South Africa has just hosted the Fifa world cup, and if nothing else it reminded of how things have changed for a once isolated country. And seeing the country’s president Jacob Zuma sitting next to Fifa president Sepp Blatter attending soccer matches reminded me of another time some years ago.
The mining industry is global in nature and we are seeing the completion of that process related to South Africa’s mining sector. I have been following the industry since the early 1990s and recall the excitement as the large mining groups were able to emerge from the cocoon of isolation and start spreading their wings, first tentatively and then with verve.
A Citibank mining survey put South Africa as the world’s richest mining country in terms of its reserves, which according to it are worth US$2.5 trillion. Surveys of this nature can be somewhat arbitrary, since they depend on existing commodity prices for one thing. And while South Africa underperforms relative to its reserves, mostly accounted for by platinum group metals in this survey, such claims of wealth are probably unwelcome in any case.
Iron ore is arguably the commodity of the moment. Case in point is multi-commodity group Exxaro, which sees itself as not only a coal dominated business. While Exxaro is exiting the zinc sector and monitoring the titanium sands industry with less enthusiasm than it once did, it is looking at iron ore projects as a route for diversification.
Simply because of its proximity, Zimbabwe has always been important to South African mining companies and the support industries that have grown around mining in this region. The news out of Zimbabwe continues to be mixed. Gold production, which came to a halt in Zimbabwe about a year and a half ago has recommenced at a myriad of small producers, which are now able to repatriate their earnings and obtain payment in US dollars for their output.
This year’s annual mining Indaba in Cape Town had more of a buzz to it, in comparison with 2009. Zimbabwe’s potential gained a particularly high profile; many see opportunities in this geologically rich terrain that has experienced little modern exploration. As more than one project developer notes, first one looks at the geological potential and only then does one assess the country political and other risks.
As we enter the second decade of the millennium, or approach it (for the purists who remind that the decade actually technically starts with 2011) it is worth briefly considering what has happened in the continent’s mining sector over the past 10 years.
Taking into account the experiences of a variety of groups, ranging from banks to engineering companies, a few clear trends have emerged in Africa’s mining sector.
I think few would disagree that 2009 has been a rough year in Africa’s mining sector, but strangely, in the 15 or so years I have been following the industry, it does not seem like the worst.
I read with great interest this week that global mining mergers and acquisitions – which are down more than 50% this year – are set to recover in the first quarter of 2010 as metal prices surge on signs that the worst recession since World War II is easing.
Having spent a good part of the past month in conversation with a variety of senior executives of both major and junior gold producers in the United States, Canada, England, Australia and South Africa, it has become quite clear to me that the majority of them not only believe a new star has emerged on the international gold scene – they are putting their money where their mouths are.
The big exception to the commodities downturn we have seen over the past year is gold, which always has been somewhat a counter cyclical commodity. It did not thrive as much as hoped for during the run up to the last commodities peak, but overall over the past couple of years gold miners have been in a good space, in terms of price and demand economics.
The big exception to the commodities downturn we have seen over the past year is gold, which always has been somewhat a counter cyclical commodity. It did not thrive as much as hoped for during the run up to the last commodities peak, but overall over the past couple of years gold miners have been in a good space, in terms of price and demand economics.
Commodity prices are down, demand for commodities is for the most part down, and finance is that much harder to obtain than a year ago. In these times the mining industry is understandably subdued.
Mining is one of the few sectors where the continent of Africa holds its own globally in economic terms. Some 13% of the global mining sector’s economic activity takes place in Africa, comparable to the continent’s percentage of the global population.
Africa’s broad transition from a collection of states undertaking largely disastrous socialist experiments to a more stable democratic continent is no more than two decades old. Many of its countries have adopted investor friendly mining codes. Mining and exploration projects are underway in the majority of countries across the continent.
The attrition in mining projects over the past few months has been notable, though perhaps not unprecedented. Particularly hard hit has been the base metals sector, with high profile copper and cobalt projects being suspended in central Africa.
Spending some days in Toronto in late October, during what was hopefully the height of the global financial meltdown though many financial analysts suggest we may not be so fortunate, was an interesting time to be speaking to junior exploration and development companies.
With the ongoing fallout of the sub prime crisis in the US, the impacts of high commodity prices themselves, oil in particular, on economic growth, and the recent strengthening of the dollar, commodities have lost some of their steam over the past few months.
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