challenges in the southern african mining sector
DESCRIPTION
The Southern African mining sector is expected to drive economic growth for its respective countries in the coming years. The region has been a key area of investment from international companies due to the large amount of untouched reserves available.TRANSCRIPT
Challenges in the Southern Africa Mining
Sector
Factors hindering growth in the Southern African mining sector
Neelofar Shariff
Mining Research Associate
24th April 2013
Today’s Presenter
Functional Expertise
Particular expertise in:
- Collecting primary and secondary data
- Research and project delivery for consulting projects
- Monitoring and Evaluation
What I bring to the Team
- Ability to work efficiently under pressure and as well as in a deadline driven environment
- Excellent research methodology and researching skills
- Highly motivated and results driven
- A positive and professional work ethic
Career Highlights
- Internships in the financial industry including retail bank and foreign exchange bureau
- Investment director for the Do-it foundation
- Owner of pay-per click start up business
Education
- Honours in Financial Analysis and Portfolio Management from the University of Cape Town, Cape Town (South Africa)
- Bachelor of Commerce (Economics and Finance) from the University of Cape Town, Cape Town (South Africa)
Neelofar Shariff
Mining research associate
3
1
2
4
Going forward5
Overview of the Southern Africa mining sector
Key challenges faced
Impact mapping of key challenges
Conclusion
CEO 360 Degree6
Focus Points:
Overview Of The Southern Africa Mining Sector
C
C
Cr
Resource Share of Global Reserves
Platinum 88%
Chromium 84%
Diamonds 48%
Gold 35%
Coal 15%
Copper 5%
Mineral Resources in Southern Africa, 2012Mineral Resources Distribution (Southern Africa), 2012
Southern Africa has a vast mineral resource base and is the only region in Africa that hosts platinum
Platinum
Gold
Coal
Diamonds
Key :
Key Statistics of The Southern Africa Mining Sector
Mozambique
Mining sector contribution (GDP)
3.0%
Mining contribution to foreign exchange
35.0%
Key commodities Coal, Titanium
Investment trend
Zimbabwe
Mining sector contribution (GDP)
13.0%
Mining contribution to foreign exchange
40.0%
Key commodities Platinum, Diamonds
Investment trend
Zambia
Mining sector contribution (GDP)
11.0%
Mining contribution to foreign exchange
60.0%
Key commodities Copper, Cobalt
Investment trend
South Africa
Mining sector contribution (GDP)
8.0%
Mining contribution to foreign exchange
50.0%
Key commodities Coal, Gold, Platinum
Investment trend
Key Mining Companies In The Southern Africa Mining Sector
South Africa
PlatinumGold Coal
Zambia
Copper
Zimbabwe
Platinum
Coal
Mozambique
Gold
Increased investment by existing and new mining houses is projected to drive growth of the Southern African mining sector by 6.0% annually
Southern African Mining Sector Challenges, 2012-2018
Key Challenges: Resource Nationalism
Indigenisation law in Zimbabwe
Implementation of rental tax in South
Africa
Resource nationalism continues to pose a high risk as governments go above and beyond taxation to attain sustainable benefits from the mining sector
Increased mining royalties in Zambia
Transformation of mining industry
Resource Nationalism
Key Challenges: Safety Concerns
Companies not meeting fatality rate
targets
Mechanisation imperative for safety
in operations
Mechanisationvs
Job creation
In order to improve safety measures mining companies will need to dedicate a portion of earnings to new capital expenditure to ensure a lower fatality rate in future operations
Key Challenges: Cost Inflation
Over the last decade cost inflation in the mining sector has averaged 5.0%-7.0% per annum and this trend is expected to continue increasing by an average of 10.0%-12.0% over the next five years
Increase in labour costs
Increase in energy costs
Increase in input costs
Key Challenges: Infrastructure Challenges
Infrastructure Challenges
Port Capacity Constraints
Insufficient TransportationInfrastructure
The inadequate infrastructure has lead to companies halting production as there is no channel through which commodities can be transported to export markets
Key Challenges: Environmental Concerns
• Mining activities produce negative externalities to the environment suchas waste, land degradation
• Compliance of stringent mining legislation has led to increased operating costs for mining companies
• It is imperative that mining companies adopt more environmentally friendly practices to maintain shareholder standing and to achieve sustainable operations
Key Challenges: Electricity Supply Shortages
Total electricity supply and projected growth in
demand (2012)
• The Southern Africa region is experiencing significant shortages of base-load electricity supply
• South Africa and Zimbabwe are the most effected due to lack of investment in power generation and distribution infrastructure
• Electricity shortages have resulted in mining companies reducing production capacity
C
a
p
a
c
i
t
y
M
w
Source: Frost & Sullivan
0
500
1000
1500
2000
2500
3000
-
5 000
10 000
15 000
20 000
25 000
30 000
35 000
40 000
45 000
Mozambique South Africa Zimbabwe Zambia
Installed Capacity (Mw) Deficit
Unimportant Critical
Very Uncertain
Very Certain
InfrastructureChallenges
Cost Inflation
Resource Nationalisation
Challenges
Electricity Shortages
Source: Frost & Sullivan.
Impact Mapping Of Challenges Faced
Safety Concerns
Environmental Concerns
Challenge 1–2 Years 3–4 Years 5–7 years
Resource nationalism High High High
Safety concerns High Medium Medium
Cost inflation High Medium Medium
Infrastructure challenges High Medium Medium
Environmental concerns Medium Medium Medium
Electricity shortages Medium Medium Medium
Strategic conclusions
Increased operating cost
pressures
The Southern Africa mining sector will have increased operating expenses. Thiswill add pressure on operating margins which will lead to a decrease inprofitability
Stoppage of production
High costs coupled with inadequate infrastructure will lead to production halts inmines. This will have knock-on effects on the country’s GDP in terms of
Employment of mine workers Revenues earned by mineral sector
Bias in decision making
Increasing government interference resulting in mining companies making decisions on what is politically acceptable than taking into account commercial considerations. Examples include
Zimplats in Zimbabwe Anglo American in South Africa Gemfields in Zambia
Conclusions
Going forwardRe-evaluation of high cost and non-core
Business units
Sustainable cost reduction processes
Forming key partnerships
Outlook For The Future
Diversified mineral portfolio
Next Steps
17
Develop Your Visionary and Innovative Skills
Growth Partnership ServiceShare your growth thought leadership and ideas or
join our GIL Global Community
Join our GIL Community Newsletter
Keep abreast of innovative growth opportunities
Your Feedback is Important to Us
18
What would you like to see from Frost & Sullivan?
Growth Forecasts?
Competitive Structure?
Emerging Trends?
Strategic Recommendations?
Other?
Please inform us by “Rating” this presentation.
Follow Frost & Sullivan on Facebook, LinkedIn, SlideShare,
and Twitter
19
http://www.facebook.com/FrostandSullivan
http://www.linkedin.com/companies/4506
http://www.slideshare.net/FrostandSullivan
http://twitter.com/FrostsullivanSA
20
For Additional Information
Samantha James
Corporate Communications
+27 (0)21 680 3574
Neelofar Shariff
Research Associate
Mining
+27 (0)21 680 3572
James Maposa
Research Manager
Mining
+27 (0)21 680 3203
Guillaume de Bassompierre
Business Development Director
Mining
(+27 (0)21 680 3203