The Future of Mining: Make Africa “Prosperous Not Poor”
The President of Ghana, Nana Addo Dankwa Akufo-Addo, has called on the mining industry to build a prosperous Africa. Mining executives warn that operating in the sector is not as profitable as politicians often think. How can a profitable mining industry that uplifts African societies be achieved?
The 2019 Mining Indaba in Cape Town put a spotlight on a mining industry that is about to go through an unprecedented period of disruption and change.
Demand for minerals is changing as a global green revolution climbs into gear. Extraction of many minerals is becoming more complicated and challenging. Automation and Artificial Intelligence is already bringing disruption to business models. And, for or better or worse, politics, policies, and the relationships between governments and mining companies continue to change across the African continent.
One point which was high on the agenda was “resource nationalism”, with fierce debate held against a backdrop of increasingly strained relations between many African governments and industry.
The distinction between resource nationalism and legitimate and necessary restructuring of trade relations is a complicated issue and one where governments and industry rarely seem to agree.
Tanzania and the Democratic Republic of Congo have brought in the most extreme regulatory changes over the past two years, with Tanzanian President John Magaulfi making his opinion on the industry well known by calling mining companies “people who call themselves investors with the intention of stealing from Tanzanians.”
Since then Tanzania has banned the export of mineral concentrates and has been involved in a long battle with gold miner Acacia Mining which includes a $190 billion tax bill and charing three of Acacia’s local subsidiaries with money laundering and tax evasion.
However, in South Africa where public-private sector relations improved markedly over the past year, and in Ghana where the government is keenly looking to build an attractive environment for further private sector investment, there is also a willingness to revise the social contract around mining.
Speaking at the Mining Indaba, President of Ghana Nana Addo Dankwa Akufo-Addo, put forward his vision for mineral wealth to have a more direct impact on the lives of people in Ghana and across the continent;
“Mining can help rapidly to grow Africa’s manufacturing sector and be the champion of economic growth on the continent.
I believe we have come of age. We should not have to give unusual tax and royalties incentives. And mining companies should not expect to make extraordinary profits on our continent.
“Communities should be able to examine mining contracts, find out how much revenue has been generated, and how, and on what it is being spent. Long and bitter experience means both sides, African governments and mining companies, have to work hard to gain the trust of the people.
“We cannot, and should not continue to be merely exporters of raw materials to other countries. The value chain of mineral extraction has great potential for job creation, and can form an essential basis for the transformation of economies around the continent,
Africa has made the world rich with our minerals, and our gemstones adorn crowns and homes around the world, it is time to make Africa prosperous, and enable her people to attain a dignified standard of living.
The time has come for the minerals sector to produce win-win situations for all stakeholders.
Leading mining executives also used the Indaba to state their desire to reach the promised land of the win-win situation. While actions undoubtedly speak louder than words, the words at least are much more positive than recent years where private sector leaders have been openly hostile to government policy, particularly in host nation South Africa.
Clive Johnson, CEO of B2Gold Corp said “If you disappoint a government you are disappointing a country. It really is paramount that we show these governments that we are worthy of their trust.”
Mark Cutifani, CEO of mining giant Anglo American, also spoke at the Mining Indaba of the broader impact mining can have upon African development, saying “Mining must convincingly demonstrate that it is an inherent force for good and progress in the world.”
With political change continuing in key African economies, and technology uptake pushing innovation in the sector, the opportunity is indeed there for the industry to collectively follows a path that will show it is “an inherent force for good” and can “make Africa prosperous”. However without bold leadership, both from mining executives and governments, the opportunity for mining to leave a positive lasting legacy on the continent will be missed. The decisions made now by mining sector leaders and government leaders have the potential to put the industry on to a path of opportunity or one of decline.
The opportunity for African mining is to tap into the potential fourth industrial revolution and create a more profitable and innovative sector. A sector that has a demonstrably positive impact on the well-being of African citizens.
As highlighted above, this will require visionary leaders with an understanding of where technology will push industry and an ability to foster positive relationships with governments and communities.
