by Darryl Moss, GM, Distributors & Marketing Metso Mining and Construction Technology, Southern Africa
Mere mention of gold, silver, copper, nickel, cobalt, aluminum and iron, light up the eyes of investors. Resources stocks had an unprecedented bear run, driven by previously unheard of commodity prices in world markets. In the recession, commodity prices retreated, but have gradually recovered, and sometimes even surpassed 2008 levels; gold to around US$1250, platinum back around US$1650, copper showing some weakness, but still well above US$6000. Is this growth based in demand, fundamentals, PE ratios, or mere charts? Would these prices hold up, or are we heading for a plunge?
The major driver of the current commodity prices is known to be Chinese manufacturing expansion, but India is also important. Both propel the prices of copper, nickel, cobalt, vanadium and other metals and minerals to these dizzy heights. The major driver in these two countries is urbanisation, a process that the developed world went through decades or even centuries ago. A torrent humanity is pouring from backward, undeveloped, poor rural areas to their Eldorado or Egoli, cities paved with golden opportunities. In China alone, the flow of humanity is so vast that it requires the equivalent of the construction of a new town of 250 000 daily, to house refugees from rural poverty. India is not far behind. The raging river of people converts into demand for copper wire, steel reinforcing, construction materials, telephones, taps. This exodus will continue for at least five years, possibly longer.
Freeing up of economies in previously communist countries such as China and central Europe, and a rapidly growing middle class in India, has created a significant and growing number of households with relatively high disposable income. Demand for cars, TV's, washing machines and travel is rising. Demand for dowry gold, luxury goods, and jewellery has also expanded dramatically.
Primary investors in this sector are shareholders and boards of mining companies themselves. They used to put their money on long lead time, long payback, mining and processing assets, but are now investing in short and medium term projects too. Producers of commodities intimately know the demand for capital equipment to start new mines and processing plants, or to increase capacity in existing operations. Among mining projects in Africa alone, are 1 300 listed projects in exploration, brownfield, greenfield and capacity expansion. About two thirds of these already have allocated capital budgets, with an astounding investment value of US$90-b. Most African projects are in gold, numbering 522 projects, diamonds at 374 projects, copper at 121 projects, platinum at 86 projects, uranium at 80 projects, iron at 48 projects. Not far behind are nickel, zinc, aluminum, silver, lead, magnesium, chrome, cobalt, tungsten, vanadium, molybdenum and tin.
Many of these investments are in mines with short lifetimes. Nearly 15% of the projects are in mines with lifetimes of five years or less, and 45% in mines with projected lifetimes of between six and 10 years. Mining companies were traditionally involved in projects with lifetimes of 20 years or more, so they probably foresee high demand continuing in the short and medium term. Project investors are Anglo American Group at 37 projects, De Beers at 21 projects, followed by Goldfields, Harmony, Rio Tinto, Newmont and BHP Billiton.
Others include Barrick, Transhex, Etruscan, First Quantum and Mwana, and a host of others have between three to10 projects on the go; Aquarius Platinum, Firestone Diamonds, Golden Star, Iamgold, Paramount, Petra Diamonds, Resolute and Sylvania. Many of these are junior or even small mining companies, prepared to invest their scarce resources into Africa.
South Africa is the base for a significant number of these projects; 370 of the 1337, or nearly 30%, but second runs DRC at 92 projects, followed closely by Ghana, Botswana, Namibia and Tanzania. Zimbabwe remains well up, despite the difficult and unstable political situation there, with 57 projects, alongside Zambia, Mali, Niger and Burkina Faso. Also high in the rankings are Sierra Leone, Morocco, Guinea, Angola and Madagascar.
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