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African Mining Outlook
 

African Mining Outlook

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    African Mining Outlook African Mining Outlook Document Transcript

    • June 2013Wonder Nyanjowa, Frost & Sullivan’s Mining Industry Analyst, Africa“50 Years of Growth, Innovation & Leadership”Global Developments Digging Deep into African MinesMarket Insight
    • Global Developments Digging Deep into African MinesMarket Insight© 2013 Frost & Sullivan Page 2IntroductionAfrica is home to a significant portion of the world’s mineral resources that includeplatinum group metals (PGMs) gold, coal, copper and iron ore. The continent is estimatedto hold approximately 30% of the world’s mineral resource deposits, has a population of 1billion people and is expected to deliver steady Gross Domestic Product (GDP) growth ofapproximately 5% annually between 2013 and 2018.The mining industry is a key driver of growth for many African economies and is a keysource of foreign currency and employment. It also provides a catalytic role for thedevelopment of the continent’s infrastructure network including ports, railways, and roads.In South Africa, the mining industry accounted for approximately 9% of the country’s GDPin 2012. In the past decade, rising commodity prices and a strong demand for mineralcommodities, particularly from China and India, resulted in resource rich African economiesgenerating billions of dollars in foreign exchange receipts. Ghana and Mozambique’s miningindustries accounted for approximately 60% and 66% of the two countries’ foreignexchange receipts respectively in 2012.The turbulent macro-economic environment experienced by the global economy since 2008has significantly depressed the demand for mineral commodities from the European Union,the United States, China and India. Slowing manufacturing activities in the developedeconomies have resulted in Africa’s platinum, copper, gold and coal mines suspending miningoperations in order to cut operating costs and secure the survival of mining companies.African economies have been experiencing reduced foreign exchange earnings, wideningcurrent account deficits and volatile exchange rates since 2008 due to weak commodityprices and a slowing demand for commodities from developed economies.Although the global economic uncertainties indicate a diminishing contribution of the miningindustry to African economies in the short term, the long term demand and supplyfundamentals for the mining industry are attractive. The global economy is expected tostart growing in the medium term and this will result in increased consumption of mineralcommodities.Growth Drivers of the African Mining IndustryThe industrialisation and urbanisation of China and India, population growth, rising globaldemand for energy, climate change, and sustainability are some of the macro-economicforces that will significantly affect the long term direction and growth path of Africa’smining industry. Regulatory certainty, compliance with health and safety regulations, andeffectiveness in managing operations are other factors that will have a significant bearing onhow Africa’s mining companies will build and sustain competitive advantage in globalcommodity markets.The urbanisation of China and India has been one of the most important drivers of growth
    • of Africa’s mining industry in the past decade, notes Frost & Sullivan. Between 1970 and2010, a total of 658 million people in China migrated to cities, while 360 million people inIndia moved to the cities during this period. The proportion of people living in towns andcities in China in 2011 had reached the urbanisation levels of the United Kingdom in 1850and the United States in 1920. The scope for further urbanisation of these two countriesis massive, thereby creating a large and growing market for commodities such as iron ore,coal, copper and steel. China’s share of global demand for iron ore and metallurgical coalincreased sharply from 26% and 39% in 2000 to 60% and 63% respectively in 2010. Chinahas overtaken the United States, and the European Union economies, to become the singlelargest consumer of coal, iron ore, copper and ferrochrome in the world. Africa’s miningindustry is uniquely positioned to take advantage of the rising demand for mineralcommodities from China and India, due to the warm and supportive trade relations betweenthe continent and the two countries.The United Nations Department of Economic and Social Affairs estimate that at currenturbanisation rates, China and India will have approximately 1 billion people and 600 millionpeople living in towns and cities respectively by 2030. The two countries present significantopportunities for commodity consumption in the future.The Chinese and Indian economies have grown at rates never seen by the world before,leading to massive production of manufactured goods such as automobiles, householdappliances, textiles and industrial equipment. The rapid transformation of Chinese andIndian economies, since 2000, has resulted in the two economies moving from apredominantly extractive sector base to manufacturing where value is added to primaryproducts. China and India’s combined contribution to global GDP rose from approximately8% in 1990 to approximately 26% in 2010.China’s annual car production grew sharply from 2 million units in 2000 to 14 million unitsin 2010. The country’s automobile production is expected to rise further to 35 millionunits by 2030. India’s annual car production grew steadily from 500,000 units in 2000 to3 million units in 2010. India is expected to produce approximately 15 million cars by 2030.The anticipated boom in vehicle production in the two countries will significantly increasetheir consumption of platinum used to manufacture auto-catalysts.China and India’s Gross Domestic Product (GDP) are expected to reach $11 trillion and$6.5 trillion respectively by 2030, thereby creating a large market for commodities such asiron ore, copper, coal and steel from Africa’s mines.The rapid industrialisation of China and India’s economies experienced in the past decade isonly the beginning of the story. The industrialisation levels currently being experienced inChina are equivalent to where Japan was in 1950. The industrialisation trend is expected tospread to other Asian nations such as South Korea and Thailand. The commodity intensivenature of China and India’s industrialisation process, Frost & Sullivan believes, will drive thegrowth of Africa’s mining industry for the foreseeable future.Global Developments Digging Deep into African MinesMarket Insight© 2013 Frost & Sullivan Page 3
