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No More Easy Money In Mining

African mining has many difficulties to overcome if it wants to stay competitive in the industry. There is hope though—in the form of Australians.

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If there ever could be heaven on earth, this was it. The sun peeped over Table Mountain and lit the winding streets below with a brilliant light as I walked through Cape Town to the first morning of the Mining Indaba—the 20th annual gathering of investors and mining experts. Its rays exuded optimism and felt like a warm, comforting hand caressing your face.

Without wishing to stretch the metaphor, South Africa’s mining minister, Susan Shabangu, tried to emulate the sun’s rays in her keynote speech.

“This is Africa’s time; indeed Africa has arrived and we shall seize the opportunity with both hands,” says Shabangu.

True, it is Shabangu’s job to hold the line when her country’s mining industry is under attack, especially with an election coming up on May 7. Even so, this was a speech too far; dismissed by most at the Mining Indaba. She was at pains to present a rosy picture, saying the number of mines and mining revenue had increased; further that South Africa had topped a list of 158 countries, compiled by the World Economic Forum, for corporate auditing and reporting. She also mentioned billions that will be spent on infrastructure and pledged to protect investors.

When it came to the strike on everyone’s lips in Cape Town—70,000 workers at the platinum mines, which earn 9% of South Africa’s export earnings—there was disbelief when Shabangu said there was no need to be complacent and there were many areas that needed improvement. The understatement of the year, in light of a strike that cost the South African economy 10,000 ounces of platinum and more than $40 million-a-day.

Roger Baxter, the chief economist for the Chamber of Mines, warned that 45% of the platinum shafts were either loss making or marginal. A long strike, followed by a high wage settlement, may push many more over the edge, he says. South Africa has 80% of the world’s reserves of platinum and 40% of supply; by the next Mining Indaba, the latter figure is likely to have fallen. This is one reason why many foreign investors, looking for a competitive return, say off-the-record, they are fighting shy of South Africa for now.

“The world mining funds are flush with cash right now, but they don’t want to put it here because they are very risk averse at the moment,” says one investor in Cape Town.

“They may look at an easy project, but let’s face it most of the easy projects in Africa have gone.”

Another concern for investors is the threat of South Africa’s government amending its mining bill to give the mining minister the discretionary powers to make certain minerals strategic. That would mean the producers of minerals, like iron ore and coal, could have to ask the government for permission to export and accept prices fixed by the state. For South African power generator, Eskom, this would be a boon because it could have all the coal it needs for its power stations in the country at a price it can afford. Critics, like mining lawyer, Peter Leon, has called the move creeping nationalization and warns it could frighten investors.

“It means we are closed for business,” says a former coal mine boss in Cape Town.

The Chamber of Mines paints a less worrying picture. It says that the government is unlikely to touch prices and a clause in the bill ensures consultation with the mining industry over exports. The bill was due for review on February 18.

“We are still engaging with the government,” says Baxter.

What is likely is that the government is going to push ahead with the transformation towards the 26% black ownership promised by the Mining Charter 10 years ago. In 2014, the Mining Charter—a voluntary document signed by the mining companies—will be reviewed. It is widely accepted that the ownership figure is far short of the target. Foreign investors often don’t understand South Africa’s often clumsy attempt to rebalance the scales after apartheid; the mining companies complain the process of transferring equity, to those who didn’t have the vote before 1994, is expensive and futile.

“Many mining companies put transformation systems in place thinking that 2014 will be the end of it. Nothing is further from the truth,” says Shabangu.

There is more hope across the rest of the continent for mining held in the rugged hands of the Australians. It seems the Australians don’t know what a difficult project is and are pouring billions of dollars into mining, from the Democratic Republic of Congo to Ghana, in some of the most inaccessible corners of Africa.

The Mining Indaba heard there are 246 mining companies operating in Africa. They include Sundance Resources, which is spending $5 billion on building two iron ore mines, 40 kilometers apart, in Cameroon, near the border with Congo-Brazzaville. It is hoped that by 2018 they will be producing 35 million mt of iron ore every year.

The project is an 11-hour drive from the capital and the Australians will also build a 500 kilometer heavy gauge railway to the coast to export the iron ore.

“Risk? Mining is risk and we Australians have a way of tackling it,” chuckled Giulio Casello, the managing director of Sundance Resources.

