South Africa

South Africa

Mining Indaba: Eskom elephant quickly outed at early critical session

Mining Indaba: Eskom elephant quickly outed at early critical session

From special “hook up” zones, where you’ll get propositioned if you hang around long enough, to tailor-made panel discussions, the Investing in Africa Mining Indaba kicked off rather gently in Cape Town yesterday. Some of the approximately 7,000 participants steadily streamed into the CITCC for the world’s “premiere” mining investment event and the elephant in the room – electricity supply – was immediately exposed at the event’s inaugural critical session on the main stage. By MARIANNE THAMM.

By 9am the Cape Town International Conference Centre had begun to fill with a steady stream of mostly men dressed in suits and wearing yellow lanyards, either barking down cell phones or tapping away at tablets in the corridors while waiting for the Exhibition Hall to open.

Early in the day the most frequently heard accent that drifted from clusters of conversations was Australian, followed by French.

Perhaps next year organisers might think of developing the equivalent of a Tinder dating app for the event, so that those with money can hook up easily with those who are looking for it. For this, after all, is one of the key purposes of the four-day event.

Over 200 exhibitors who supply a variety of products, services and technologies to the mining industry have set up stands in the Exhibition Hall. The governments of South Africa and Australia have also secured a patch on the floor. If you get a thrill out of looking at heavy earth moving equipment or special tools that suck out diamonds, do pop in.

Keynote speakers and panelists this year include South Africa’s Minister of Mineral Resources, Ngoako Ramathlodi, who is due to deliver his official welcome address on Tuesday. Former Prime Minister Tony Blair is also set to speak on Tuesday and will offer, according to the preprogrammed note, “unparalleled analysis of the world’s most difficult and complex issues”.

Other speakers include global economist Dr Dambisa Moyo, who will talk on the political, economic and financial workings of emerging economies, Graça Machel, President of the Foundation for Community Development, Anita Marangoly George, Senior Director, Global Practice on Energy and Extractive Industries with the World Bank Group, Robert Friedland, Executive Director and Founder of Ivanhoe Mines LTD and Jim O’Neill, Chairman of Cities Growth Commission.

The main stage was officially opened at noon yesterday by Mining Indaba Managing Director, Jonathan Moore, who told those gathered that the event was taking place “at a challenging time for our market”.

“The Bloomberg Commodity Index which tracks 22 raw materials plunged 17 percent last year, its largest annual loss since the financial crisis of 2008. To a large degree, this past year has been one of a divergent US economy and a very strong US dollar against sluggish growth in China, a lagging European economy and an economic scenario which has not gained significant traction. We begin 2015 with many significant questions,” said Moore.

The inaugural panel of industry heavyweights was chaired by Raju Daswani, Managing Director and Global Publisher and President of Metal Bulletin – Metals, Minerals and Mining Division. Panelists were Michael Widmer, Head of Metals Research, Bank of America Merrill Lynch, Justin Froneman, Director Head of Mining South Africa, Credit Suisse, head of mining responsible for global precious metals and commodities coverage and director of Standard Bank Groups and Jeffrey Christian, founder, partner and Managing Director of the CPM Group.

All panelists at some point referred to the electricity energy crisis in the country and the possible negative impact on the economy and the mining sector, the impact of BEE, regulatory uncertainty, Foreign Direct Investment (FDI) and touched also on the perennial issue of the nationalisation of natural resources.

Daswani set the macro-economic scene for Africa pointing out that while the size of the population of the continent was 1.1 billion (15 percent of the global population) it only accounted for two percent of the global GDP. He asked the panel to share their views of what they believe is needed to raise Africa’s position in the global economy.

Christian said one of the biggest inhibitors to growth on the continent was productivity and a stable framework in the context where globally, many countries were facing severe growth obstacles.

Widmer added that the most important factors were “continued good governance, the rule of law and predictability in economic, social and personal lives.

“A host of developments, from better roads to better electricity and water and that foster economic development would have to go hand in glove to move forward. But we have seen progress in various parts of Africa in the past few years, which is very good. Education is probably more important than roads and water and electricity, and not only education for individuals but also on a governmental level,” said Widmer.

He added that in 1988 in a meeting with the ANC in Lusaka, and when it was apparent that “political change” would occur in the country, the party had already then addressed issues of nationalisation of mining interests in South Africa because these were encapsulated in the 1955 Freedom Charter, which the ANC co-incidentally dusted off at its 103rd birthday celebrations in the city a month ago.

