9 February 2016

Africa: What's Needed to Help Mining Minnows Get Off the Ground in Africa

analysis

Malawi has aspirations to increase mining contributions to GDP from 1% to 20% by 2020. But community-company relations in the mining sector are typical of those across the continent: not good. This, in turn, is not good for investment in the sector.

Grain Malunga, Malawi's Chamber of Mines and Energy National Coordinator, says that one of the main challenges facing investors is hostility from civil society organisations and negative media reporting about the mining sector. This is why Malawi's newly launched Chamber of Mines and Energy hopes to provide support to improve relations between companies and communities.

Canada-based exploration and development company, Mkango Resources, which has rare earth interests in southern Malawi, has taken a proactive approach in this regard. For example, it has helped farmers, local schools and households affected by recent flooding. These efforts have not been without civil society and media criticism.

Will Dawes, President of Mkango Resources, says that developing long term relationships and ongoing communication with all stakeholders is vital. So too is companies' participation in community development. This needs to be in proportion to the size and financial resources of the company and to the stage of development of projects.

Chikale Resources, another Malawi-interested exploration company, is earlier in its journey than Mkango. Managing Director Adam Foley believes that the company can learn lessons from the resource industry in Western Australia, especially when it comes to working with indigenous people and traditional land owners to help create a healthy, prosperous environment.

Much more needs to be done

Cape Town is playing host to two opposing groups in the mineral resources sector. The private sector is gathered for the Investing in African Mining Indaba, the continent's largest mining investment forum. And the Alternative Mining Indaba is gathered under the banner of making natural resources work for the people, leaving no one behind.

The mining indaba has been running for 20 years. Its alter ego was started seven years ago to include voices of those affected by mining but who are typically excluded from its agenda.

The relationship between communities and companies has grown in importance to the private sector over the last two decades. A 'sustainable development' day is now part of the indaba. This has been spurred on by:

attention paid to sustainable development, evident in the Sustainable Development Goals,

the creation of the African Mining Vision adopted by heads of state in 2009. The idea was to create a guide for mineral resource development for broad-based socio-economic growth and development, and

late last year the International Council for Metals & Mining, which represents the world's leading mining companies and "advances their commitment to sustainable development", released a toolkit. Its aim is to support companies in gaining a more nuanced understanding of how they can measure and influence community support.

The impact of these initiatives is not yet clear.

Outlook for investment

With the outlook for oil and commodity prices expected to be low for some time, junior mineral exploration companies like Mkango seeking to win suitable investors face stiff competition for capital. Dawes points out that for countries with many greenfield sites, mining opportunities tend to require greater amounts of higher risk capital, a situation exacerbated by current market conditions.

The World Bank projects that all main commodity prices will decline in 2016, with metals expected to drop 10% following last year's 21% decline. This is due to two factors:

new capacity is maintaining elevated supplies, and

weak growth prospects in emerging market economies, particularly in China, which was one of the main drivers of the commodity boom in the 2000s.

Besides access to capital, junior companies in frontier markets like Malawi contend with a host of other challenges. These include limited geophysical data and potentially high operating costs driven by energy deficits, limited transport infrastructure and a skills gap.

Government efforts during a downturn

The current situation means that it is not only companies which are competing for resources. Countries are also seeking to out-bid each other in efforts to attract investment in exploration and mining.

There is value in governments taking a proactive stance. This would involve them recognising risks by working toward streamlining their processes and being accountable for supplying information in a timely fashion. Time delays are very costly and raising money is very difficult, especially for smaller mining companies.

This is particularly pertinent for countries such as Ghana which have based revenue projections, budgets and development plans on sustained high commodity prices. Dawes says it is crucial for countries to maintain attractive regulatory and fiscal regimes to attract investment.

Countries in Africa, like Malawi, need to develop strategies and policies to encourage both local and foreign smaller and junior mining companies. Unless this is done risky investments won't be made. By risky we do not mean risky for the environment or communities but risky in the sense of investment returns.

Investments such as these are crucial as national revenue streams and in promoting low value minerals that can be used in domestic industry and construction. This is increasingly important during the commodity price slump which has no clear upturn yet in sight.

_Rachel Etter-Phoya, a co-author of this article, is head of accountability, policy and programmes at Citizens for Justice, where she leads the CFJ's engagement on the Extractive Industries Transparency Initiative.

Disclosure statement

Antonio Malfense Fierro does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond the academic appointment above.

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