• Invest in the right relationship

  • Share in the insights of our mining experts

  • Unearth success. prosper.

Mining Indaba Preview

Stephen van Coller

Each year, the Mining Indaba finds the mining industry at a crossroads where there are cyclical and new challenges that need to be addressed. However, this year we have been met by unprecedented market volatility and a drastic decline in commodities, as well as an economic downturn coupled with high inflation rates and significant changes in mindset for infrastructure projects in emerging countries.

Therefore much of the discussions at this year’s Indaba will be about whether prices will soon recover or, as some suspect, it could be some months before the market turns. Those views have important implications for investments, disposals, mergers and acquisitions and the prospects for new mining initiatives.

However, there is still cause for optimism, particularly in some emerging markets like South Africa, as the weakness of local currencies against the US dollar is creating a revenue windfall for companies and investors. This presents a major opportunity for formerly static companies to deleverage or to pay dividends to investors, creating a positive ripple effect for various players in the industry.

In the accompanying preview, Barclays Africa offers the perspective of our mining and banking experts on potential developments in 2016 as well as the factors affecting those developments. What is clear, is that mining is a long-term business and the key to managing the downcycles is collaboration and partnership.

We look forward to partnering with our clients to find the best possible solutions for their businesses, and the industry and the continent will continue to be our primary focus, whatever 2016 holds. Mining is cyclical, and our team has helped clients to successfully negotiate previous booms and busts. We believe that strong partnerships will, yet again, be a key element in managing the current cycle.

I hope that the insights on the following pages will help bring the global mining industry into focus and help you assess the factors that will influence the industry in 2016 and beyond.

To see full article click here
Minimize article

A few bright spots amid mining industry gloom

By Stephen van Coller

After a year in which many commodity prices halved, the start to 2016 has brought further woes to the mining industry, as renewed tensions in the Middle East and North Korea, and continuing emerging-market weakness led by China, have driven commodity markets even lower.

With no sign that commodity prices have bottomed, 2016 begins as a gloomy year for the industry. However, it’s not all bad news – for some sectors, and particularly the gold industry in South Africa, things are looking up.

As discussions at the Investing in African Mining Indaba in Cape Town will show, the industry might be down but it’s very far from out. It has been an important factor in global economies for more than a century and this certainly will not change in the near future.

Mining will in fact survive the current downturn, with some sectors strengthened by the proactive measures they have taken during one of the worst slumps the industry has faced. The cycle will turn again, prices will rise, and exploration, expansion and investment will resume. Mining is a long-term, cyclical industry and it is important not to lose sight of that.

As quantitative easing gets properly phased out, market volatility will continue until the free market determines the true price of assets. I believe there is enough diversity in investment strategies globally for the markets to be able to normalise properly over time. Riding out the volatility will be key to survival.

Consolidation and M&As present opportunity

In the short to medium term, however, many companies are focused on survival. As a result, there may well be a rise in merger and acquisition (M&A) activity in mining this year as non-core assets are sold off and consolidation results in companies being bought or sold.

This is good news for smaller companies hoping to expand, and for investors who are looking to get into the industry. For junior and mid-tier mining companies, sell-offs by the majors offer the opportunity of acquiring assets they can focus on and develop. This can be very profitable, as has been shown by companies like Petra Mining and Sibanye Gold, while Harmony started out in this way.

For select producers debt capital and an appetite to lend are still available – both for development through project finance and for direct balance sheet lending. At Barclays Africa, we have continued to see real lending opportunities across the continent.

We also remain optimistic about the availability of private equity funds, which have taken longer than expected to become available, but deals are being made.

Gold offers a potentially bright spot

Gold is another potentially bright spot, particularly in South Africa. Gold mines have experienced a surge in revenue because of the devaluation of the rand against the US dollar. As gold is priced in dollars, any drop in the gold price has been more than made up by the increasing rand price received for each ounce of gold. And when the dollar gold price rises, the effect is even more pronounced.

Gold mines are also well positioned for the year ahead as they have spent the past two years cutting costs, slimming down and reducing debt wherever they can. In other sectors, for example platinum, mines have not been able to reduce costs to the same extent, and increased rand revenue is not having the same impact on profitability.

The rand devaluation will eventually impact on mining costs such as imported capital equipment, and as inflation affects other costs, including labour. However, gold mines are enjoying a windfall at the moment. This presents a major opportunity for formerly static companies to deleverage or to pay dividends to investors, creating a positive ripple effect for various players in the industry.

To see full article click here
Minimize article

African Mining Outlook

by Miriam Mannak

Last year was expected to be a turning point for Africa’s mining and commodity sector. Various developments including a slump in China’s economy, however, brought that anticipation to a screeching halt. Analysts expect this year to be challenging but not impossible.