“What really impressed us on this project is that Cameroon put together a committee of experts to help us set up this project. Cameroon doesn’t have a mining industry and clearly wants one.”

Another Australian carving his way through the African outback is Harry Anagnostaras-Adams, who spent 30 years working in the banks of Sydney and now spends his days trying to figure out how to get gold out of Ethiopia. Through his resources company, KEFI Minerals, he spent $6 million buying Tula Kapi Mine, 500 kilometers west of Addis Ababa. The mine, which has two million ounces of gold in resources and another million in reserves, went for a knockdown price—ten cents in the dollar—because the previous owner had failed to deliver.

Anagnostaras-Adams will invest $150 million in the mine with the hope of producing 60,000 ounces by 2016.

“It is not for the fainthearted,” he says.

“The response to us trying to fix the problems of the mine was like greased lightning. The government always wanted us to get the show on the road; I was impressed by their pragmatism.”

There were other encouraging signs at the Mining Indaba. Brazilian resources giant Vale told how it was going to invest billions into increasing output from the Moatize coal project, in the north west corner of Mozambique, from 4.7 million mt to 20 million mt. More than $2 billion will be ploughed back into the mine; $3.4 billion will go into building a railway line from the Moatize, through Malawi, to the export port of Nacala. Another billion dollars will build up Nacala so it can ship more coal.

There were also encouraging words from the Toronto Stock Exchange, the great mining fund raising bourse in Canada. Graham Dallas, the head of business development for the holding company TMX, said around $800 million had been raised in 2013 for mining projects in Africa.

“I think if you have the right asset and the right management you can still raise foreign investment. It is not all doom and gloom, things have been better, but there is no reason to despair.”

If this optimism was not enough, Nick Holland, the CEO of Gold Fields, was brave enough to make this prediction.

“I think China is going to come back. I’ll stick my neck out and say there could be a mining boom by the end of next year,” says Holland.

This is the kind of bullish approach that has sustained mining in Africa and built the Mining Indaba into one of the biggest industry gatherings on the planet. Twenty years ago, the Mining Indaba held its humble beginning in one room in the Cape Sun; in 2014 it has expanded to fill the vast International Convention Centre. African mining has to play a clever game over the next 20 years or risk ending up back in one room at the Cape Sun.

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Economy

Cryptocurrency for Africans

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George Gordon is on a quest to revolutionize the financial system. The director of Africa Master Blockchain Company talks digital currencies, blind risks and board games.


What is this new African cryptocurrency you are offering?

Where the majority of current digital currencies are based on speculative models, AfriUnion Coin (AUC) and the AfriNational Tokens (ANT)are designed for a transactional purpose allowing international payments, remittances, foreign direct investment as well as day-to-day transactions at local retail stores and other outlets. While the option for speculative trade is available with AUC, the focus is not around that.

Each African country will have a specially-designed ANT which will allow users to pay for goods and services and bills easily through completely digital means without requiring any bank account. AUC and ANT will be fully interchangeable to one another and there will be no fees for the user.

It’s the natural next step for digital finance from mobile banking which most Africans are accustomed to. The ability to freely have the power to send and receive money locally and internationally will allow the freedom of choice and spending power many Africans don’t have currently.

What is your own investment philosophy?

I am a gambler! I believe in taking risks and putting things on the line. That being said, blind risk or whimsical guesses don’t get you very far. Always acquire enough information to understand to a reasonable level what the thing you are planning on investing is or how it works and then trust your instinct and gut feel.

What advice would you give entrepreneurs wanting to invest in blockchain?

First, do some research in terms of what the blockchain technology is being applied for or created in terms of its application to an industry or project. Thereafter, check the white paper for the design of the platform as well as its functionality and applicability to what it is trying to achieve. If it aligns with your personal investment rules, then go for it,however, remember that blockchain is continuously evolving and thus you need to explore outside the usual and standard.

First cash-less, now card-less. What is the future of online banking?

If we are looking into what is currently science fiction, I would say the future is digital contact lenses that will be able to connect you to all your social media accounts, internet, news as well as make payments by just looking at QR codes or specialized barcodes to approve and accept payments.