For the sector to thrive, the following opportunities must be embraced:
Build Genuine Win-Win Partnerships Between Governments and Mining Companies
“Gone are the days when you can sink a shaft and remain oblivious to the people. Gone are the days when a mining company can just build a road and reticulate water just for itself. That is not inclusive growth. We now need to pay attention to these important principles. Those who do, are the most successful. We live in a world when people don’t want things to happen around them without being engaged and heard.”
Local governments don’t have full capacity. Investments don’t happen in the Union Buildings or in Parliament but in local areas where local government resides and this is where mining companies should engage with local roleplayers in infrastructure, which must be coordinated to prevent operating at cross purposes. Sometimes it is a painful process, but it is something that has to be done.”
– President Cyril Ramaphosa of South Africa
Embrace Innovation, Automation and The Digital Mine
Employment in the mining sector, historically the bedrock of SA’s economy, has fallen by a 10th in the past 10 years. At the same time, McKinsey research indicates that the productivity of many SA mining operations has declined, even as mining companies in other regions have rapidly improved productivity.
The result is that much of the SA mining industry is losing global competitiveness. When we assessed SA mines in four major commodities — gold, platinum group metals, coal and iron ore — we found that 47% of jobs, along with 42% of revenues, were in the bottom quartile of global cost competitiveness. That means many mines are less profitable than their global peers and more vulnerable to cost or pricing changes.
The industry needs to harness the transformative potential of digital technologies, which could improve the margins of SA mining companies by as much as 15 percentage points, according to our analysis. Digital could also bring about a step-change in workers’ skill sets, experience and wellbeing.
There are two big digital opportunities SA mining companies can embrace: enabling the front line with technology, and improving performance through extracting value from data.
– Stewart Goodman and Agesan Rajagopaul of McKinsey Africa, writing in Business Day (South Africa)
Less Talk, More Action on Beneficiation
The export of oil, the export of minerals, will for many decades continue to be a critical part of the growth of African economies. The emphasis is on diversification. We have for many years – not just in South Africa but in many parts of the continent – spoken about beneficiation. And I think part of the secret, in relation to beneficiation, is you have got to make it attractive, profitable, for the private sector – and it will take off.
You will not have to worry about beneficiation if it makes commercial sense. But it can only happen when you do these things in partnerships with governments and the private sector.
– Patrice Motsepe, Chairman of African Rainbow Minerals, speaking at the World Economic Forum
One of the benefits of Africa is that some of the world’s most valuable minerals are only on the continent. Platinum is 80% in Africa so having beneficiation on the continent is very important. We are working on a project now for a platinum refinery on the continent. We are also looking at beneficiation of bauxite on the continent. In addition, we are investing in a crude oil refinery, which was exported and then imported back into the country. There is opportunity for that kind of value addition project on the continent and that will continue to grow as it is what Africa needs.
Invest in Secondary Industries
Economies thrive from sustainable human livelihoods, and if you think about it like that there are many new areas to move into. The need for water and food is a good example. Therefore we are asking, “How can Exxaro make the lives of people better by helping them sustain themselves? How can we use the land space we have in South Africa and combine that with mining in order to grow our business by improving livelihoods?”
Exxaro, together with other mining companies, have a lot of resources which can be used to create secondary economies for communities and for ourselves. In this way, the people in those communities will be able to sustain themselves, whilst we as mining companies will be doing something good and the economy will grow.
The Bottom Line
The primary threat for industry is that mining ceases to be profitable.
Declining mineral resources require deeper mining and complicate further the engineering process required to extract these minerals, making the business of mining more complicated than ever.
“In South Africa, the economic equations around mining are pretty slim,” Cutifani. Shareholders get about $7 out of every R100 in revenue; the government receives about $24; employees, about $35; and suppliers about $34 in every $100 revenue.”
“For a shareholder in a mine, we have to improve our costs year-on-year at least 5% to 10%, because the material we are mining is becoming harder due to extraction challenges and other factors.