    • Global Developments Digging Deep into African MinesMarket Insight© 2013 Frost & Sullivan Page 4Urbanisation and Infrastructure DevelopmentThe world’s population grew from 5.5 billion people in 1990 to 7 billion people in 2010.Power, water, transportation and telecommunications infrastructure in many countries needto be upgraded to cope with the increasing demand for basic services from the population.A total of $42 trillion is expected to be spent across the globe by governments andmunicipalities in upgrading water, energy, transportation and telecommunicationsinfrastructure between 2005 and 2030. Asia is expected to spend $16 trillion oninfrastructure development while Europe and South America are projected to spend$9 trillion and $8 trillion respectively between 2005 and 2030. The Raw Materials Group(RMG) expects the global demand for iron ore to increase from 1.9 billion tonnes in 2010to approximately 3.5 billion tonnes in 2030. The World Steel Association (WSA) anticipatesthat global steel consumption will increase from 1.2 billion tones in 2010 to 3 billion tonesin 2030.China and India are projected to spend approximately $2.7 trillion and $1 trillionrespectively in upgrading water, roads, housing, rail and telecommunications infrastructurebetween 2012 and 2030. Increasing infrastructure spending by governments across the globeis expected to continue underpinning the consumption of mineral commodities such as ironore, copper and steel for the foreseeable future.The US Energy Information Administration (EIA) anticipates that the global demand forenergy will increase from 18,000 Terawatt hours (TWh) in 2010 to 35,000 TWh in 2030.This will result in a significant increase in the consumption of energy commodities such ascoal and uranium. Africa’s mines supply a significant portion of the coal and uranium usedin generating electricity globally. Coal, which accounted for 35% of total energyconsumption in the 1970s, is projected to account for approximately 69% of total energyconsumption by 2030.New Business ModelsMining is a capital intensive, long term and technology driven business. Africa’s miningcompanies require stable and predictable regulatory frameworks, compliance with health andsafety regulations, and effective and efficient operations in order to build and sustaincompetitive advantage. The rapidly changing global economy, increasing emphasis onproductivity and optimal asset utilisation require mining companies to adapt in order todeliver value to shareholders. Africa’s mining industry will need to adopt new businessmodels underpinned by high productivity, cost control, compliance with health and safetyregulations in order to cope with the changing fundamentals in the global mining industry.Africa’s mining companies are inter-dependent with the communities they serve andcountries they operate in. There have been increased calls from African governments formining companies to contribute significantly to the socio-economic development of
    • Global Developments Digging Deep into African MinesMarket Insightcommunities that are affected by mining activities. Mining companies have the opportunityto contribute to the economic prosperity of the communities and countries they operatein by employment creation, skills and training investment, and the payment of taxes androyalties to governments. These companies are facing increasing pressures to developbusiness and social partnerships based on mutual value creation with local communities,governments and other interested stakeholders.The Mine of the Future in AfricaExisting ore bodies in Africa are estimated to be exhausted in the next 25 years to 40years, leaving behind deep level ores in remote areas that are more geologically complexto extract. Extremely challenging environments such as remote locations, tough oreconditions (hardness of rock, thickness of overburden), mining at great depths andenvironmentally sensitive areas are envisioned to be the operating conditions of the mineof the future. It is forseen that mines will be automated and totally integrated with fielddevices (sensors, actuators, motors and drives). Control solutions (DCS, SCADA),Manufacturing Execution Systems (MES), ERP and SAP would be integrated to develop aconstant stream of information from which strategic and tactical decisions could be made.Mines will be using intelligent machinery and equipment for rock blasting and drilling, as wellas intelligent transportation and logistics systems. These changes will increase operationalefficiency, reduce costs and maximise productivity of mines.ConclusionThe mining industry plays a key role in the provision of infrastructure, energy, housing, andtransportation solutions to the continent. Frost & Sullivan concludes that the future ofAfrica’s mining industry is dependent on the opportunities offered by the global macro-economic forces of development, and how mining companies will respond and positionthemselves in order to take advantage of these opportunities.About Frost & SullivanFrost & Sullivan, the Growth Partnership Company, works in collaboration with clients toleverage visionary innovation that addresses the global challenges and related growthopportunities that will make or break today’s market participants. For more than 50 years,we have been developing growth strategies for the Global 1000, emerging businesses, thepublic sector and the investment community. Is your organisation prepared for the nextprofound wave of industry convergence, disruptive technologies, increasing competitiveintensity, Mega Trends, breakthrough best practices, changing customer dynamics andemerging economies?CONTACT US • +27 (0) 21 680 360 • www.frost.com