Africas mineral wealth
potential has, for decades, been the green-eyed focus of many
an international mining company.
From a geographical perspective,
Africa spans both hemispheres and has ports facing major Asian
economies in the east, the North and South American continents
to the west and Europe to the North.
Demographically, Africa has a young
population, offering a plentiful source of labour which can be
employed at a fraction of the cost of hiring western staff.
However, these advantages are
frequently eclipsed by Africas patchy reputation as a
politically unstable, financially corrupt and natural
disaster-prone region, where governments rely on international
aid to prop up pitiful GDP figures.
A lack of home grown skills,
rudimentary infrastructure and a perceived hostility to
international operators who fail to offer local people a fair
cut of the profits garnered from Africas mineral assets,
has prevented the continent as a whole from achieving its full
potential as a mining destination.
But the continents mining
landscape is changing.
South Africa, which has long been a
trailblazer for African mining, has seen its dominance of the
sector begin to wane under cost pressures, tougher regulation
(see p23) and falling commodity prices (see
In North Africa, political
upheavals in Egypt, Morocco and Tunisia, important sources of
phosphate and bentonite, have shaken international confidence
in these countries and cast doubts over their sustainability as
raw materials suppliers.
Into the void have stepped new
players such as Sierra Leone, Malawi, Mozambique and
Madagascar, where the exploration of previously undeveloped
mineral resources are offering these countries a chance to
build up an export profile in the resource industry.
National governments looking to
ease the passage of this ambition have provided mining
businesses attractive tax rates, investment incentives and
state co-operation to develop assets.
Although many countries are now
coming under pressure to raise mineral royalty rates and
increase the transparency of mining deals, the message both
miners and host countries are keen to stress is clear: Africa
is open for business.
Dwindling productivity in
Africas precious mineral mines, coupled with price
volatility and associated criminal activity, have meant that
countries that previously relied on these resources are looking
for more sustainable sources of mining revenue.
This is being sought principally
from industrial minerals and metals, though the
continents particular prowess lies in iron ore - as a
whole, Africa has a growing market share of 6-7% of global iron
More latterly, minerals such as
rare earths in Kenya and Malawi, fluorspar and chromite in
South Africa, phosphate and vermiculite in Uganda, and graphite
in Mozambique, Tanzania and Madagascar, have come to the fore
as potential sources of export revenue.
Although the extraction of African
minerals has been underway for centuries, the arrival of
industrial scale mining will be a first for much of the
Madagascar, a 587km2
African island country in the Indian Ocean with a long history
of mineral extraction, has seen the transition from artisanal
mining to industrial operations only in the last decade.
Up until 10 years ago,
Madagascar had not been exposed to modern
exploration techniques, Craig Scherba, chief operating
officer for TSX-V listed graphite junior, Energizer Resources
Inc., which is developing the 124m tonne (indicated and
inferred) Molo graphite deposit in eastern Madagascar, told
As such, the country
represents one of the last places in the world to be exposed to
modern geophysical and geochemical techniques. It is therefore
an untouched jewel box of mineral wealth, and it is in the best
interests of the country to try and unlock this potential
through the promotion of mining project development, he
According to the World Bank, the
unlocking of Madagascars jewel box, which includes
extensive reserves of coal, iron ore, tar sands, and rare
earths as well as graphite, is already well underway.
The arrival in Madagascar of major
mining companies such as QMM and Sheritt International has
facilitated the rapid development in the countrys
resource sector and allowed smaller companies, like Energizer,
to take advantage of new road and port infrastructure.
In looking to export graphite from
the country, Energizer will be joining an established network
of producers including Establissements Gallois and Stratmin
Global Resources (see table).
Madagascar is strategically
positioned in the Indian Ocean, close to Asian, Indian and
African economies, so it is geographically in an enviable
position to translate its mineral wealth into monetary wealth
for the country, Scherba explained.
The government is also doing its
bit to encourage mining development, having introduced a number
of investment incentives, such as export processing zones
(EPZs), for companies exclusively exporting goods from
Madagascar, offering a reduced profit tax rate of 10% as well
as exemptions from customs and export duties.
Other mining-specific initiatives
include the Major Investments in the Mining Sector (LGIM)
regime, where qualifying companies benefit from reduced taxes
on internal rates of return below 20%, as well as VAT
exemptions and reduced rates for taxes on buildings and
Depending partly on mineral prices
and export volumes, the World Bank estimates that minings
contribution to Madagascars national revenues could
increase from their present level of 1% to 18% by 2018 and may
catapult the country into the ranks of resource rich
nations in the medium term.
Rutile from Sierra
The end, or at least suspension, of
national conflicts in hitherto war-torn nations such as the
West African state of Sierra Leone, has opened up fresh
opportunities for foreign mining companies to move in on
mineral deposits that were previously too dangerous to
A former British colony, Sierra
Leone became independent in 1960, but its first decades of self
rule were marred by a string of military coups and civil
conflicts. A brutal civil war raged in the country from the
late 1990s until 2002, with UN peacekeepers finally leaving the
country in 2005.
