Engineering & Mining Journal

MAR 2016

Engineering and Mining Journal - Whether the market is copper, gold, nickel, iron ore, lead/zinc, PGM, diamonds or other commodities, E&MJ takes the lead in projecting trends, following development and reporting on the most efficient operating pr

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46 E&MJ; • MARCH 2016 www.e-mj.com M I N I N G I N D A B A 2 0 1 6 last year, which emphasized government's positioning that the five months of strike action, which occurred during 2014 in the platinum sector, will never be allowed to happen again. This was the most promising message in today's keynote address because it should help to give international investors' confidence in the South African economy." Africa and the Current Commodities Bust Mark Cutifani, CEO of Anglo American, has thrown himself into the role of straight- talking Aussie at the helm of one of South Africa's iconic mining companies. In this he didn't disappoint, or hold back during his address. "At the start of 2013, the aggregated market cap of mining stocks in the FTSE all-share was $555 billion; on January 1 this year, that was down to $169 billion," Cutifani said in his opening remarks at the Indaba. "Global mining stocks have lost $1.4 trillion of market value since 2011… more than the combined value of Apple, Exxon/Mobil and Google." He touched on the international factors weighing on commodities, such as the slowdown of China's growth, and the gen- eral economic malaise across world mar- kets. However, he stated that the mining industry itself was largely to blame for its current predicament. Mining companies had raced to add production to meet what they thought would be ongoing growth in demand, while aiming to be "the last man standing" as competitors were driven out of business or bought out. "This strategy generally has a net negative effect," Cutifani said. The industry was fortunate in one respect, he noted: the physical nature of resources meant they were inherently lim- ited. Miners were aware of the difficulties in finding resources, where they were and how to bring them to market. "We, there- fore, have a pretty good idea of which ones will turn out to be the great mines of the next 100 years." The Indaba was given an Africanist per- spective by Lamido Sanusi, an investment banker who is also Nigerian royalty, holding the title of Emir of Kano. He is also a one- time Nigerian central bank governor, fired in 2013 for refusing to cover up a $20 bil- lion hole in the country's oil revenue fund, money that presumably disappeared into a murky network of corrupt officials. Addressing the Indaba in his colorful robes of office, Sanusi said African coun- tries had begun large spending programs to stimulate their economies, using resource revenue as a source of funding. "But as resource revenues declined, so did public sector wages and investment programs. A new model is needed." Countries such as Nigeria and Angola, which both depended heavily on oil for their national budgets, were especially hard hit. However, Africa as a whole continued to grow fast as its population passed 1 billion people, and its own demand for resources would contribute to the growth in mining. Around 30 mining projects would com- mence over the next decade, an investment of more than $18 billion, Sanusi said. Funding now though would be difficult to find: "China now will struggle to finance African projects at the pace it has in the past." Instead, he suggested seeking other sources of money, such as the Middle East, where financiers from the Gulf States were using Sukuk, or Islamic bonds, as a means to invest in other revenue streams to diver- sify away from oil dependency. Ultimately, the Indaba is about deal mak- ing, and although the lawyers and bankers were mostly keeping their checkbooks in their pockets, there were emerging signs of opportunity. An intriguing development is that private equity (PE) firms—usually asso- ciated with Wall Street buyouts—were now looking at the struggling mining sector. "PE firms prefer to get in at the bottom, and exit when the price is high," said Richard Blunt, a partner at Baker & McKenzie, a London-based law firm. "Usually, they look at a period of five to eight years—and we are now pretty much at the bottom of the cycle, so it's a tempting opportunity to get in now." These firms were now stalking dis- tressed assets and those being disposed of The Master Drilling team hopes to revolutionize shaft sinking with thier 600-ton blind borer concept. (Photo: Gavin du Venage) Former Nigerian Central Bank Governor Lamido Sanusi said Sukuk, a form of Islamic financing from the Gulf states, could be an alternative to Chinese investment. (Photo: Gavin du Venage)

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