A Taste of Southern Africa’s Mining Environment

GBR explores the Southern African region where mineral riches tempt and political risk deters.

By Lindsay Davis

IMAGE: Vermeer

Long considered a regional and global mining powerhouse, South Africa has been engulfed by a series of political shocks and economic underperformance that have taken a significant toll on its position as Southern Africa’s leader in the extractives industry. Amid a backdrop of recession and accusations of corruption, in August ,President Jacob Zuma narrowly survived the eighth no-confidence motion held against him in parliament, underlining a country swirling with political dissent. Backed by President Zuma as part of his economic agenda to introduce stricter Black Economic Empowerment (BEE) rules, the new Mining Charter III now requires local mines be 30% black-owned at all times. South Africa’s Chamber of Mines, which represents over 90% of the country’s mining companies, has taken the government to court over the matter, and will argue that the charter constitutes an infringement on company law, international agreements and the constitution.

As companies prepare for a protracted period of legal proceedings, investors are loath to enter a climate with such long-term uncertainty, halting an already hurting industry. Nonetheless, Johannesburg remains a critical hub for regional operators and improving conditions in the commodity marketplace bode well for the rest of Southern Africa as investors eagerly look to other jurisdictions that boast the region’s undeniable shared strengths. As host to some of the continent’s most competitive infrastructure networks, a highly skilled labor force, and mineral deposits ranging from gold to copper and diamonds to coal, Southern Africa firmly remains a top destination for investment with developments in Botswana and the Copperbelt showing particular promise.

Although land-locked Botswana witnessed the closure of three mines over the past year, the stable and prosperous nation’s diamond industry has experienced a turnaround in fortunes. As dynamism returns, companies are eager to enter Botswana’s profitable diamond sector with DeBeers and Debswana posting double-digit growth in the value of production during 2016. In late May, Tsodilo Resources’ subsidiary Bosoto was granted a prospecting license of 580 sq. km. in the Orapa Kimberlite Field, bordering Lucara Diamond’s Karowe mine. Botswana Diamonds, in addition to its flagship project Frischgewaagt, located in South Africa, has two kimberlite exploration joint ventures in Botswana as part of a portfolio that includes 10 licenses in the Kalahari. These new initiatives in exploration, as well as adoption of new innovations, will be critical to enhancing the productivity of Botswana’s ageing mining sector. “We have noticed more openness to new technology and more of a need for mining companies to improve their efficiencies. Good ore is getting increasingly difficult to access, and technology is needed to do this,” said Shahram Tafazoli, president and CEO at Motion Metrics, a Vancouver-based mining technology provider that operates worldwide.

Projects in Botswana are not confined to diamonds, however, with companies developing noteworthy coal projects, while interest in copper and zinc is also growing. Australian-based Mount Burgess is currently developing a 30 million mt zinc, lead and silver resource. Speaking about the company’s plans, Nigel Forrester, managing director at Mount Burgess, said: “Our zinc resource is broken up into two deposits: Kihabe and Nxuu. We intend to develop the Nxuu deposit first as this presents a potentially low-risk path to early production at a modest capital investment. It is a very shallow, basin-shaped deposit with a maximum depth of 60 meters and the mineralization is totally oxidized. This means we can potentially produce zinc metal on-site through solvent extraction and electro-winning.”

Just as gold giant South Africa is suffering, the pick up in the copper price has presented a moment of opportunity for the Copperbelt region. The logistical challenges of operating in the Democratic Republic of the Congo (DRC) and its continued political instability remain fundamental deterrents. However, coupled with a robust cobalt price, the high-risk, high-reward paradigm associated with the DRC is becoming increasingly palatable as evidenced by a buzz of activity in the mineral-wealthy nation across a range of commodities. ASX-listed AVZ Minerals recently secured US$13.2 million in investment through an agreement with Huayou International Mining, which in return will acquire an 11% interest in the company. The funds will be used for drilling and metallurgical testing at the Manono project in the southern region of the country, prospective chiefly for lithium. In early 2017, Glencore purchased stakes in the Katang and Mutanda copper-cobalt mines for a value of US$960 million. Following intensive refurbishments, Ivanhoe Mines, in partnership with the state-owned mining company Gécamines, intends to reopen the high-grade copper-zinc Kipushi project, which has not operated since 1993.

As some players in the industry cautiously approach the opportunities afforded by the DRC, Zambia remains a strong option for the risk-averse investor with interest in the prospective Copperbelt despite political rumblings in the traditionally stable country. President Edgar Lungu has been accused of sliding towards an authoritarian regime, largely due to the recently ended four month detainment of opposition leader Hakainde Hichilema, who lost last year’s presidential elections by a slim margin, as well as his decision to declare a state of emergency that allowed for increased policing power following a series of arson attacks in Lusaka in July. Nonetheless, the sentiment among leaders in the mining industry on the ground remains largely positive that peace will endure, and the uptick in copper prices led our team to conduct a special focus on the Copperbelt this year, where we will begin research in Lubumbashi in October.

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