The State of African Mining - Chris Hinde, SNL Metals & Mining


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The State of African Mining

Speaker: Chris Hinde, Editorial Director, SNL Metals & Mining

Mining On Top: Africa - London Summit
24-26 June 2014 | London

Published in: Business, Technology
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  • Material drawn from SNL’s quarterly State of the Market: Mining and Finance Report.
  • Copyright
  • Three databases in one!
  • That’s us. Offering includes consulting and conferences/seminars.
  • Summary of the global and African mining markets, in six sections.
  • Commodity prices climbed in 2010 after the recession of 2008 and 2009. Prices peaked in 2011 and fell throughout 2012 before stabilising somewhat over the past year.
  • Nickel has done best recently (thanks to export restrictions by Indonesia); circa $19,300/t ($8.77/lb)
    Aluminum: $1,700/t ($0.77/lb)
    Zinc: $2,034/t ($0.92/lb)
    Lead: $2,070/t ($0.94/lb)
    Uranium: $29/lb
  • Exploration expenditure follows metals prices (this graph excludes coal and iron ore). The indexed metals price shown here is weighted by the percentage of exploration expenditure dedicated to gold, copper, nickel and zinc. Exploration for all metals was down 29% last year at $15.2 billion.
  • Junior spending has been particularly hard hit. Their budgets (represented by the brown line) fell 39% year-on-year in 2013, with their share of overall exploration falling to 34% from an all-time high of 55% in 2007.
  • Grassroots exploration (that portion of exploration dedicated to discoveries away from producing mines) has been on a long-term downtrend. However, it picked up slightly to a third of all exploration last year after falling steadily in the past ten years from over 40%.
  • This graph shows average exploration budgets (cf revenue) for the largest producers. Overall budgets fell to 2.6% of corporate revenue in 2013, down from 3.5% the previous year (but still well above the low of 1.5% in 2004).
  • Latin America remains the most important region for overall exploration.
  • Map shows distribution of drilling activity during the past two years (based on projects reporting assays).
    North America 29%, Latam 20%, Australia 19%, Africa 16%, Europe 9% and Asia 7%.
  • Regional split last year.
  • Exploration for gold has followed the metal price particularly closely.
    LEADING Indicator ?!
  • More recently, the price of gold has collapsed, and drilling activity was already falling.
    The chart illustrates the number of properties reporting drilling results each month.
  • As a result, there has been a sharp decline in projects reporting drilling results (quarter-on-quarter).
  • Resources discovered have been falling in recent years but new gold tonnages did increase in the December quarter, only to fall again in the three months to end-March.
  • Gold reserves (ie the more reliable deposit classification) have followed a similar trend to new gold resources.
  • In terms of projects where a mine development has been announced; only 95 projects were announced internationally* in 2013 (with planned life-of-mine capex of $38 billion), compared with 113 new projects (capex of $47 billion) in 2012, but there has been an improvement in capex commitments in the past three quarters.
    * Excludes Russia, China and India
  • Costs worse in 2012 but improved in 2013 (and so far this year).
  • Number of deals dropped to 62 in the March quarter (76 in December quarter) but the value of these deals rose 66% to $11.9 billion in the three months to end-March.
  • Looking at deals; geographically, China and Canada dominated in the March quarter; with the activity focused on copper and gold.
  • Turning to financing: Barely 6% of the companies raised 85% of the capital in the March quarter.
    There is a liquidity crisis for the junior companies.
  • Half of the industry has a market capitalisation of less than $10 million!
  • The State of African Mining - Chris Hinde, SNL Metals & Mining

