Risk aversion is likely to leave major Western miners lagging in a race to tap Africa’s reserves of critical raw materials that has gathered pace now Middle Eastern oil powers have begun to emulate China’s years of investment on the continent.
Attracting the capital needed to advance copper, cobalt, nickel and lithium projects in Africa will be high on the agenda when executives, bankers and government officials gather in Cape Town, South Africa, for the annual African Mining Indaba beginning on Monday.
For the big listed miners, the problem is convincing board members anxious to keep shareholders onside, an issue China and the state-backed funds from the Middle East with a mandate to diversify from oil and gas do not face.
Major mining companies’ mergers and acquisitions teams have been busy negotiating in countries including Democratic Republic of Congo, the world’s top cobalt supplier, and third biggest source of copper. Potential deals in the country, however, are being held up in the boardrooms of Rio Tinto and BHP Group, two sources with direct knowledge of the matter told Reuters.
The sources said boards were mindful of the shareholder focus on ESG (environmental, social and governance) concerns and past scandals in countries viewed as high risk.
The reserves of a country such as Congo, however necessary for the transition to cleaner energy, have to be weighed against political strife, the danger of corruption and a lack of vital infrastructure.
Rio Tinto and BHP have held informal talks with Ivanhoe Mines to explore partnerships in the Canada-listed miner’s Western Foreland project in Congo, one of the world’s richest copper deposits, the sources said. They spoke on condition of anonymity because they were not authorised to speak publicly on the issue.
Anglo American has also sought projects in Congo, showing interest in Eurasian Resources Group’s (ERG) assets in the country, a third source said, adding a potential deal might have foundered as the company tries to control costs.
Rio, BHP and Anglo declined to comment.
“Any mining company knows that it will face tough questions from shareholders if it makes a move into the DRC,” Patrick Edmond, Managing Consultant for Africa at advisory firm J.S. Held, said.
“The majors especially will need to think very carefully about how to answer investors’ questions, and how to build strategies to succeed in the DRC in a way where the rewards for shareholders outweigh the risks.”
Other African countries also have challenges that alarm many investors.
After a wait of almost three decades, Rio Tinto has begun advancing the giant Simandou iron ore project in Guinea. It almost walked away from the deposit in 2016, citing the risk of operating in the West African country.
Together with BHP and Anglo, Rio also backs smaller explorers in Angola, Malawi, Rwanda, Tanzania and Zambia, but the majors have avoided bigger deals.
RISING COSTS
The costs of gaining a stake are being inflated by an increased appetite for critical minerals needed for the transition to a greener economy, of which Africa’s copperbelt, stretching from southern Congo and Zambia to Botswana, has an abundance.
Oil powers Saudi Arabia and United Arab Emirates are among those most able to take risk.
For Western companies, the hunt for assets is complicated by emerging challenges in jurisdictions previously seen as safer.
Copper and lithium mining projects in Latin America, for example, are threatened by factors including adverse weather conditions, a lack of water, poor ore grades and regulatory challenges that have sometimes forced existing mines to close.
Chinese miners, meanwhile, have strengthened their hold in Congo and are broadening investment throughout Africa.
Late last year, state-backed MMG agreed to spend $1.9 billion to buy Khoemacau copper mine in Botswana.
Meanwhile, Saudi Arabia “is a neutral player with a big wallet,” and together with the UAE “could potentially be a source of funding for Africa,” Ivanhoe CEO Marna Cloete told Reuters. China’s Zijin Mining has a 39.6% stake in Ivanhoe’s Kamoa-Kakula copper mine.
Ivanhoe, founded by billionaire Robert Friedland, said in December investors interested in helping advance its Western Foreland project range from “major international corporations to sovereign wealth funds”.
Saudi Arabia’s mining company Ma’aden last year formed a joint venture with Ivanhoe Electric for mining projects in Saudi. It also created a fund set to source iron ore, lithium, copper and nickel abroad.
A unit of Abu Dhabi’s giant International Holding Company (IHC) agreed to invest $1.1 billion in Zambia’s Mopani Copper Mines in return for a 51% stake.
“It behoves us to take advantage of our natural competitive advantages to try and knit together a mineral strategy that stretches from Asia to the tip of Southern Africa,” Robert Wilt, Chief Executive Officer of Ma’aden, told Reuters.
Source:
Reuters
