Africa Indaba Mining: Companies too cautious when considering exploration

A truck drives past as a worker sprays water at a coal pier of Lianyungang port
A truck drives past as a worker sprays water at a coal pier of Lianyungang port, Jiangsu province February 26, 2012. REUTERS/China Daily

Mining companies are becoming more circumspect when they decide which countries to invest in when it comes to exploration, a panel at the 2016 Investing in African Mining Indaba in Cape Town has heard. They are also faced with increasing attention from nongovernmental organisations (NGOs) and communities.

“If you haven’t got a social licence to operate, things will fall apart very quickly,” said David Reading, CEO of Aureus Mining, Liberia’s first commercial gold producer.  He pointed out that, besides other initiatives, his company bought fuel from a Liberian entity instead of from a multinational fuel supplier and established a simulation centre to teach local women to drive trucks.

“You want to walk the talk to get that social licence and then your operation will have a chance of being successful,” Reading told a packed plenary at the Mining Indaba, which has attracted delegates from 100 countries.

Reputation risk management firm Veracity Worldwide CEO Steven Fox agreed. “The day of the big man in Africa when the President used to make all the decisions has ended. There are far more popular inputs now.

Going to the top to get an answer will not work today.” He said the number of disclosure requirements had increased, while the European Union was tightening up its requirements to understand the risks a mining operation faces.

Companies would be obliged to disclose those risks. “The regulatory burden has gone up, together with scrutiny by the average man on the street, as well as NGOs.” Rio Tinto has three factors it considers before embarking on exploration, said Rio Tinto Africa-Eurasia exploration director Ken Tainton.

Firstly, the company considers whether its staff would be able to safely and securely operate in an environment.

“If the answer is no, we will not operate there.” It also looks at whether it can operate ethically and according to international regulations and, thirdly, it considers the security of its exploration tenement and its guaranteed right to change that into a mining tenement. Tainton said Rio Tinto invested in projects in countries that remained stable over the long term. Fox said it was vital to uphold a company’s reputation.

“In today’s constrained environment, there’s much greater emphasis on the need for appropriate reputation issues. A project mustn’t have any baggage associated with it. Greater scrutiny is being applied and that’s also coming from African countries themselves.”

Africa Mineral and Energy Development Fund partner David Twist said he was attracted to opportunities in countries that had an investor-friendly mining code and that were strongly opposed to corruption.

“Botswana is our ideal jurisdiction,” he said. Reading stated that gold was shining at the moment in terms of exploration. “For the first time in a long time, gold has become the most important mined metal. There’s an incredible emphasis on gold now. It accounts for half of the exploration and half of the dealmaking. “West Africa, in particular, is endowed with many gold deposits so that’s a good place to stay in focus, providing you have the political and fiscal stability,” he noted.

The panel also heard how Japan’s interest in African mining had ratcheted up and could become an alternative to Chinese investment in certain countries.(Miningweekly.com)

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