The initial 2015 forecast for Africa’s extractive industries was cautiously optimistic. With the post-crisis recovery of western economies in mind, and of course a booming China, the demand for platinum, iron ore, and other resources was expected to grow. This would lift commodity prices, lead to greater economic growth rates, and foster foreign direct investment – particularly in resource-rich Africa.

Things didn’t go as planned. In the second quarter of last year, China’s economic growth rates started to slow down, impacting global demand and the production of metals, minerals, gem stones, and oil. “The uncertainty that came with [China’s slowdown] was the big new feature last year in mining, particularly from a demand perspective,” explains Michael Rawlinson, Global Co-Head of Metals and Mining at Barclays.

“2015 was supposed to be a turning point for the African mining sector after a difficult couple of years,” he continues. “Halfway through the year it became clear that this was not going to happen, despite satisfactory performances of various countries that are part of the Organisation for Economic Co-operation and Development (OECD).”

To see full article click here
Minimize article

Falling demand at Mining Indaba

Allan Seccombe

ALL eyes will be on SA’s third mines minister in three years when he addresses the annual Mining Indaba in Cape Town on Monday morning against the backdrop of enormous regulatory uncertainty, global turmoil in commodity prices and a host of cost and labour pressures in the industry.

This week’s Mining Indaba, which will be attended by about 6,000 delegates compared to last year’s 7,000, comes at a particularly difficult time for the global mining sector, and the domestic industry in particular. Slowing demand from China — once the engine of commodity-demand — and an oversupply of some commodities is pushing prices down, severely straining companies’ balance sheets.

In SA, the sector is not only contending with international pressures, but also regulatory uncertainty, with the long-delayed bill amending the Mineral and Petroleum Resources Development Act returned to Parliament by President Jacob Zuma over concerns that certain clauses could raise constitutional and legal challenges.

THE Mining Charter, already in its second iteration, will also be revised this year by the Department of Mineral Resources and major stakeholders. Mineral Resources department director-general Thibedi Ramontja resigned unexpectedly at the end of last year, not long after Ngoako Ramatlhodi was removed suddenly and replaced by Mineral Resources Minister Mosebenzi Zwane.

Zwane courted controversy by travelling to Switzerland to visit Glencore with a delegation from Gupta-owned Tegeta Exploration and Resources to negotiate the purchase of the global commodity group’s Optimum Colliery. The Gupta family is close to Zuma and his family. Zwane said his involvement in the purchase was aimed at saving jobs at the colliery.

Indaba delegates will want to hear what the department plans to do about the regulations; whether it can placate investors worried about the investment environment in the mining sector; and their concerns about corruption and infrastructure constraints including electricity and water.

The market wants to hear what strategy Zwane and the department have in mind, how it would execute those plans, and a time frame, says Jacques Erasmus, head of mining at KPMG.

"Everybody is there and people go with an open mind to hear what people have to say, so it’s a good platform for the minister to have," he says.

Zwane, who has said a review of the Mining Charter would be completed by the end of April, says he has a clear message to deliver at indaba.

To see full article click here

Dark clouds gather for South Africa's miners

James Wilson and Andrew England

Fears over job losses as industry grapples with toughest condition for years

It is one of the mining industry's historic heartlands and is endowed with some of the world's richest mineral deposits. But right now South Africa is a place where some of the largest miners in the world are reluctant to do business.

More than 600 job cuts announced last week by South32, the Australian mining company that was last year spun out of BHP Billiton, are the latest indication of how South Africa is bearing the brunt of the worst commodities downturn in more than a decade. In total, 32,000 mining jobs in the country, about 6 per cent of the industry workforce, are subject to formal consultations that could lead to redundancies.

This will provide a bleak backdrop on Monday to the start of the Mining Indaba, one of the world's leading conferences for mining executives and investors. As well as South32's redundancies at its South African manganese mines, Lonmin is cutting 6,000 jobs at its platinum shafts in the country.

Anglo American is this month expected to give more detail of how it intends to make unprecedented reductions to its operations and workforce, with South Africa likely to be heavily affected. The company has begun consulting on 4,000 job cuts at Kumba Iron Ore, one of its South African subsidiaries.

To see full article click here

Where passion and expertise meet, success will follow.

Follow daily updates from the 2016 Mining Indaba to gain valuable insights and knowledge about the mining landscape in Africa. Listen to experts as they share their experiences and predictions regarding mining and economic opportunities for the years ahead.

Copyright 2013 Corporate and Investment Banking, Absa, member of Barclays. All rights Reserved. Corporate and Investment Banking is a division of Absa Bank Limited, Reg No. 1986/004794/06. Authorised Financial Services Provider. Registered Credit Provider Reg No NCRCP7