Now, realistically we are not far off from such innovation and technology, but for the time being, I think the next step is scanning of QR codes at retailers and having the transaction automated from your wallet to the retailers digitally.

What is your most prized investment and why?

My mind. I believe that the work I have put into developing my mind, and continue to do so every day, is the number one investment that I have ever done. It allows me to look at things in a unique perspective as well as provides me with the tools to push boundaries and create new opportunities.

Money, success, fame? Which is most important to you?

I would have to say success… because it is most likely going to bring the other two as well, right? But success in the form of starting something and letting it grow and succeed and knowing that something new exists because of your efforts.

What do you spend your money on mostly?

Board games. I love board games and believe it’s a fantastic way to expand your mind as well as have fun with friends.

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Investment Guide

King Price CEO On Why He Invested On Insurance

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King Price Insurance’s CEO Gideon Galloway, who built an insurance company in South Africa worth over $226 million in six years, talks investments, industry trends and how self-driving cars will change the entire car insurance landscape.

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Economy

Offering The American Dream

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Gar Lippincott and Daniel Ryan of Atlantic American Partners were in South Africa recently looking for high-net-worth individuals wanting to invest in the US.

It’s a warm spring day in September, and Gar Lippincott and Daniel Ryan have just arrived in South Africa. It is Lippincott’s first time in the country, and he is jet-lagged.

A little over two months ago, he was booked to fly here from the United States (US) but was turned back at immigration.

“At Atlanta airport, the lady looked at Daniel’s visa and let him through and she looked at my visa and she said ‘I am afraid you can’t get on the plane because you have to have a blank page on your passport’. I said ‘I have three blank pages’ and she said ‘no, it’s supposed to be the one that says visa on it’. She said it’s the rules in South Africa so I had to sadly go back home… now when I was coming, I was told that’s not an issue anymore so I am happy they have made traveling into the country easier,” says Lippincott.

With a brand-new passport, he’s here with Ryan looking for people who want to invest in the US in exchange for a green card.

Lippincott, the Managing Partner of Atlantic American Partners, says he has always been keen on South Africa for its growth opportunities and prospects.

“From what I understand, the things that are causing short-term decline in the economy in South Africa are set up to provide long-term growth and hopefully people will understand this,” he says. Ryan, the company’s Managing Director of Emerging Markets – Africa, agrees: “I lived in Malawi for 12 years and South Africa is still considered the shining one throughout the continent. Even with all the problems, everyone still wants to come here because of the opportunities.”

According to an AfrAsia Bank report, South Africa comes second to Mauritius in boasting the highest number of high-net-worth individuals.

These are the kind of people Ryan and Lippincott target through their work at Atlantic American Partners. The company has real estate investors and professional private equity fund managers that manage money for banks, insurance companies, and pension funds. In addition, they help people get US green cards and ultimately US citizenship through the US government’s EB-5 Immigrant Investor Visa Program.

“Basically we look for people who want to move to the United States and we help them do so legally by investing and the nice thing is, with our program, they are also able to get a nice return on investment,” he says.

According to Lippincott, for a $500,000 investment that creates 10 jobs for American workers, you could get a green card in about two years and be a US citizen in about six or seven years. “Twenty seven countries have an investor visa program but with most of them, it’s essentially a fee you pay, or you need to be actively engaged in the day-to-day operation of a business. For example, you invest $1.5 million in Australia, but you need to hire employees and generate a certain amount of revenue. One of the biggest advantages with our program is you actually invest the $500,000 into a fund. We act as a trustee of that money and within five to seven years, they get that money back with a bit of return on investment and you are a permanent citizen in the US.”

Atlantic American Partners invests the money in real estate developments like hotels, apartments and student accommodation.

“What’s nice about the program is it doesn’t only cover the investor; it covers the spouse and children under 21. Our biggest family was a Hungarian family with seven children so they got nine green cards for $500,000,” says Lippincott.

The company says it has had positive response in South Africa. “Two months ago, we were here and we had scheduled six presentations for 100 people and we ended up speaking to 450 people. Most were business people, people worried about the economy, people worried about the political future of South Africa and people concerned about the education future of their children,” says Ryan.

According to Lippincott, despite the news of the clampdown on immigration, the US economy is booming and will perish without immigration. In the era of Donald Trump and his anti-immigrant views, that’s heartening news indeed.

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