“Back then we said we are in 1988 at it is pretty clear that they (mines) should not be (nationalised) and that private capital should develop recourses. It was interesting everyone in ANC at that time said ‘you are right, we just have to say maybe that made sense in 1955 but it doesn’t today’.”

On the question of the state of output production on the continent, the fact that there were no signs of it slowing down and that this would be a key issue in driving the investment cycle for many commodities in Africa, Froneman said the immediate trend would be perhaps that “easy wins have been made” and the next step would be that these would shift lower.

“We are all very aware of what has happened to commodity prices of the last couple of months. Definitely I think it is now time to be exploring and exploiting more aggressively the infrastructure on hand on the more difficult projects,” added Froneman.

Christian added that production would not rise because of the global economy and that budgets for the amount of exploration in Africa were “decreasing sharply but relatively speaking are not disastrous.” Investors, he said, were using much more selective criteria to make decisions.

Widmer opined that a negative effect on markets would be felt in 2017 but that there was growth in the mining industry and mining production “and that is what people have to focus on”.

Daswani said that while South Africa was today a “centre for global mining” there were “obvious” issues such as BEE, load shedding and structural problems with regard to power and energy – and wondered whether these would have an impact on investment considerations.

Froneman said that while PGMs (Platinum Group Metals) are a huge market, South Africans had become “largely tolerant” of these issues.

“But on our international road shows there is concern about all of these issues. The big one is power and where that next Kilowatt or Megawatt comes from – and how do you sustain the market?”

He said in a market like PGMs where the “fundamentals do look good” power and regulatory uncertainty certainly permeated through shareholders and mining corporates and did result in relatively regular “pretty difficult questions to be answered.”

With regard to FDI in relation to projects in Africa, Daswani said in 2013 only two percent was destined for the metals and mining industry and pointed to other sectors, such as technology and financial services, which were benefiting. He asked panelists how attractive the mining sector was in relation to these other sectors in competing for foreign revenue.

Froneman said that political uncertainty was one of the key issues holding back foreign investors.

“Some countries, where we are talking about mine closures right now on the back of fiscal changes, make it difficult for Africa to compete in the international context,” he said.

Daswani said while Chinese investment in mining had totalled around $5 billion in 2011, this had dwindled to under $1 billion in 2013, and he was keen to understand what had altered the Chinese approach.

Wilder said that investment in mining was generally “chunky” and that while deals might have been “consummated” in 2011, he did not believe that this investment had dissipated.

“Mining deals come in chunks and waves and there was a peak in 2011 but there is still interest and activity in future activity.”

Froneman said Chinese investors had become more selective in their criteria for investment and that the “long-term” view adopted had taken many by surprise.

Commodity prices, he said, might not be that frightening to the long-term investor, whose goals differed from those of an ordinary shareholder. These investors, he added, would be more likely to take risks.

On the issue of “downstream” mining investment in beneficiation, the biggest obstacle was power supply, all the panelists agreed.

“From the South African point of view, power is a big constraint and a lot of questions are being asked about the power-hungry nature of some of these activities. There is a push for beneficiation; in Zimbabwe for example, imposing levies on the raw transfer of platinum, which forces some degree of beneficiation. You need security before you invest in such facilities,” said Froneman.

Christian added that there was a global trend to keep value inside the country and that power was a major issue.

“When you look at what happened in South Africa five or six years ago, where the power intensive industry participants were the first to feel the kind of shortage – the aluminium smelters – the question comes up frequently. Power is probably one of the key drivers in that group.”

On the issue of nationalisation, Daswani said that relatively speaking Africa received “negative press” and asked the panelists between Latin America, where nationalisation is also an issue, and Africa where the “smart money” was going.

Widmer said that the issue could not be divided continentally and that investors looked at each country individually.

“On balance, Africa is a better place to invest in natural recourses than Latin America. That is from a long-term perspective. But within Latin America, some countries are doing well. Chile, Peru and to a lesser extent, Columbia. But we also have to view this globally and include Russia, China and Canada. The entire stage has shifted downward and many countries in Africa have not shifted with them so they are relatively better off than other places,” he said. DM

Photo: A photograph made available on 10 June 2013 shows power lines running to a coal power station in the early morning light near Johannesburg, South Africa, 06 June 2013. EPA/KIM LUDBROOK.

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