August 2007

Supply Side

Watch out for the mining boom in Africa

By J. Baird

My attention was drawn to what is happening in mining in Africa at the Canada-Africa Mining Procurement Seminar held in Montreal on May 2, the last day of this year’s CIM Conference. The Canadian Council on Africa, CIM, and Foreign Affairs and International Trade Canada did an excellent job of attracting well-prepared speakers from whom mining supply participants could learn of some big opportunities in several countries.

First of all, let us look at what has been happening in exploration. According to the annual World Exploration Trends reports of Halifax-based Metals Economics Group, Africa has been getting its full share of the action. These reports track the nonferrous exploration budgets of all mining companies worldwide. After touching a 10-year low of US$1.9 billion in 2002, total expenditures rose to US$7.5 billion in 2006. Throughout this period, Africa retained its share of the market of about 16 per cent, with exploration expenditures on the continent rising from about US$300 million in 2002 to US$1.2 billion last year. This places Africa in third place as a region, after Latin America (24 per cent) and Canada (19 per cent).

Sweden’s Raw Materials Group maintains a database of more than 2,400 mining projects, ranging from those in the prefeasibility stage to those currently under production. Total investment in the global mining industry’s project pipeline at the end of 2006 was US$208 billion, a 50 to 55 per cent increase from the previous year. By region, Latin America tops the list with proposed investment of US$59 billion, Oceania/Australia is in second place at US$41 billion, and Africa is third with US$34 billion.

According to figures presented at the Canada-Africa Mining Procurement Seminar by Natural Resources Canada’s Denis Lagacé, Canada has made a cumulative investment of about $50 billion in about 230 mines, refineries, smelters, and advanced projects abroad. About 70 of these projects are in Latin America and the Caribbean, and about 40 are in each of Europe, Asia-Pacific, Africa, and the USA. Of the total $50 billion Canadian mining investment abroad, about $7.9 billion is in Africa.

Natural Resources Canada is aware of future Canadian-planned investment in about 64 mining projects around the world, of which 30 are expected to be in Africa. This will require about $13 billion of Canadian investment over the next four to five years in 15 African countries. Thus, there is growing potential for Canadian mining suppliers to follow their mining colleagues to that part of the world.

There are about 53 countries in Africa, more than half of which have significant mineral potential. However, development of what is a huge resource has lagged other regions of the world. This is changing. In total, it is expected that there will be about $46 billion invested in new mining projects on the continent by 2010. This is in a context of national economies with some of the highest GDP real growth rates of the world.

There are more than 100 Canadian exploration and mining companies active in 37 African countries and they account for about 24 per cent of all exploration expenditures on the continent. In this, we are second only to South Africa with about 43 per cent, nearly half of which is spent in South Africa itself.

Lagacé said that a survey of Canadian exploration and operating companies working in Africa showed that they procured about 40 per cent of their needs from South Africa, 20 per cent from Australia, and only 10 to 15 per cent from Canada. Of course, as many Canadian suppliers have representatives in South Africa, it is possible that some goods and services sourced from that country are Canadian.

However, if these numbers are correct, Canadian suppliers are missing out on good opportunities. The proximity of South Africa to projects in the rest of the continent is a big advantage. Thus, in making strategic plans for marketing in Africa, Canadian firms should ensure that they have good representation in that country.

Jon Baird
Jon Baird is the managing director for CAMESE.

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