Mining & Drilling

The mining industry of Africa is the largest mineral industry in the world, Africa is the second largest continent, which implies large quantities of resources. For many African countries, mineral exploration and production constitute significant parts of their economies and remain keys to economic growth.

Africa is richly endowed with mineral reserves and ranks first or second in quantity of world reserves of Gold, bauxite, cobalt, industrial diamond, phosphate rock, platinum-group metals (PGM), vermiculite, and zirconium.

Dozens of companies are actively exploring in Africa, which is still largely under explored, but some of the challenges faced by exploration and mining companies include a general lack of skilled workers and inadequate infrastructure such as roads and electricity. A large number of companies are involved in the region’s mining sector, including major companies. Artisanal mining forms a large part of the mining sector in Africa. Some of the region’s most significant minerals exports are gold, copper, tantalum and soda ash.

Significant investment across several countries has included the opening and development of gold refineries in Rwanda Ghana, Uganda, Kenya, Democratic Republic of Congo and Tanzania, development of a potash mine in Eritrea and various gold investments in Tanzania, among others.

The mining sector has been identified by most countries in the region as a potential catalyst for economic development, and there is a determined effort to develop the sector and to make it more attractive to investors. This has included a draft policy in Ethiopia to attract foreign mining companies to develop its mining sector. In Rwanda, the processing of new license applications is being streamlined while in Tanzania, the government established mineral trading centers in every region to reduce tax evasion and illegal exports of minerals. In Uganda, artisanal mining activities are being legalized to bring them into the tax net.

The mining industry of the Democratic Republic of the Congo plays a significant role in the world's supply of cobalt, copper, diamond, tantalum, tin, gold and produces over 70% of globally produced cobalt. It is the Democratic Republic of the Congo's largest source of export income.The Democratic Republic of the Congo (DRC) is widely known to be the wealthiest country in the world, in untapped resource wealth and has an estimated US$24 trillion in untapped mineral deposits, including the world's largest reserves of coltan (where elements niobium and tantalum are extracted) and significant quantities of the world's cobalt and lithium. The DRC has limitless water, from the world's second largest river, the Congo, a mild climate, rich soil makes it fertile and beneath the soil an abundance. These mineral reserves are of global importance.

Mining Investment Opportunities in Africa

The largely untapped and unrealized potential that Africa is blessed with has been a magnet that has attracted and continues to attract mining investors to the continent.

South Africa has consistently been recognized as a key contributor to the mining sector in Africa and it was noted that South Africa not only weathered the Covid-19 storm impressively but also proved to be resilient in the face of the worldwide adversity. It was recorded that the total revenue generated by the South African mining industry for the year ending June 30, 2020 grew by 4% with gold mining companies enjoying an increase of 35% in revenue. Chrome, iron ore, platinum and manganese have all seen prices either holding or increasing – notably iron ore.

Zimbabwe is the second leading platinum producer expected to reach $12bn mining industry by 2023. Despite its infamous challenges, she appears to be emerging as a potential source of investment in Africa.

Similarly, Tanzania enjoys fourth place in terms of gold production in Africa and has deposits of rare-earth metals, iron ore and gemstones.

In compliance with this legislation, the Tanzanian Government had a 16% stake in a joint venture and received a dividend of $40m from the arrangement.

Challenges facing the Mining industry in Africa

The African mining industry is facing many challenges. Chief among them is the still low base of the mining activity. A number of African countries depend on extractive resources for revenues and export earnings but mining faces huge challenges related to environmental degradation and social issues.

Some of the major factors affecting Mining industries are;

Low industrialization of the industry

Although Africa is the most endowed region in terms of mineral resources, the continent remains under-explored. Expenditure on exploration activity in Africa has remained below USD5 per square kilometre relative to an average of USD 65 per square meter in Canada, Australia and Latin America. Furthermore, most of the minerals produced in Africa are still exported without downstream processing, thereby reducing their potential value added.

High degree of dependency

Many African countries depend on the production of metal and mineral products. Out of the 54 countries in Africa, 24 rely on relatively few mineral products to generate more than 75% of their export earnings. This high dependence on mineral rent has been partly responsible for the disruption caused by external shocks and low level of economic development. Consequently, the abundance of natural resources has not necessarily translated into desirable sustainable economic growth in Africa.

Environmental and social impacts

In some African countries, environmental problems and social issues caused by mining have been sources of protests and conflicts between mining companies and communities in mining areas. Mining has often been associated with deforestation, land degradation, air pollution, and disruption of the ecosystem. For example, the recent strikes and deaths in major platinum and gold fields in South Africa have highlighted the social impacts and uncertainties surrounding the country’s strategic mining sector. To curb social and environmental impacts of mining, industry players and governments should strive for a more inclusive and transparent partnership by encouraging public participation in mining communities.

Outlook for the mining industry in Africa

Addressing the challenges facing Africa’s mining industry would significantly improve the outlook of the sector, making it viable and structurally trans formative. Investors are searching for better opportunities and Africa with its vast mineral potential offers an attractive environment for mining investment. However, to attract investment into the sector, the authorities must address the risks and other impediments that confront the investors, including reducing bottlenecks to exploration and unstable mineral fiscal regimes. In turn, this would encourage mining industrialization, thereby boosting the industry’s contribution to economic diversification.

