Why Australian mining companies are eyeing Africa
Australia’s mining pain has been Africa’s gain, and the trend shows no signs of fading.
Australian investment in Africa is expected to rise to $50bn over the next three years, according to Australia’s department of foreign affairs and trade.
Old gold mines in Western Australia have high costs that are growing as wages rise in the resources sector.
Newcrest Mining chief executive Greg Robinson says the heavy processing required to produce gold pushes Australia right up the cost curve.
The company is looking abroad for its next big discovery.
“Most of the gold industry in Australia is sitting in the third and fourth quartile, and most of the cost is sitting in the processing,” he says.
Newcrest is one of the top five gold miners in the world, with operations in Papua New Guinea and Australia, as well as exploration projects in Côte d’Ivoire at Bonikro.
China Delves In
Chinese appetite for iron ore has also driven interest in Guinea, Cameroon, Congo-Brazzaville and Sierra Leone.
Equatorial Resources managing director John Welborn describes West Africa as “Pilbara 60 years ago” and says investors are paying attention.
Australian iron ore veterans like Sundance Resources chairman George Jones and Energio chairman Ian Burston hold similar opinions about the region’s potential but recognise the need for more foreign capital to develop transport lines and ports.
For this reason Australian explorers are seeking capital from bigger players, often in China.
Sundance Resources is in the throes of a $1.3bn takeover by China’s Sichuan Hanlong Group that could lead the Mbalam and Nabemba iron ore project – which straddles the jungles between Cameroon and Congo-Brazzaville – to be sold to another Chinese player.
Rio Tinto is developing the massive Simandou iron ore mine in Guinea with the assistance of China’s Chinalco and the World Bank’s International Finance Corporation.
Both projects require more than 500km of rail infrastructure, which Chinese com- panies have expertise in building.
The handful of copper hopefuls that enter production in Africa, like Anvil Mining (purchased for $1.2bn by China Minmetals in February 2012) and Discovery Metals (which was approached about an $850m takeover by Chinese private equity group Cathay Fortune in October), are also proving attractive takeover targets for the Chinese.
“Australia’s miners are very good project builders, they can put things together and input their expertise to create a lot of value,” says a Sydney-based analyst.
“More and more Australian explorers are heading to Africa to take advantage of the opportunities, both in terms of the quality of deposits and the comparatively cheaper costs.”
The Australian dollar, which has remained above parity with the US dollar despite recent falls in price for key exports like iron ore and coal, is also hurting Australia’s competitiveness.
The currency impact has hurt margins at most of the world’s top mining companies, including BHP Billiton, Rio Tinto, Anglo American and Xstrata, which all operate in Australia.
In early 2012, the Australian federal government increased taxes on iron ore and coal, and state governments are also raising royalty rates.
Many companies have also ex- pressed frustrations over growing resource nationalism in Africa.
Ghana, Mali and Côte d’Ivoire have all changed or have signalled impending changes in their taxation regimes.
The difference, companies say, is that African risk is already priced into equity values●