Bright spots for African min­ers

Chronicle (Zimbabwe) - - Analysis/national News - James Pat­ter­son and Han­nah Clarke

THERE is no deny­ing that 2015 was a rough year for min­ers across Africa. Still, though pre­cip­i­tous falls in the price of most min­er­als put pres­sure on in­vestors and gov­ern­ments alike, there is some good news, ac­cord­ing to An­a­lyse Africa, a data ser­vice from the Fi­nan­cial Times.

De­spite se­ri­ous eco­nomic head­winds, in­vestors can take heart in the fact that there is still a fair amount of do­mes­tic growth across the re­gion.

Africa’s econ­omy is pre­dicted to grow by around 4.16 per­cent in 2016 – the sec­ond high­est of any world re­gion.

The Demo­cratic Re­pub­lic of the Congo (DRC), which has min­eral re­serves with an es­ti­mated value of $24 tril­lion (in­clud­ing a 20 per­cent share of world di­a­mond re­serves), is ex­pected to grow by seven per­cent in 2016.

It is also the largest pro­ducer of cop­per in Africa, and ac­counts for nearly 6 per­cent of world pro­duc­tion.

In re­cent years, there has been a sig­nif­i­cant in­crease in pro­duc­tion lev­els, es­ca­lat­ing on av­er­age by 33 per­cent per year be­tween 2010 and 2014.

Im­prov­ing se­cu­rity in­fra­struc­ture have helped.

In Mozam­bique, the top ex­ported prod­ucts are all mined min­er­als and and met­als, in­clud­ing raw alu­minium and petroleum.

Eco­nomic growth is pre­dicted to be around 8.2 per­cent through 2016 – the fastest of any African coun­try.

Zim­babwe, a pro­ducer of plat­inum, has seen an up­turn in pro­duc­tion in­creas­ing its share of world pro­duc­tion from un­der 5 per­cent in 2010 to nearly seven per­cent in 2014.

This has been boosted by con­tin­ued for­eign in­vest­ment in the in­dus­try. In 2015, Rus­sian in­vestors an­nounced a $4bn plat­inum mine pro­ject, with out­put ex­pected to reach 800 000 ounces per year by 2024.

Slow­ing of de­mand for raw ma­te­ri­als glob­ally can also high­light op­por­tu­ni­ties for African pro­duc­ers to fur­ther grow the min­ing in­dus­try by mo­bil­is­ing re­sources to­wards man­u­fac­tur­ing fin­ished prod­ucts.

Some coun­tries have suc­cess­fully in­te­grated this se­condary sec­tor, where profit mar­gins are higher, into their economies.

Botswana, home to the world’s rich­est di­a­mond mine in terms of rough di­a­monds pro­duced, has more than 20 cut­ting and pol­ish­ing plants in-coun­try.

De­spite fore­casts in­di­cat­ing a nar­row­ing of prices of pol­ished di­a­monds com­pared to rough di­a­monds, Botswana’s cut­ting in­dus­try is still ex­pected to gen­er­ate $1 bil­lion in rev­enue for 2015.

How­ever, there is no ques­tion that many min­ing de­pen­dent economies are fac­ing tough years ahead.

In ad­di­tion to ex­ter­nal shocks, Africa faces the chal­lenge of de­pen­dence on raw ma­te­ri­als for its ex­port mar­ket, leav­ing it re­liant on de­mand for those ex­ports.

China re­placed the US in 2009 as Africa’s main trad­ing part­ner.

Ex­po­sure to China’s weak­en­ing ex­ter­nal de­mand will not be easy to cope with for many African coun­tries.

The value of to­tal ex­ports from Africa into China fell by 20 per­cent in 2014.

Mau­ri­ta­nia’s iron ore and cop­per ore ex­ports, which com­prise 96 per­cent of its to­tal ex­port trade value with China, have fallen 49 per­cent and 27 per­cent re­spec­tively be­tween 2013 and 2014.

Though more di­ver­si­fied both in terms of its ex­port part­ners and its in­dus­tries, South Africa’s econ­omy is suf­fer­ing.

It is the world’s largest pro­ducer of plat­inum, pro­duc­ing an es­ti­mated 110 000kg in 2014, and ac­count­ing for around 70 per­cent of world pro­duc­tion.

Ex­ports of plat­inum ac­counted for just over seven per­cent of ex­ports in 2014, a fall from around 11 per­cent in 2010.

A ma­jor fac­tor con­tribut­ing to this de­cline was the five­month long mine work­ers strike, which was even­tu­ally re­solved with salary in­creases for the low­est paid work­ers.

For, Zam­bia cop­per ex­ports are ex­tremely im­por­tant, ac­count­ing for 4 per­cent of world pro­duc­tion.

The min­eral’s pro­duc­tion has grown by an av­er­age of more than seven per­cent per year be­tween 2010 and 2014, and now ac­count for al­most three-quar­ters of the coun­try’s to­tal ex­ports.

Al­though the out­look in pre­vi­ous years has been pos­i­tive, 2015 has been a strug­gle with fall­ing prices and large pro­duc­ers such as Glen­core cut­ting back on pro­duc­tion.

The Zam­bian mines min­is­ter, Christo­pher Yaluma, launched Konkola Cop­per Mines’ ‘Chingilila’ ini­tia­tive to try and pro­tect the in­dus­try.

The ini­tia­tive’s main ob­jec­tive is to im­prove work prac­tices and safety, lead­ing to greater ef­fi­ciency.

Mr Yaluma sees this as key to the long-term sus­tain­abil­ity of the en­tire min­ing in­dus­try in Zam­bia.

The gold in­dus­try in Africa, in par­tic­u­lar, high­lights raw min­er­als’ vul­ner­a­bil­ity to ex­ter­nal price shocks.

The fall in prices since 2011, cou­pled with in­ten­si­fy­ing labour dis­putes in South Africa, has led to a de­crease in pro­duc­tion.

The coun­try has his­tor­i­cally been the world’s lead­ing pro­ducer, peak­ing at 64 per­cent of to­tal pro­duc­tion in 1983.

How­ever age­ing mines, in­creas­ing elec­tric­ity prices, and fewer new dis­cov­er­ies have led to a drop in mar­ket share to the sixth high­est pro­ducer glob­ally.

China now pro­duces 450 met­ric tons of gold per year – three times more than South Africa in 2014.

Still, there is hope that South Africa’s gold ex­port mar­ket might re­bound.

In­dia, South Africa’s sec­ond largest gold im­porter by trade value, in­creased im­ports of the metal af­ter the South African Re­serve Bank eased re­stric­tions cou­pled with low prices.

This is Africa and An­a­lyse Africa are me­dia part­ners for the African Min­ing Ind­aba. — Africa On­line

Zam­bian mines min­is­ter, Mr Christo­pher Yaluma

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