Since then, the country famous for
its diamonds, has sought to profit more sustainably from its
other mineral reserves, including iron ore, coal, mineral
sands, bauxite, kaolin, limestone, bentonite and garnet.
Sierra Rutile Ltd, a mineral sands
miner with its headquarters in the countrys capital,
Freetown, spotted the potential to mine rutile, a titanium
dioxide (TiO2) feedstock, in Sierra Leone, from a
mine first operated in the 1970s.
Sierra Leone is a stable and
investor friendly country within a sector which is exposed to
many higher risk jurisdictions, Derek Folmer, Sierra
Rutiles chief marketing officer told delegates at the
2013 TZMI Congress in Hong Kong last November.
Located in the south west of the
country, Sierra Rutiles deposit has a JORC resource of
over 600m tonnes at 1.29% rutile (measured, indicated and
inferred), making it one of the largest natural rutile deposits
in the world.
In order to operate its dredging
and processing operations successfully, the company built its
own infrastructure network to support the mine and has also
invested in educational facilities to generate skilled labour
in the future.
People were hired from
outside for their skills and ability to train other people, so
we expect head count from outside to decline as the local
population is trained up, Folmer said.
Another issue for the company is an
unreliable power supply, a continent-wide problem that has
hampered the productivity of many mining companies.
In the fourth quarter of 2013,
Sierra Rutile entered into a memorandum of understanding with
Smol Pawa Sierra Leone Ltd. to become a cornerstone purchaser
for its Moyamba hydro-electricity project.
Moyamba is an 11-14MW run-of-river
hydro-electric project located at the Singimi Falls on the
Gbangba River, within 20km of Sierra
RutilesÊexisting operations. The project will be
developed as a public-private partnership with the government
of Sierra Leone and will serve the communities of Moyamba and
Njala University as well as Sierra Rutiles mine site.
Rare earths in
Despite having escaped the ravages
of all-out civil war, Malawi, a landlocked country in East
Africa, has experienced little in the way of formal industry in
the past and relies heavily on aid to alleviate the effects of
food scarcity and poverty.
Now, the national government is
keen to expedite an economic shift from aid to trade with
mining high on its development agenda.
In January 2013, the Malawi
government launched the Mining Governance and Growth Support
Project (MGGSP) in order to review and improve the efficiency
and transparency of the existing mining act.
The project also initiated an
airborne geophysics survey to geologically remap the whole
country and identify possible targets for mining.
This accommodating business
climate, coupled with the countrys proven rich mineral
deposits, has attracted the notice of TSX-V listed rare earths
explorer, Mkango Resources Ltd.
Mkango is looking to develop the
Songwe Hill rare earths project, located in the Chilwa Alkaline
Province, a world class geological region notable for the
abundance of large carbonatite intrusions (a host rock for rare
There is a strong initiative
led by the Malawi government, World Bank, EU and the French
government, to ensure that Malawi is viewed as an up and coming
and viable mining jurisdiction with a vast amount of
exploration and development opportunities, William Dawes,
CEO of Mkango, told IM.
The strap line open for
business would absolutely apply to Malawi. It has been
under the radar, but it has plenty of potential to quickly
progress as a premier African mining destination, he
The MGGSP, supported by the
World Bank, EU, and France will help facilitate development of
the mining sector and hopefully reduce the risk profile for
investors. We are confident that continued stakeholder support
will enable Malawi to develop into one of the worlds
leading rare earth producers, Dawes said.
As for local involvement in the
project, one of the key measures generally required to keep
governments and communities on the side of mining companies,
Dawes said that Mkango is making concrete efforts to give local
people a role in developing Songwe Hill.
We train and employ as many
Malawian nationals as possible. Since 2010, we have employed
and trained Malawian graduate geologists from Chancellor
College in Zomba; some of whom are now working as full time
senior geologists. As we move the project forward we will look
to employee further qualified Malawians, in addition to
providing skills training and jobs for local villagers,
In contrast to the rise of nascent
mineral exploration in many less developed African nations,
South Africas once mighty mining industry is struggling
against subdued commodity prices, increased operating costs,
constrained infrastructure and poor levels of productivity.
On top of this has come the burden
of regulatory uncertainty with the proposed introduction of new
mining laws, which is making it difficult to attract foreign
investment for both expansion and greenfield projects.
Modifications to the 2002 Mineral
and Petroleum Resources Development Act, proposed by Jacob
Zumas incumbent ANC government, which include a mandate
for greater national ownership of mining projects, raising
mineral royalties and setting minimum prices for minerals sold
to local industries, has angered the domestic mining industry
and spooked international operators.
