Namibia, Botswana and Ghana among the world’s top ten mining investment destinations

Three African countries – Namibia, Botswana and Ghana – made it into global minerals industry advisory firm Behre Dolbear’s 2015 most attractive mining investment destinations survey for the second consecutive year.

The 25 countries considered in this year’s survey, as in the past, were ranked based on seven criteria, namely their political and economic systems, currency stability, social licence issues, permitting process, competitive taxation policies and corruption levels. Each criterion was rated on a numeric scale that reflects the relative conditions that impact on investment growth.

A score was calculated from the collective results of all seven criteria; this led to the relative rankings. The lower the numerical ranking, the lower the risk. Canada was ranked number one, followed by Australia, the US, Chile, Mexico and Peru, with Namibia achieving the best rating for an African country by coming in seventh, followed by Botswana at number eight and Ghana rounding out the top ten countries. Namibia went up two places in the rankings from the ninth place it achieved in the 2014 edition of the survey, while Botswana and Ghana retained their standings. Other African countries that made it into this year’s survey were Zambia (12), South Africa (13), Mozambique (17), Tanzania (20) and the Democratic Republic of Congo (25).

The survey noted that markets have taken a volatile downward trend in recent months creating concern for host country governments and miners alike. “Mineral prices have dropped over the past year. For example, iron-ore and coal prices have fallen by half. The market correction has led to a sharp decline in foreign direct investment, forcing the governments of countries hosting new production to reassess their recent goals of extracting more benefit from the industry,” states Behre Dolbear.

The firm says that there is a realisation that governments must be more accommodating to remain competitive internationally. Lower export-related tax receipts are putting pressure on governments to adopt more austere budgetary measures. The survey states that it takes six years, or more, before investors can expect returns from a greenfield mining construction project and that it can typically take ten years to discover, define and determine the feasibility of a project.

Behre Dolbear comments that long lead times heighten a project’s overall risk profile, making it difficult for companies to achieve the level of return required to compete with alternative asset classes for investment. The survey notes that mining companies are facing difficult challenges adapting to softening markets as their margins are “squeezed” and are disposing of noncore assets to conserve cash. Minerals markets continue to react to robust supply and moderating demand while also being negatively impacted on in dollar terms by the relative strength of the currency.

Political and economic stability concerns in China and within the Russian sphere of influence are leading to changing perceptions and expectations for future mineral demand, Behre Dolbear adds. The survey points out that the adverse impact that more restrictive US monetary policy places on minerals prices (denominated in US dollars) adds to the current uncertain outlook.

Nonetheless, Behre Dolbear states that supply disruptions are likely to buffer this negative price trend as the production risk-profile for maturing mines increases. “Ever since the 2008 financial crisis, investment in exploration has declined as surviving firms consolidated. Industry merger and acquisition served to build the resource base of surviving firms. Economic stimulus fuelled competition for assets inflating values until more restrictive monetary policy reversed this trend.” The firm says that it expects a prolonged market correction that will continue until supply concerns begin to influence markets.

However, it cautions that the post-stimulus recovery period might prove to be very taxing on the sector. Further, the survey states that governments of resource-rich countries continue to question foreign investment precedents, risking investor confidence, given the increasing strategic significance of nonrenewable mineral resources. Behre Dolbear believes that a sustainable minerals industry requires a substantial amount of ongoing, as well as new, capital investment.

“The opportunity cost incurred by countries that sought greater participation in the returns of internationally financed mining development grew throughout the commodity supercycle,” the firm points out, adding that this “exacerbated” political risk concern and limited investment demand. Behre Dolbear’s view is that political stability is derived from personal freedom and quality of life. “Political stability is essential to assure the availability of affordable mineral resources, which is a key requirement to improve the world’s standard of living.”

 Africa Focus

The survey states that African countries that have remained stable by addressing corruption and social issues have benefited from increased investment in infrastructure and mineral production. “More money from mineral development is going into infrastructure, social services and better governance.

In Sub-Saharan and West Africa, mineral deposits continue to attract interest from a variety of large and small listed public mining companies and private capital providers such as private-equity funds, State-owned enterprises and sovereign wealth funds. “Sub-Saharan Africa continues to be relatively stable by avoiding despotic, or totalitarian regimes, with the exception of Zimbabwe. South Africa is proving challenging for investors as infrastructure constraints grow amidst increasing political uncertainty,” Behre Dolbear concludes.


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