    1. 1. The State of African Mining Chris Hinde Mining on Top, London June 25, 2014
    2. 2. IMPORTANT COPYRIGHT NOTICE The information in this document is subject to SNL Metals & Mining’s full copyright and entitlements as defined and protected by international law. All other rights are exclusively reserved to SNL Metals & Mining. All information in this file is owned by SNL Metals & Mining, and the copying or distribution of this information is strictly prohibited without the prior written permission and consent of SNL Metals & Mining. Unauthorized reproduction or distribution may result in severe civil or criminal sanctions pursuant to Canada, United States and other law. If you wish to distribute this information, contact Christina Twomey at © Copyright by SNL Metals & Mining 2014. All rights reserved. _______________________________________________________________________ SNL Metals & Mining represents the information obtained in this document has been collected and compiled in good faith from a variety of sources but makes no warranty as to the accuracy of the information from these sources.
    3. 3. Overview Commodity Prices Exploration and Development Centres of African Mining Production and Costs (Gold) Mergers and Acquisitions Financing
    4. 4. Bulk-Sector Prices Recession bites $92/t $74/t Thermal Coal FOB Richards Bay
    5. 5. Other Metals Faring Better Worst over?
    6. 6. Exploration v Metals Prices Exploration has been high (until recently) as drilling activity has followed prices for the past 25 years
    7. 7. Exploration: All Change Majors Juniors Gov’t / Other Intermediate Recession: Juniors short of funds
    8. 8. No Funds: Grassroots Work Suffers Grassroots Late Stage Minesite Recession bites
    9. 9. Major Producers OK Two-year blip during the recession
    10. 10. Regional Exploration Expenditure (10 Years) 15% share Land area = 30m km2 (20%)
    11. 11. Drilling Announcements (past two years) Africa = 16% 29% 9% 20% 19% 7%
    12. 12. Latin America 26.7% Rest of World 16.5% Africa 16.5% Canada 13.3% Australia 13.1% United States 7.2% Pacific/SE Asia 6.7% Worldwide Exploration (2013) Similar share for Africa last year but big fall in Australia
    13. 13. Gold: Recent Decline
    14. 14. Result: Two-Year Global Slump
    15. 15. African Exploration Focus on West Africa
    16. 16. Gold Drilling (Individual Prospects) Q1, 2014: 13.5% share
    17. 17. New Gold Resources Africa hard hit by withdrawal of juniors 16.3%
    18. 18. New Gold Reserves Dreadful March quarter (as measured in mid-April) 8%
    19. 19. Other Exploration Activity
    20. 20. Project Locations
    21. 21. Feasibility Studies AFRICAN FEASIBILITY STUDIES (2013 and Q1 2014) Feasibility Study (US$m) Country Project Commodities Significant Owner Capital Cost NPV Burkina Faso Balogo Gold Golden Rim Resources Ltd 40.2 47.5 Banfora Gold Gryphon Minerals Ltd 125.1 154.0 Hounde Gold Endeavour Mining Corp 403.0 230.0 Nami Gold True Gold Mining Inc 171.5 178.2 Congo (DRC) Dikulushi Copper, Silver Mawson West Ltd 10.1 3.0 Kipoi North Cobalt, Copper Tiger Resources Ltd 755.0 Congo (Republic) Hinda Phosphate, Uranium Cominco Resources Ltd 563.0 2,010.0 Eritrea Gupo Gold Sunridge Gold Corp 403.0 443.0 Ethiopia Nova (Danakhil) Potash Allana Potash Corp 642.0 1,320.0 Ghana Esaase Gold Asanko Gold Inc 286.4 354.7 Prestea Gold Golden Star Resources Ltd 150.1 114.0 Guinea Nimba Iron ore Sable Mining Africa Ltd 299.3 Liberia Kokoya Gold Amlib Holdings plc 35.0 45.4 Mali Fekola Gold Papillon Resources Ltd 269.3 Syama Gold Resolute Mining Ltd 85.6 Morocco Achmmach Tin Kasbah Resources Ltd 252.0 126.0 Zgounder Silver Maya Gold & Silver Inc 3.8 36.2 Namibia Luderitz ML111 Diamonds Afri-Can Marine Minerals Corp 11.1 25.3 Omitiomire Copper International Base Metals Ltd 38.5 12.0 Otjikoto Gold B2Gold Corp 244.2 243.4 Niger Madaouela Molybdenum, Uranium GoviEx Uranium Inc 646.0 251.0 Nigeria Agbaja Iron ore, Magnetite Kogi Iron Ltd 497.1 420.0 Senegal Gora Gold Teranga Gold Corp 50.0 105.0 Kourouloulou Gold Teranga Gold Corp 504.7 558.0 Sierra Leone Baomahun Gold Amara Mining plc 143.0 50.0 South Africa Makhado Coal Coal of Africa Ltd 406.3 697.0 Zambia Dunrobin Copper, Gold, Iron ore Luiri Gold Ltd 21.0 Kitumba Copper, Gold, Uranium Blackthorn Resources Ltd 357.7 108.0 Source: SNL Metals & Mining 6,659.0 8,286.6 28 17 US$6.7bn US$8.3bn
