May 19, 2020

Capturing worldwide investment for Africa

Diamonds
Gold
Platinum
foreign currency
Bizclik Editor
4 min
Capturing worldwide investment for Africa
The diamond market is opening up in West Africa according to Charles Bond, a partner at the London law firm Cobbetts. The firm advised Stellar Diamonds in its February reverse takeover of African Diamonds, another West Africa operator, subsequently raising £5 million pounds on the AIM market for production at its mines in Guinea and Sierra Leone and breaking the long drought of resource company fundraisings on AIM.

“Stellar had been struggling a bit, but a lot of people are talking up the diamonds market at the moment – the stockpiles De Beers built up over the last 20 years or so are running out, and diamond prices are going to go up,” says Bond.

Diamonds, gold and platinum may be the sexiest of Africa’s resources, but they don’t need Naomi Campbell to hype them up. Platinum is primarily an industrial metal, in demand because catalytic converters prices reached a peak early in 2008, but slumped subsequently to around $950 an ounce in January 2009. There’s platinum in Australia, but extraction costs made it unviable for many producers, some of which, like Platinum Australia, turned their attention to Africa.

LOW COST; FAST DEVELOPMENT

80 percent of the world’s platinum, almost 90 percent of its rhodium and about 35 percent of its palladium is obtained from the Bushveld Igneous Complex in South Africa. With prices now up around $1,504 per ounce it’s well worth exploiting these assets again. Platinum Australia’s Smokey Hills project is among the lowest-cost resources in the world, and by attracting investors, including Soros in New York, Colonial First State Investments in Sydney and JP Morgan in London, the mine has been developed in record time. “In three and a half years we went from acquiring an interest in a project, to commercial production,” says Managing Director, John Lewins.

His target is to generate $35 million a year from the project. The host country benefits in at least four ways: 60 percent of the workforce is locally employed; nine percent of the equity is owned by BEE (Black Economic Empowerment) partners; infrastructure is improved; and the royalties and taxes levied by the South African Government go to support the economy.

In many ways this is the story of South Africa. It is blessed with natural resources that are increasingly in demand as world population, and along with industrial demand, increases. Uranium in Namibia, copper in Zambia, and hydrocarbons in Nigeria and Ghana are mature industries – however, Africa’s ability to supply world demand has hardly been tested yet.

MOZAMBIQUE JOINS THE CLUB

One of the poorest nations in the world will soon follow South Africa’s example. The demand for steel from the BRIC group of countries has created an insatiable market for coal, and in particular for high thermal output coking coal. And Mozambique has plenty of that: it also has a port that faces east across the Indian Ocean to industrial centres from Maharashtra to Gujarat.

Among the international operators that have acquired coal tenements in the Lower Zambezi Coal Basin are Brazil’s Companhia Vale do Rio Doce and Riversdale Mining of Australia. Riversdale is already active in South Africa where it operates the only true anthracite mine in South Africa, the Zululand Anthracite Colliery (ZAC) in KwaZulu-Natal. To put it in perspective, that might yield 10 million tonnes in its ten years projected life, but the Benga anthracite project currently being developed in Mozambique’s Tete province (in a 65/35 joint venture with Tata Steel) is a 45 billion tonne resource. Its first shipment is expected to leave Beira later in 2011. By 2016 Benga will be shipping 20 million tonnes of anthracite a year.

SUBSTANTIAL REVENUES

The Mozambique economy will get substantial revenues from royalties and taxes. The country further benefits from the inflow of mining expertise from both Australia and South Africa, not to mention Brazil. “Mozambique’s legislative system is modelled on that of South Africa,” says Andries Engelbrecht, Riversdale’s COO.

Not far away from the Benga project lies Riversdale’s Zambeze Coal Project which Engelbrecht confidently describes as one of the biggest open pit coal resources in the world. It has, he says, been assessed as a resource of 90 billion tonnes, easily accessible, on relatively flat terrain and not far from Tete and the Zambezi River.

Zambeze is a joint venture with China Communications Construction Company, in which CCCC contributed around $800 million to the projected $2 billion it will cost to construct the mine. Institutional investors in the markets from New York and Toronto to Hong Kong, Singapore and Shanghai are going to be very keen to buy into development on this scale.

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