Sustained commodity price growth and reduced costs are combining new technology trends with synchronised global growth to present Africa’s mining sector with the best prospects in over a decade, says Standard Bank. “Given Africa’s rich resource endowment mining is and will continue to be central to the growth and global integration of African economies as well as a key determinant of the prosperity of Africa’s peoples.”
“The centrality of mining to the development of the continent means that 2018 is likely to be a watershed year in Africa’s ongoing growth story,” says Mark Buncombe Group Head, Mining and Metals for Standard Bank. For the first time in a decade most commodities, bar platinum, have seen significant price recovery. At the same time miners have done a lot of work cutting costs with margins, globally, on the increase. While the protracted absence of investment in prospecting will weigh on the industry for many years to come, “reduced debt levels mean that going in to 2018 balance sheets are generally stronger too,” says Buncombe. While the volatility of recent years means that many companies are reluctant to spend, “where real risk-managed opportunities present themselves in Africa investment is taking place,” he adds.
Those countries offering stability and a degree of political certainty are likely to benefit most. Some countries in Africa have learned that the right legislation can achieve national development goals by creating a fair, responsible and conducive environment for foreign investment. “Those markets – like Botswana, Namibia and increasingly Ghana, Cote d’Ivoire and Zambia, for example – that have developed balanced legislative regimes cognisant of the industry’s long investment cycles while also talking to local national development goals are likely to attract global interest,” says Buncombe.
While, in Africa, this interest is currently likely to focus on rejuvenating mothballed projects, “as more money is spent on exploration in legislatively attractive environments new investment is likely to pick up too,” he adds. These improvements in Africa’s domestic mining landscape are coinciding with a unique period of synchronised global growth, presenting a number of opportunities across Africa in 2018.
With continued global macro instability, the gold price has stabilised at a relatively high level and this is benefiting West Africa, where abundant shallow and – as yet – under-developed gold deposits are attracting interest from investors. Standard Bank’s long-standing presence in Ghana and recent expansion into Cote d’Ivoire are allowing the bank to concentrate both global capital and the group’s extensive mining capabilities on these new opportunities. Moreover, a more favourable political climate in Ghana and stable mining legislation in Cote d’Ivoire are adding to West Africa’s improved prospects.
Multinationals in South Africa are looking to diversify ownership by developing commercially viable local relationships. Generally improved metals prices combined with rationalised cost-bases are likely to see a re-gearing and re-financing of existing assets in South Africa as new local players enter the market. Emerging empowerment players, “like the new companies that will emerge out of Eskom’s requirement to purchase from locally owned collieries for example, will require financing as assets change hands from large multinationals to local emerging entities,” explains Buncombe. A recent example of this trend is Standard Bank’s support of Seriti in their proposed acquisition of Anglo American’s South African thermal coal assets.
As the world evolves towards electric cars, the importance of cobalt and copper to the global battery industry will be a strong driver of mining investment in this region. Both Zambia and the Democratic Republic of Congo, for example, are likely to see significant new activity in these commodities. Given the remoteness of deposits, “associated industrials and logistics connectivity infrastructure development are also likely to offer opportunities in central Africa as well as between these assets and associated sea ports”, adds Buncombe.
China continues to account for approximately 50% of world commodity consumption. More generally, as Africa emerges as commodities and energy supplier and beneficiator to rapidly growing Asia the importance of building Africa’s links to the entire East will remain an important trend. Given this reality, any consideration of commodity financing in Africa needs to be predicated on access to – and capability in – China. To this end the Industrial and Commercial Bank of China’s (ICBC) shareholding in Standard Bank and the broad set of transaction and financing capabilities being built at both ends of Standard Bank’s Africa-China trade and investment corridor will remain critical to supporting and growing Africa’s commodity sector. “This will include investment in the associated industrial and logistics infrastructures required to make Africa’s resources relevant to the world,” says Buncombe.
Standard Bank’s presence in 20 African economies means that the bank is well placed to advise investors and mining clients on both opportunity and risk while working closely with local legislators to find the optimum balance between profit and sustainable national development.
“Currency volatility is something clients are thinking about more proactively,” says Buncombe. The increased volatility of the South African ZAR along with many other African currencies provides a challenging environment for clients to manage costs and cash flows. Standard Bank is increasingly working directly with miners across the continent to develop mechanisms – including hedging – to manage currency volatility risk in often very illiquid environments.
More generally, Standard Bank’s highly developed mining finance division integrates insight across leading global financial centres with on-the-ground presence and deep knowledge of local African operating, legislative and risk environments. “The combination of global capital reach and insight with local presence positions Standard Bank to leverage the very real opportunities that Africa’s mining and metals sector presents in 2018,” says Buncombe.