Last year, the Fraser Institute released its Annual Survey of Mining Companies, a deep drive into how various mining jurisdictions around the world are viewed by potential investors, companies, and governments. The study is split into two sections, which determine an “investment attractiveness index” and a “policy perception index”, both of which are fairly self-explanatory assessments of how appealing mining investments and government policy are in various parts of the world.
Many of the results are unsurprising. Western Australia tops the investment index, where it has been a top five region for five consecutive years, and is fourth in the policy index, where is has been a top five region for three of the last five years. Canada tends to lead on the investment index, with three regions in the top ten in 2021, while Europe leads in public perception, boasting three of the world’s top ten regions in its index.
Yet the other side of this coin has been a poor performance in many African jurisdictions, where, fairly or otherwise, investors are hesitant to commit to new mining projects. Three of the bottom four investment index scores were reported for African countries, while the Democratic Republic of the Congo (DRC), Liberia, and Zimbabwe all ranked in the bottom ten for public perception.
How much of this geographical discrepancy, then, is down to actual mining conditions, as opposed to vague stereotyping? Is the Republic of Ireland truly a more attractive mining destination than the DRC?
Perhaps it is the case that vast, complex regions such as “Africa” are simply too diverse for singular, sweeping judgements to be made about their mining attractiveness. Still, the Fraser Institute report is, first and foremost, an analysis of reputation, and in that regard, many African jurisdictions have work still to do.
There is a paradox at the heart of many African jurisdictions profiled in the survey, that the continent boasts some of the most attractive mineral deposits yet also hosts many of the least-favourably viewed jurisdictions in the world.
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“Africa is amongst the most mineral-rich areas in the world, but the continent’s potential continues to be under-explored,” explains Boris Ivanov, global commodities expert and founder of mining firm Emiral Resources. “While there have been many improvements in Africa’s mining sector, the industry is still battling several challenges. One of the biggest is the low base of mining activity and the relatively lower level of industrialisation in the industry.”
Ivanov also highlights a paradox in the exploration work of many of these jurisdictions, with significant mineral deposits that have not received the exploration investment that they perhaps deserve. He explains that exploration expenditure has only recently increased beyond $5 per square kilometre, compared to an average of $65 per square kilometre in Latin America, Australia, and Canada.
Indeed, many of the countries with the lowest investment indices house some of the most lucrative deposits in the world. The DRC is famous for its cobalt production, responsible for around 70% of global output in 2019, yet ranked 82nd of 84 jurisdictions in the investment index.
More striking still is the fate of Zimbabwe, which appears rock bottom of this index, despite boasting around 2.8 billion tons of platinum group metals and around 10 billion tons of chromium core, which could drive an industry worth around $12bn a year, according to state officials.
Ivanov notes that there is a practical element to this discrepancy, namely the lack of infrastructure investment in many African jurisdictions, noting that, “some countries are better than others, but all over Africa there is a distinct lack of energy, and mining and mineral processing are energy intensive industries”.
He continues: “The mining industry alone is ill-positioned to solve these issues since constructing hundreds and sometimes thousands of kilometres of highways to link resources to processors or to ports or building power-plants are tasks beyond the cost of a stand-alone mineral project.
“This situation has many of the elements of a ‘catch 22’ situation; to improve the transportation network and increase energy generation, governments need to step in and they need funds to do so.”
The fairness of reputation
Of course, many of the survey’s results ought to be considered with a grain of salt. As they are based on subjective opinion, rather than objective fact, there is a large element to which the reputation of an area affects the final results. The survey therefore is an effective tool for measuring the perception of a particular mining jurisdiction but is less accurate in determining how prosperous a jurisdiction could be, free from these biases.
The recent performance of South Africa in the rankings highlights the value and limitations of such a reputation-based index. Its investment index has plummeted from 62.06 to 37.88 between 2017 and 2021, a fall from 48th of 91 jurisdictions to 75th of 84 over the period, while its policy perception ranking has not exceeded 56th over the last five years.
“While South Africa’s drop down the rankings is worrying, it is clear that rebuilding trust between government and citizens and rebuilding the mining sector’s image are crucial to South Africa regaining its standing as an attractive mining destination,” explains Ivanov, highlighting how reputation, and the perceived action or inaction of a country, can have both positive and negative impacts on its rankings.
“The country has enough geological potential, possesses the requisite skills and expertise, and has shown considerable appetite for technological innovations [to improve its ranking], the latter a key import in the mining world of today,” he continues. “Clarity in leadership and a stronger commitment to adhere to global best practices might be the best way forward for South Africa’s mining sector.”
Indeed, figures from the South African Government reveal steady improvements to its economy in the fourth quarter of 2021, after the survey period for the Fraser Institute report. Mining led all industries with an 11.8% growth rate in 2021, compared to 2022, single-handedly driving a 0.5% growth in total GDP, and helping to push the annual GDP growth rate to 4.9%.
Ivanov discussed the limitations of using reputation as a benchmark for mining viability, with a particular emphasis on the widely negative opinions many investors, particularly those not based in Africa, have about African jurisdictions.
“This is especially true in the case of African countries where a popular perception is that the mining sector in the continent is still operating under a legacy of weak environmental practices, political instability, corruption, and fractious community relations,” Ivanov explains. “As is the case the world over, negative perceptions can often do more than damage reputations and can also affect financial performance and a breakdown in community relations, tarnishing a mining company’s social license to operate.”
Examples to follow
It would also be untrue to suggest that Africa is simply devoid of attractive mining jurisdictions, based on both the commodities available and the reputation of those assessed in the Fraser Institute report. Morocco leads both Africa and the world in both indexes, ranking second for policy perception and eighth for investment attractiveness.
Critically, Ivanov notes that its performance has been helped by factors such as coherent government policy, which can be replicated by other countries around the world, in a manner that mineral resources cannot. This consistency has helped Morocco surge from 48th of 91 countries to second of 84 countries for policy perception between 2017 and 2021.
“A key factor behind Morocco’s rapidly improving stocks in the mining world has been the presence of a strategic vision, launched by the government, to encourage the development of mining activity through holistic improvements across all areas of the mining ecosystem in the country,” explains Ivanov. “The strategy has included the modernisation of legislative and regulatory framework, [the] restructuring of traditional mining systems and an increase in the rate of production.
“Political stability has also been a crucial element in fuelling the boom in Morocco’s mining sector.”
Ivanov pointed to a number of statistics to support this theory, including the fact that mining has created around 40,000 jobs in Morocco, and contributed 10% to the national economy. While the state has been aided by its plentiful phosphate reserves – boasting around 77% of the world’s resources and drawing in $6.3bn from phosphate mining – it is the coherent and comprehensive policy of the government that has helped drive this dramatic change in reputation.
Yet due to the fact that changes to a country’s reputation are measured in years – while changes to its economic output are measured in quarters – it could simply be a matter of time before many of these unfairly negative reputations are reversed. At least the strong performance of countries such as Morocco provide a blueprint for others to follow, and demonstrate that investors around the world are willing to look fondly upon African mining opportunities.