In September 2013, officials
including the mining and energy minister, Susan Shabangu, said
that it was in negotiations with mining companies, unions and
other stakeholders regarding the impact of the bill, but the
final form that the legislation will take is still unclear.
At the heart of the industrys
instability lies the difficult labour-management
In addition to high profile
eruptions of violence at South Africas platinum mines,
the industrial minerals sector also saw unrest last year at
both Lanxess Rustenurg chromite mine and mineral sands
miner Richards Bay Minerals titanium slag facility in
KwaZulu Natal, over pay and employment policies.
Under pressure to appease mining
workers unions, the government has pledged to make a
concerted effort to engage with labour groups, including the
Association of Mineworkers and Construction Union (AMCU), over
the coming year.
Despite the countrys
troubles, mining companies are continuing to pursue industrial
minerals projects in South Africa, including rare earths,
chromite and fluorspar.
Locally-based explorer, SepFluor
Ltd, is one of the companies seeking to tap into the potential
in the South African fluorspar sector.
SepFluor is at various stages of
development with its Nokeng, Wallmannsthal, Wiltin, Welgelegen
and Kruidfontein projects, but it has felt the pinch of
declining prices and weakened investor interest since embarking
on these developments.
The global economic recession
and the fall in fluorspar prices from the end of 2012 have
meant that SepFluors capital raising programme has had to
be pushed out. This, in turn, has meant the same for
Nokengs development timetable, James Duncan of
SepFluor told IM.
However, the recent stabilisation
of fluorspar prices at historically elevated levels is giving
fresh traction to SepFluors financing drive, which Duncan
says bodes well for the development timetable of the
companys planned mines.
For the Nokeng site, SepFluor has
tabled a construction period of 21 months and is anticipating
production of 185,000 tpa acid grade fluorspar (acidspar) and
30,000 tpa metallurgical grade fluorspar (metspar).
The company is also planning to
construct a processing facility, the Ekandustria chemical
plant, in anticipation of the South African governments
minerals beneficiation agenda and the South African
Fluorochemical Expansion Initiative (FEI).
SepFluor said the building of
Ekandustria is dependent on the development of Nokeng, as this
mine will be the plants source of fluorspar.
While there is no shortage of
opportunities for resource development in Africa, operators in
the region still face challenges.
Politically, even the most stable
African countries, including South Africa and Madagascar where
general election campaigns are presently in full swing, face
uncertainty when it comes to law making which can affect
business taxes and royalty rates.
Pressure for greater transparency
in mining deals is promising a more level playing field, but
could equally result in less generous terms for foreign
resource companies and a less attractive environment for
Another barrier in some areas is
community opposition to mining development on environmental
A recent notable example came in
August last year, when TSX-V listed Pacific Wildcat Resources
Corp. had its exploration licence for the Mrima Hill rare
earths project in Kenya revoked by the countrys
government due to the concerns of local people regarding
displacement, radiation and damage to woodland.
Cortec Mining Kenya, a subsidiary
of Pacific Wildcat, is currently waiting for a decision from
Kenyas High Court regarding its challenge to the licence
In its appeal to the authorities,
Pacific Wildcat argued that it was working to promote the
protection of biodiversity as part of its project development,
as well as providing local employment opportunities, schools
and fresh water wells.
Shortly before going to press, the
companys CEO, Darren Townsend, announced that he would be
stepping down as head of Pacific Wildcat, although there was no
indication that this decision was prompted by the firms
Pacific Wildcats legal
battle, while not unique in Africa or indeed anywhere in the
world where mining projects are proposed, serves to highlight
that satisfying competing stakeholder requirements is a tricky
According to John Dean, business
improvement coordinator for UK listed First Quantum Minerals
Ltd, which is presently developing nickel and copper mines in
Zambia, running a successful project in Africa requires
[There is] a lot of early
stage development work, particularly on the infrastructure
side. [Its not a case of] showing up first thing with a
bulldozer! Dean told IM.
A World Bank conference hosted in
November last year highlighted the need to make sure mining
contracts are sensitive to local people.
According to experts in risk
mitigation for the mining industry, companies with effective
and well-communicated corporate social responsibility (CSR)
strategies deliver both higher income and equity performance
when compared to those who fail to report on their social
A report compiled by McCormick
covering the financial performance of the 26 development
companies covered in the PricewaterhouseCoopers (PwC) 100
Junior Mine 2012 index showed that between 2011 and 2012, a
period of investment crisis in the resource industry, the six
companies reporting on their CSR programmes lost just 13% of
their market cap compared to 69% for the non-CSR reporting
junior miners surveyed by PwC during this period.
Dean stressed that, despite
perceptions surrounding Western mining companies operating in
Africa, unethical deeds at the expense of local people are not
the norm in business.
People support the projects and livelihoods will be
improved, he said, noting portions of foreign-run project
investment are almost always dedicated to resettlement and
community engagement programmes for people affected by its