  • Low costs of extraction and presence of global firms;

The high cost of mining in developed countries has forced major global companies to seek investment opportunities in Africa, which offers relatively low costs of production. For instance, BHP Billiton, the world’s largest mining group, has cancelled about USD40 billion projects in Australia mainly due to high costs, including labour-related expenses. Such costs have led to an increased presence of multinational mining companies in Africa. This includes the world’s biggest companies such as BHP Billiton, Rio Tinto, Anglo American and Xstrata. More than 200 Australian companies are currently operating more than 650 projects across 37 African countries. The emergence of major Asian investors in mining also provides additional opportunities for investor diversification in African countries. In particular, China and India have recently boosted their investments in the continent’s metals and minerals sector. These investments are critical for boosting mineral production and value-added processing. They also provide an impetus for scaling up infrastructure development, especially in energy and transport to meet the growing demand from investors.

  • An urgent need to industrialize the mining sector;

Most African mining products are exported as raw materials. This reflects the low level of industrialization of the continent’s mining sector. Accelerated structural transformation could benefit from mineral processing and value-added manufacturing linked to the mining sector. However, this would require attracting technology and skills from mature markets in order to improve the quality of mineral products. By improving the quality of mineral product exports, African countries could generate additional revenues that would be deployed into other economic sectors. This is essential for employment creation and improvement of living conditions of the people. However, this will require deeper reforms and implementation of effective strategies specifically aimed at making the mining sector a key player in economic transformation. Proactive and deliberate government actions are pivotal to the success of Africa’s industrialization strategy.

What Africa needs to do in enhancing mining operations;

  • Provide policy certainty.The goal is to give international investors greater confidence in the continent and encourage their investment. To achieve certainty, the governments should—as much as possible—legislate mining regulations with the active support of the mining industry.
  • Strengthen security of tenure. Africa’s processes for granting, amending, and renewing mineral rights are complex. To guarantee objectivity and consistency, subjective criteria for granting and revoking rights connected with social and labour plans should be replaced with legislation.
  • Improve the mineral rights application process. Ongoing legal and political struggles to clarify and solidify the government’s mining policies, high fatality rates, and contentious labour relations all weigh on investor confidence. Timelines associated with the application process are uncertain, and regional offices have differing criteria. Ensuring consistency could be achieved by introducing a computerized cadastre system that traces ownership details, and mining and water license applications.
  • Update geological mapping. The governments, which has already started to remap Africa’s geological profile, should work with business to create an up-to-date online database that includes the most recent data on deposits that have become economically viable through technological advances. Africa can learn from nations such as Canada, which uses Flow Through Shares (FTS) to encourage investment. FTS allows corporations to pass on exploration expenditure as a tax-deductible expense to shareholders. Well-established financing alternatives also include private equity and metal streaming arrangements.
  • Focus on infrastructure and logistical bottlenecks. Governments should provide a regulatory framework for building public-private partnerships, and industry should provide its support by sharing infrastructure assets across commodity classes to increase output, as well as provide funding for those partnerships.
  • Improve technological competitiveness. Technological advances are already revolutionizing mining, and investment in research and development by both governments and industry in areas such as machine learning, drones, and mechanized mining can improve safety and reduce costs.

What are the effects of mining on the African countries?

For centuries towns were been built around mines all over Africa. These towns housed families and had facilities like electricity and water, housing, shops, hospitals and schools. People moved from afar to live in mining towns where there were employment opportunities, and towns soon expanded to accommodate a growing industry. Over the course of several years mining was considered as an industry that brought much needed economic wealth and prosperity to African countries.

How Foreign Direct investments (FDI) partnerships, joint ventures can optimize mineral mining in Africa

Foreign direct investment (FDI) in extractive holds enormous potential to finance infrastructure development and projects needed for sustainable economic growth and poverty reduction. Since the 1980s, mining regulations have mainly been directed towards attracting greater foreign investment through amended labor and social policies and more private sector-friendly ownership and taxation schemes. However, these policies have not brought development benefits or redressed development challenges as much as hoped, despite rising mineral prices in recent years. Consequently, governments are renegotiating contracts and revising mining codes, seeking more inclusive FDI which fosters various types of linkages with the host economy to generate job creation not only upgrading upstream and downstream in value chains, but also to spur broader spill-overs on the host economy.

This shift grows out of recent developments in MNEs’(Multinational Enterprises) strategies and capabilities that open new opportunities for linkage formation in African extractive:

  1. The rise of new players (China, South Africa, India, Brazil), as well as from within Africa, creates growing competition for extractive concessions, strengthening the bargaining power of host governments to encourage investors to create more local linkages.
  2. MNEs are restructuring their value chains by “outsourcing” non-core activities in order to reduce costs, spread risks, benefit from specialization and tap into the resources of other firms. This reconfiguration provides new opportunities for local firms to break into the value chains of extractive MNEs and build linkages with the host economy.
  • MNEs increasingly view linkage development programs as a strategic tool to enhance their competitiveness and/or as part of their CSR programs. These programs typically include local procurement policies, training and education activities, or programs involving local companies in building infrastructure.