Approximately 16 times more material must now be mined to obtain a pound of copper than 100 years ago.
“That changes how we operate in the world today.”
– Mark Cutifani, CEO of Anglo American
Mr Cutifani’s financial presentation goes to the heart of one of the problems in forging a new relationship between industry, government, and communities; a lack of understanding and agreement on the financial risks and rewards of running a mine.
Negative impact on communities leading to social unrest
Mining companies can’t claim to be delivering a lasting legacy for Africa if the communities surrounding mines continue to live poverty.
Over the last five years, we have been dealing with disruption in the mining sector. Even though mining brings in a large amount of revenue, the communities in and around the mining industry are some of South Africa’s poorest. Within these communities in South Africa specifically, there is a history of migrant workers taking the bulk of the workload available. This creates animosity for the local communities who tend to feel exploited when mining operations use their regions resources, but no jobs or money trickles down to the community. The local communities, who are under the traditional leadership, and the migrant worker communities both live in precarious conditions.
What often happens within these communities is that there would be tension due to alternative paradigms and shifts within these archetypes that has nothing to do with political structures. What has happened over recent years is that the youth within these poor communities, who often find themselves stuck in these areas, have disrupted the mining operations. They would block the roads leading into the mines and sabotage the railway lines transporting the minerals or stage protests that could drag over long periods significantly disrupting the mining operations. This has halted operations in many mines across the country.
– Dr McEdward Murimbika, CEO of Siyathembana Group
Climate Change impacting Water Scarcity. Slow Uptake of Clean Energy Technology.
The region continues to struggle with water shortages and energy constraints, and the fact is that water remains a critical resource for the industry. Often water scarcity is a major issue, although excess and flooding can also impact mining production.
In Africa, scarcity requires that miners need to drive up efficiency of use and use less of this precious commodity. The same goes for power, where intermittency and accessibility can act as major barriers.
Even as miners across the continent continue to rely on fossil fuels for power, clean energy technologies such as solar and wind, paired with advances in battery technology, are becoming increasingly price-competitive.
This holds additional benefit when it comes to powering operations in remote areas or locations with unreliable power sources.
– Dennis Gibson, Chief Technical officer of Black & Veatch Mining, speaking in Fin24 (South Africa)
The spectre of resource nationalism is again rearing its head across Africa, leading to significant regulatory intrusions in Tanzania, the Democratic Republic of Congo and South Africa — all major mining jurisdictions.
In March, the DRC overhauled its investor-friendly mining code , doubling the state’s free equity interest from 5 per cent to 10 per cent (plus another 5 per cent upon each licence renewal) and requiring at least a 10 per cent shareholding by Congolese citizens. It also introduced a 10 per cent royalty on “strategic minerals” and a 50 per cent tax on “super profits”.
In South Africa, President Cyril Ramaphosa announced this month that the African National Congress would amend the country’s constitution to allow land expropriation without compensation, appeasing a demand from the Economic Freedom Fighters, a rival political party, for the nationalisation of mines and banks. This is a further blow to a mining industry already bedevilled by proposed changes to the country’s mining code and empowerment charter, which include raising quotas for ownership and management by black South Africans.
Future of Mining: The Debate
The Future of Mining report features as part AfricaLive’s special report series on 7 Growth Industries for Africa’s Future
AfricaLive is committed to solutions based reporting; finding and promoting the people and companies providing the solutions to allow Africa to prosper.
By looking at each of the opportunities and threats outlined above, this report will ask how a culture of innovation in mining can build an industry with a real legacy of prosperity for Africa.
AfricaLive Special Reports exist to bring together all stakeholders in society to hold a free and open debate on the future path for Africa’s key industries. Our reporting on The Future of Mining will, therefore, feature interviews and commentary from heads of state, government ministers, mining executives, entrepreneurs, investors, civil society and heads of non-governmental organisations. Only by publishing and listening to all points of view can we move towards creating a business environment which genuinely works for all of society.
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