JOHANNESBURG (miningweekly.com) – Widespread illegal mining activity and rising regulatory risks are two of the biggest challenges that will face the sub-Saharan Africa mining sector in the coming months, research and analysis firm BMI Research says.
The firm states, however, that it expects investment into the region’s mining sector to continue rising, while positive political changes will improve the outlook for South Africa especially.
In a report titled ‘Africa Mining Q318: The Four Key Themes’, released on Monday, BMI lists the key themes that are likely to remain pertinent within the sub-Saharan African mining sector in the third quarter of this year.
The first theme is rising metal prices that will lead to increasingly regulatory pressure on miners in the region, as local governments demand a larger share of mineral resource wealth.
For example, BMI stated that the Tanzanian government’s announcement in February to restrict foreign banks, insurance companies and law firms from working with or financing the mining sector, will be damaging for the sector.
The new restrictions follow on from laws passed in 2017 that ban the export of
gold/copper concentrate and allow for the renegotiation of contracts with mining companies and will likely lead to asset sales or a reconsideration of planned
investments into the country's mining sector in the coming quarters.
Similarly, Zambia announced in January that it will force miners to transport 30% of their cargo for export by rail as the government looks to revive local rail
services.
Another country in sub-Saharan Africa that could enact similar regulatory changes that would increase costs for miners in the coming months, is Mali, owing to declarations by the government, in March, that it intends to draft a new mining code this year.
Moreover, major mining markets in Africa will face growing risks from illegal mining activity, particularly gold-producing countries, such as Ghana, as gold is easier to extract through artisanal means and global gold prices have recovered.
BMI expects gold prices to average $1 300/oz in 2018, up from $1 250/oz in 2017. The firm noted limiting factors to addressing illegal mining include insufficient resources on behalf of governments to address illegal mining, the continued use of child labour in certain African countries and high levels of unemployment.
Further, BMI reported that mining mergers and acquisitions activity in sub-Saharan Africa is set to rise on a year-on-year basis, as miners’ balance sheets continue to reap the benefits of rising commodity prices in 2017.
This favourable price environment allows miners to engage in strategic acquisitions as profit margins increase. For example, major African miners including Anglogold Ashanti, Randgold Resources and Impala Platinum, are all estimated to improve their profit margins this year.
“The highest free cash flow in six years for miners will support the return to
growth strategies, although cautious language from executives and in reports indicates the focus will be on brownfield projects and partnerships,” said BMI.