JOHANNESBURG (miningweekly.com) – Regulatory uncertainty and operational challenges pose the greatest risks to sub-Saharan Africa focused mining companies.

Despite the optimism around the gradual recovery in commodity prices, vast mineral reserves and sub-Saharan Africa's low production costs, a new report released by BMI Research unpacks the threats that will cast a shadow over the once-booming industry in the next few years.

Operational challenges, mostly around supply chain and logistical risks, labour unrest and intermittent power supply, continue to weigh on the miners operating in mostly remote regions in sub-Saharan Africa.

The constraints are unlikely to ease in the short term, with strained public sector funds unable to bolster infrastructure, requiring private capital investment, thereby raising the capital expenditure required by mining companies to develop mining projects.

“Besides the lack of investment and development, miners' supply chains will face significant challenges from logistical pin points, which can be affected by natural catastrophes, geopolitical turmoil or industrial disputes,” BMI noted.

The volatile power supply in major mining countries in sub-Saharan Africa will continue to have a detrimental impact on mining operations.

With energy accounting for 15% to 40% of a mining company’s operating budget, this will significantly impact the balance sheet and raise production costs, as alternative solutions are sought.

Further, labour unrest continued to dent sub-Saharan Africa's investment attractiveness, as it led to a loss of both productivity and output of mining assets, BMI explained.

“Labour risk will remain elevated owing to a combination of rising union wage demands and miners retrenching [at] operations and cutting jobs to improve companies' balance sheets in the current weak commodity price climate,” the firm added.

Meanwhile, regulatory challenges, particularly contractionary fiscal and sector-specific policies, also added to the risks miners faced when operating within sub-Saharan Africa.

“Mineral policy uncertainty, largely driven by resource nationalism, will deter investment and tighten compliances in a sector that is already struggling with a multitude of challenges.”

With ever-lower commodity prices leading to economic slowdown, governments are increasingly looking to raise royalties and ownership stakes and calling for resource nationalism and policy revisions.

“Since 2012, sub-Saharan Africa countries, including South Africa, Ghana, Zambia, the Democratic Republic of Congo, Guinea and Namibia have stated that they will go or have gone ahead with renegotiating and revising upwards mineral taxes in order to maximise revenues,” BMI said.

“With commodity prices only gradually recovering out to 2020, we highlight that resource nationalism will become an increasingly prevalent feature in sub-Saharan Africa's mining sector and become a heavy burden on existing operations, discouraging potential investment over the coming years,” the firm concluded.