    22. 22. Global Development Projects Numbers continue to fall but capex rising (at last) * *Reason for increased consultancy activity? *
    23. 23. Development Projects Flat NPV, overall, for the past year Africa: Mixed and low
    24. 24. Planned Development Spending
    25. 25. Production: Mined Revenue
    26. 26. African Gold Production AFRICAN SHARE Excluding by-product gold and artisanal output, the continent contributed 14% of the global mined supply of 97Moz in 2013. African primary gold production exceeded 13.7Moz last year (under 13.4Moz in 2012). The continent yielded 3.53Moz in the quarter to end-March, compared with 3.17Moz in the year-ago quarter, 3.29Moz in Q1 2012 and 3.34Moz in Q1 2011.
    27. 27. African Gold Production NATIONAL RANKING South Africa's share of the African total fell from 39% in 2011 to 35% in each of the past two years (and only 32% in the quarter just ended). Nevertheless, with almost 4.9Moz in 2013, South Africa remains easily the continent's largest primary gold producer. Ghana was in second place last year (2.85Moz), followed by Mali (1.42Moz), Tanzania (1.17Moz) and Burkina Faso (0.77Moz).
    28. 28. African Gold Production 0 200 400 600 800 1000 1200 1400 1600 1800 2000 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2011 2012 2013 2014 Goldprice(US$/oz) Goldproduction(oz) South Africa Zimbabwe Tanzania Suriname Sudan Niger Namibia Mauritania Mali Guinea Ghana Egypt Eritrea Côte d'Ivoire Burkina Faso Botswana Gold price Black line = Gold price (right-hand scale)
    29. 29. African Gold Production NEW GOLD MINES These include: 2013: Q1 - Nordgold's Bissa mine (Burkina Faso) Q3 - Newmont's Akyem mine (Ghana) Q4 - Randgold/Anglogold's Kibali (DRC) 2014: Q1 - Endeavour's Agbaou (Ivory Coast) Once complete, the integrated open pit and underground operation at Kibali is expected to produce an average of 600,000oz/y over the first twelve years of its life, which currently extends to 2031. The mine is targeting 550,000oz this year. New major gold mine almost every quarter
    30. 30. Cost of African Gold AFRICAN COSTS Based on data from over 90 African gold mines, total cash costs (including royalty payments) rose in 2011 and 2012 but generally fell last year and in the first quarter of 2014. With the closure of some high-cost operations, the continent's average total cash cost fell to US$881oz last year, and improved further to US$828/oz in the quarter to end-March. The average gold price last year was US$1,393/oz. The continent's primary gold mines have been able to widen their net operating revenue (gold price minus total cash costs) to around US$500/oz. This is still well below the African average of US$788/oz recorded in the March quarter two years ago.
    31. 31. Cost of African Gold 0 500 1000 1500 2000 2500 0 10 20 30 40 50 60 70 80 90 100 TotalCashCosts(US$/oz) Cumulative Share (% gold) African Gold Mine Cash Costs (2013) South Africa Other Africa Average 2013 Gold price: US$1393/oz Africa Total Cash Cost: US$881/oz South Africa average cash cost: US$1184/oz
    32. 32. Cash Cost of African Gold (ex SA) Cash cost of US$791/oz in March quarter Strip out South African operations (US$905/oz in March quarter)
    33. 33. Cost of African Gold 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 2,200 2,400 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 TotalCashCosts(US$/oz) Cumulative Share (‘000oz) 2011 2012 2013 Q1 2014 (NB: production data annualised) Total Cash Costs Note: Q1 2014 gold production has been annualised
    34. 34. M&A: Low but Improving Deal values are rising strongly
    35. 35. M&A in March Quarter 83% of total 71% of total BUT still all quiet on the Africa front
    36. 36. Capital Raising 85% of total Continued cash crisis for juniors
    37. 37. Exploration Capital Raising Not much, and it isn’t for Africa
    38. 38. Dire Global Mining Market (end March) 57% 21% 6% 16%
    39. 39. +44 (0)20 7398 1825