has also been acting as trading agent for De Beers since that company withdrew from trading in London. In 2012, raw diamonds to a value of around US$ 2 billion were purchased from third countries for further processing.

De Beers is also the leading company in Botswana‘s diamond industry, well ahead of other firms. In Botswana, De Beers is involved in Debswana, a 50:50 partnership with the Republic of Botswana, operating the 4 mines Orapa, ­Letlhakane, Damtshaa and Jwaneng. In 2012, Debswana mined 20.22 Mcts of diamonds in Botswana, making up 72.5 % of De Beers total production quantity. The Orapa mine (Fig. 18) had the largest output, amounting to 11.09 Mcts. The Jwaneng mine contributed another 6.02 Mcts. Cut 8 has just been put into operation at Jwaneng, extending the lifetime of this, the world‘s richest mine (Fig. 19), until 2028. Among the other mining companies producing diamonds in Botswana are Lucara Diamonds (0.303 Mcts in 2012) and Mantle Diamonds. Exploration projects are currently being carried out by a number of companies, including Petra Diamonds, Gem Diamonds, Firestone Diamonds, Pangolin and Botswana Diamonds. Botswana Diamonds has announced a joint venture with the Russian company ­Alrosa, the world‘s largest diamond producer, with 34.4 Mcts in 2012.

5 China’s pursuit of Africa’s resources

Chinese-African relations are currently experiencing a golden era. Since 2009, China has been Africa‘s biggest commercial partner. China‘s trade with Africa grew from approx. US$ 10 billion in 2000 to 135 billion in 2011 and 156 billion in 2012. Moreover, Chinese investments are now more important than western financial aid. Critics point out that China is receiving more-than-ample remuneration for its investments in the form of commodities, and in return is flooding African countries with cheap industrial goods and consumer products. In 2011, Chinese mining investments in Africa jumped from US$ 1.5 billion to US$ 15.6 billion. Low-interest credits from Chinese national banks such as the China Export Import Bank (EXIM) or the China Development Bank generally equip Chinese companies with a distinct competitive advantage over other companies. Chinese companies also enjoy a further advantage through their collaboration across industrial sectors, particularly in the eminently important infrastructure sector.

The outstanding investments concluded in the recent past by Chinese companies include the Jinchuan Group‘s takeover of Metorex, the South African copper and cobalt producer, the holding purchased by the CITIC Group in Gold One International, the South African gold mining company, the 47 % equity interest purchased by the Aluminium Corporation of China (Chinalco) in Rio Tinto‘s Simandou iron ore project in Guinea, the holding purchased by Shandong Iron & Steel in the Tonkolili iron ore project of African Minerals in Sierra Leone, the acquisition of the Australian company Extract Resources, who are developing an uranium ore project in Namibia, and finally die China Minmetals stake in Anvil Mining, who are implementing a copper ore project in the Democratic Republic of the Congo. In other projects, for instance in Gabon, Zimbabwe and Ghana, China‘s support for infrastructure projects is being remunerated in the form of natural resource exports.

China and Chinese companies in Africa are competing with established global mining companies like BHP Billiton, Anglo American, Rio Tinto, Barrick Gold and Xstrata. Xstrata, for example, has interests in three iron ore projects in Mauritania. The company has a 50:50 joint venture with the mainly state-owned Société Nationale Industrielle et Minière (SNIM) in implementing the promising Guelb el Aouj project. In the Republic of the Congo, the company owns a 50 %+ majority in the Zanaga iron ore project under development by Jumelies Limited (BVI). It is clear that such global companies are not prepared to simply leave the field to the Chinese. Furthermore, Brazilian, Russian and Indian firms, as well as companies from the other BRIC countries, are active in Africa, the most renowned names being Vale and Norilsk Nickel. The Indian firms that have so far become involved in African enterprises are mainly oil companies.

6 Prospects

Africa‘s mining industry has entered a golden age. Resources like iron ore, gold, diamonds, copper, nickel etc. are in great demand. China‘s high rate of economic growth is currently stoking worldwide demand and also leading to a general shortage of commodities. By 2015, China intends to provide the countries of Africa with a further US$ 20 billion in cheap credits for the financing of urgently-needed infrastructure projects. In return, China is securing an ever-broader access to Africa‘s resources. This increasing direct access to Africa‘s commodities will serve to make China progressively independent of imports, for instance from Australia. International mining companies have long since realized the situation and faced up to the competition from the Chinese. Given this background, it is to be hoped that the situation will not only benefit the economic development of the African countries, but will also result in sustainable development.

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