Out of Africa - Resources in Africa Masterclass
Michael Forrest reports on the Resources in Africa Masterclass, hosted in June by international law firm Simmons and Simmons, in London, UK.
Africa is generally regarded as the last continent, or the lost continent, in economic development. The mining industry has developed mines in Africa over the last century and a half, and still does in many African countries.
Africa’s mineral wealth is enormous and has the potential to continue to provide metals and minerals to support the developed and developing world. However, some exploration and mining companies regard Africa as difficult, preferring to remain in first world countries. These difficulties stem from political uncertainty regarding title, a complex and sometimes dysfunctional legal system (including both French and British legal systems), the logistical problems of remote and infrastructure poor regions, and, in some countries, poorly developed cadastral and geological surveys.
The Resources in Africa masterclass held in London, UK, this summer, addressed all of these topics, with the latest in a series organised by IOM3 local society, MinSouth, and the Association of Mining Analysts.
Laurence Robb, Visiting Professor in the Department of Earth Sciences at the University of Oxford, UK, and Technical Director of Savannah Gold Ltd, illustrated the exceptional mineral potential of sub-saharan Africa. In a review of the continent’s geology, Robb highlighted the importance of the Pre-Cambrian geology and its influence on major precious and base metal resources.
‘Africa’s Precambrian cratons hold the key to most of its enormous mineral wealth,’ said Robb. The longevity of these stable cratons has been fundamental to mineralisation, and its preservation, and has resulted in some of the world’s greatest mineral deposits. In particular, the diamond deposits of southern Africa owe a great deal to the old, cold southern African craton and its graphite/diamond boundary.
Diamonds are not the only valuable mined material in southern Africa. The Witwatersrand basin is host to 40% of the gold ever produced globally, with over 50,000t of gold produced since 1886 and over 1,000Moz of the resource remaining. The 2060 million-year-old Bushveld complex is the largest layered mafic intrusion, containing the world’s greatest platinum group metal resources, with associated nickel and chromium, and, according to Robb, results from a combination of a episodic filling of the magma chamber, crystal fractionation and scavenging of metals by sulphide droplets.
In the Democratic Republic of Congo and Zambia, the Lufilian Arc of the Copper Belt has the greatest concentration of copper and cobalt on Earth, where stratiform copper-cobolt ores formed early after sedimentation and remobilised during Pan-African deformation – repeating a complex and time consuming process.
The workshop review continued through central, east and west Africa, delineating and explaining the origin of many world class mineral deposits, including the great dyke in Zimbabwe, diamonds in the Angola craton, Archean greenstone gold deposits of Tanzania, and the Birimian gold of west Africa. Robb reaffirmed the importance of the stable Pre-Cambrian cratons underpinning the continent. ‘Many parts of it are under-explored and still yield some unexpected surprises, but what is not in doubt is that it contains some awesome mineral districts and still offers a huge opportunity,’ he said.
Following the theme of exploration, Mark Parker, Managing Director of African Eagle Resources plc, London, UK, described the company’s extensive experience in Africa. It has projects in Tanzania, Mozambique and Zambia.
‘Africa accounted for 15% of global exploration spending last year, with just under US$1.1bln spent. Operationally, exploration is often straightforward, with relatively few access issues. However, lack of infrastructure is a major constraint. Tanzania, where we have our flagship Dutwa nickel project, is larger than France, Germany and The Netherlands together, but has only 11,000km of primary trunk roads, half of which are unpaved. Of the 20,000km of secondary roads, only five per cent are sealed. For field accommodation, we prefer to establish exploration camps using local materials and craftsmen, away from urban areas. Safe water supply can be a major issue, however.’
Legal matters in mining were illustrated by Yves Baratte, Avocat à la Cour, Paris energy and infrastructure group, law firm Simmons & Simmons. His presentation entitled ‘Africa, at last a place we do not need lawyers’, focused on mining codes and particularly those in French speaking Africa. ‘There is a clear distinction between those modern self-contained mining codes developed in the past 20 years and those based on common and civil law,’ said Baratte.
In the case of the former, they were often drafted by World Bank appointed lawyers with input from local professionals and often with the assistance of international mining companies. The intention of the codes is to establish clear ownership, be self contained, seek to exclude negotiation and, in some cases, anticipate project finance structures, However, explained Baratte, these objectives are not always matched as everyone is a ‘lawyer’ in the local administration, and ambitious drafting, frequent changes of personnel within the administration, and over-complex codes all provide opportunities for dispute.
In addition, increased competition for mining titles and reviews of existing contracts can add uncertainty. In civil and common law environments, a string of open-ended agreements, ‘The Protocoles D’Accord’ trusts, floating charges, and other security interests, and even political force majeure can provide additional problems. Baratte concluded, ‘I am not advising you not to use a lawyer when investing in Africa’.
‘Building your mine entails another set of challenges,’ said Richard Levack, Co-founder and CEO of Banlaw Africa, Tarkwa, Ghana. ‘We have built mines in West Africa and are currently constructing the Twangiza mine for the Canadian company Banrho, in the eastern province of South Kivu in the Democratic Republic of Congo. It must be remembered that nearly all the materials for a modern mine are found in Europe or the Americas. This means moving the material by sea, or if in extremis by air, into the nearest port to the mine site. With little infrastructure in many African countries this can be problematic. Apart from the logistics of moving materials and machines to the mine site, there is the problem of import licences and taxation that can differ widely across the region.’
He continued, ‘Ghana, for example, offers good ports with competitive import taxes (five to seven per cent) and the ability, once imported, to move equipment from one mine to another. In Burkino Faso, Ivory Coast and the Democratic Republic of Congo, the import restrictions state that equipment can only be used in the listed destination. Tax on Value Added can be applied even though the equipment is en route to another country.’
Returning to physical challenges, Levack explained that, ‘the construction of a 1.5Mt per year mine entails the delivery of 500 40-foot containers. In the case of the Twangiza mine, it can take up to three months to get to site through Kenya and Rwanda, the rebuilding of three major bridges and the fording of six rivers, not to mention repairing and upgrading roads to take the heavy trucks.’
Before any of this can take place, mines require financing. James Philip, Director of Chartered Standard Bank, and his colleague Russell Amor, described their bank’s funding in the African mining sector. Philip set the scene for a renaissance led by Africa’s above average economic growth, beginning in 2003, broadly spread across many sectors. ‘Of all mining projects in Africa (excluding South Africa), some 91% are controlled by entities listed on ASX (Australia), TSX (Canada) or LSE/AIM (UK), with funds equally split between debt and equity. On a global level, 75% of all public mining companies are listed on either ASX or TSX, with the LSE dominated by larger companies with higher value, but fewer equity issues.’
Members can view presentations from the masterclass at www.minsouth.org.uk