Sub-Saharan Africa economy: Digging deepJanuary 30th 2006...

Sub-Saharan Africa economy: Digging deep
January 30th 2006


COUNTRY BRIEFING

FROM THE ECONOMIST INTELLIGENCE UNIT

Mining houses are engaged in a new scramble for Africa. Buoyed by forecasts that higher metal and energy prices are set to persist, for the next five years at least, not to mention the fact that gold and platinum prices have reached 26-year highs, and copper is reaching new peaks, prospectors, developers and investors are looking at greenfield and expansion projects, as well as higher-risk locations and schemes. Last year, John Borshoff, the chief executive of Australia’s Paladin Resources, told an investment conference that the current resource boom will “redefine Africa”.

Of course, such comments have been made before, notably in the lead-up to the commodity price peaks of 1973-74 and the subsequent gold boom of 1979-82. On both those occasions, however, the commodity price boom soon faltered, and it is important to remember that the current boom is largely being driven by just two countries--the US and China. Equally, while metal prices rose 29% in 2005 to reach a new record high they are still some 27% off their 1974 peak after adjustment for inflation.

Perhaps for this reasons most African mining expansion is currently being carried out by more adventurous juniors and middleweights, with the major players tending to hang back, although this situation may not persist for very much longer. Gold is a hot favourite, given that its price has doubled to more than US$500 an ounce since 1999 and seems set to break through US$600/oz during 2006.

In Burkina Faso another junior, AIM Resources of Australia, is opening up the Perkoa zinc mine, which it bought from South Africa’s Metorex. According to AIM Resources’ managing director, Marc Flory, finance is the “sole remaining hurdle” to developing the mine. The company has appointed Barclays Capital as its financial adviser to raise the US$73m needed. Perkoa has an estimated mine life of 14 years and, if all goes to plan, should become fully operational during 2007.

AIM is also assessing the Mumbwa iron oxide, copper and gold property in Zambia, but this project is simply too big for a small company. Accordingly, AIM has entered into a joint-venture agreement with BHP Billiton, which is entitled to take up an 80% stake in Mumbwa should the feasibility study prove positive. In South Africa, however, AIM's Mokopane platinum project is on hold. According to Mr Flory, Mokopane is the company’s “least preferred asset” because--surprisingly at a time when optimism in the country is rising--he believes that the investment environment in South Africa is deteriorating. In sharp contrast, he sees Perkoa in Burkina Faso as a “potential company maker”.

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