Challenges in the Southern African mining sector

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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.

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Challenges in the Southern African mining sector

  1. 1. Challenges in the Southern Africa MiningSectorFactors hindering growth in the Southern African mining sectorNeelofar ShariffMining Research Associate24th April 2013
  2. 2. Today’s PresenterFunctional Expertise Particular expertise in:- Collecting primary and secondary data- Research and project delivery for consulting projects- Monitoring and EvaluationWhat I bring to the Team- Ability to work efficiently under pressure and as well as in a deadline drivenenvironment- Excellent research methodology and researching skills- Highly motivated and results driven- A positive and professional work ethicCareer Highlights- Internships in the financial industry including retail bank and foreign exchangebureau- Investment director for the Do-it foundation- Owner of pay-per click start up businessEducation- Honours in Financial Analysis and Portfolio Management from the University ofCape Town, Cape Town (South Africa)- Bachelor of Commerce (Economics and Finance) from the University of Cape Town,Cape Town (South Africa)Neelofar ShariffMining researchassociate
  3. 3. 3124Going forward5Overview of the Southern Africa mining sectorKey challenges facedImpact mapping of key challengesConclusionCEO 360 Degree6Focus Points:
  4. 4. Overview Of The Southern Africa Mining SectorCCCrResource Share of Global ReservesPlatinum 88%Chromium 84%Diamonds 48%Gold 35%Coal 15%Copper 5%Mineral Resources in Southern Africa, 2012Mineral Resources Distribution (Southern Africa), 2012Southern Africa has a vast mineral resource base and is the only region in Africa that hostsplatinumPlatinumGoldCoalDiamondsKey :
  5. 5. Key Statistics of The Southern Africa Mining SectorMozambiqueMining sectorcontribution (GDP)3.0%Mining contributionto foreign exchange35.0%Key commodities Coal, TitaniumInvestment trendZimbabweMining sectorcontribution (GDP)13.0%Mining contributionto foreign exchange40.0%Key commodities Platinum, DiamondsInvestment trendZambiaMining sectorcontribution (GDP)11.0%Mining contributionto foreign exchange60.0%Key commodities Copper, CobaltInvestment trendSouth AfricaMining sectorcontribution (GDP)8.0%Mining contributionto foreign exchange50.0%Key commodities Coal, Gold, PlatinumInvestment trend
  6. 6. Key Mining Companies In The Southern Africa Mining SectorSouth AfricaPlatinumGold CoalZambiaCopperZimbabwePlatinumCoalMozambiqueGoldIncreased investment by existing and new mining houses is projected to drive growth of theSouthern African mining sector by 6.0% annually
  7. 7. Southern African Mining Sector Challenges, 2012-2018
  8. 8. Key Challenges: Resource NationalismIndigenisation lawin ZimbabweImplementation ofrental tax in SouthAfricaResource nationalism continues to pose a high risk as governments go above and beyondtaxation to attain sustainable benefits from the mining sectorIncreased miningroyalties in ZambiaTransformation ofmining industryResource Nationalism
  9. 9. Key Challenges: Safety ConcernsCompanies notmeeting fatality ratetargetsMechanisationimperative for safetyin operationsMechanisationvsJob creationIn order to improve safety measures mining companies will need to dedicate a portion ofearnings to new capital expenditure to ensure a lower fatality rate in future operations
  10. 10. Key Challenges: Cost InflationOver 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 anaverage of 10.0%-12.0% over the next five yearsIncrease inlabour costsIncrease inenergy costsIncrease ininput costs
  11. 11. Key Challenges: Infrastructure ChallengesInfrastructure ChallengesPort CapacityConstraintsInsufficient TransportationInfrastructureThe inadequate infrastructure has lead to companies halting production as there is no channel throughwhich commodities can be transported to export markets
  12. 12. 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 operatingcosts for mining companies• It is imperative that mining companies adopt more environmentallyfriendly practices to maintain shareholder standing and to achievesustainable operations
  13. 13. Key Challenges: Electricity Supply ShortagesTotal electricity supply and projected growth indemand (2012)• The Southern Africa region isexperiencing significantshortages of base-loadelectricity supply• South Africa and Zimbabweare the most effected due tolack of investment in powergeneration and distributioninfrastructure• Electricity shortages haveresulted in miningcompanies reducingproduction capacityCapacityMwSource: Frost & Sullivan050010001500200025003000-5 00010 00015 00020 00025 00030 00035 00040 00045 000Mozambique South Africa Zimbabwe ZambiaInstalled Capacity (Mw) Deficit
  14. 14. Unimportant CriticalVery UncertainVery CertainInfrastructureChallengesCost InflationResourceNationalisationChallengesElectricity ShortagesSource: Frost & Sullivan.Impact Mapping Of Challenges FacedSafetyConcernsEnvironmentalConcernsChallenge 1–2 Years 3–4 Years 5–7 yearsResource nationalism High High HighSafety concerns High Medium MediumCost inflation High Medium MediumInfrastructure challenges High Medium MediumEnvironmental concerns Medium Medium MediumElectricity shortages Medium Medium Medium
  15. 15. Strategic conclusionsIncreasedoperating costpressuresThe Southern Africa mining sector will have increased operating expenses. Thiswill add pressure on operating margins which will lead to a decrease inprofitabilityStoppage ofproductionHigh 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 sectorBias in decisionmakingIncreasing government interference resulting in mining companies makingdecisions on what is politically acceptable than taking into account commercialconsiderations. Examples include Zimplats in Zimbabwe Anglo American in South Africa Gemfields in ZambiaConclusions
  16. 16. Going forwardRe-evaluation of high cost and non-coreBusiness unitsSustainable cost reduction processesForming key partnershipsOutlook For The FutureDiversified mineral portfolio
  17. 17. Next Steps17Develop Your Visionary and Innovative SkillsGrowth Partnership ServiceShare your growth thought leadership and ideas orjoin our GIL Global CommunityJoin our GIL Community NewsletterKeep abreast of innovative growth opportunities
  18. 18. Your Feedback is Important to Us18What would you like to see from Frost & Sullivan?Growth Forecasts?Competitive Structure?Emerging Trends?Strategic Recommendations?Other?Please inform us by “Rating” this presentation.
  19. 19. Follow Frost & Sullivan on Facebook, LinkedIn, SlideShare,and Twitter19http://www.facebook.com/FrostandSullivanhttp://www.linkedin.com/companies/4506http://www.slideshare.net/FrostandSullivanhttp://twitter.com/FrostsullivanSA
  20. 20. 20For Additional InformationSamantha JamesCorporate Communications+27 (0)21 680 3574Samantha.james@frost.comNeelofar ShariffResearch AssociateMining+27 (0)21 680 3572Neelofar.shariff@frost.comJames MaposaResearch ManagerMining+27 (0)21 680 3203James.maposa@frost.comGuillaume de BassompierreBusiness Development DirectorMining(+27 (0)21 680 3203Guillaume.deBassompierre@frost.com

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