Mining groups target West Africa / A richer seam

The Business of Mining - thebusinessofmining.com | May 22, 2010 | 9:52 am

The Financial Times published two articles this week on the increasing impact of international mining companies in Africa. The combination of articles provides a good insight into the political sensitivity and the importance for the development of the region:

Mining groups target west Africa (Financial Times, May 18 2010)

Six of the world’s biggest mining and steel companies have converged on an unprecedented scale on a mineral-rich corner of west Africa beset until recently by civil war. The companies plan to spend billions of dollars in Guinea, Liberia and Sierra Leone, where some of the world’s richest deposits of iron ore, the raw ingredient of steel, are found.

The groups are Vale, the Brazilian iron ore miner, Rio Tinto and BHP Billiton, the Anglo-Australian mining houses, ArcelorMittal, the UK steel company, Russia’s Severstal, and Chinalco, the state-owned Chinese mining company.”

Strategic resources: A richer seam (Financial Times, May 21 2010)
“China has vied with western groups in Africa for oil and minerals for the best part of a decade. But it also has ambitious nuclear power targets and its quest for uranium – repositories of which are few and far between – has thrown the rivalry into sharper focus. …

In the past three years, as China embarked on its new thrust into Africa, relations between Niamey and Paris plunged. The award of uranium concessions to China’s Sino-U and other prospectors broke the de facto 40-year monopoly of Areva, France’s state-controlled nuclear group.
The competition has seen work start on Niger’s first refinery and a $700m hydroelectric barrage, not to mention hundreds of millions of dollars in “signature bonuses”, courtesy of Beijing. It helped the country wring tougher terms from France before granting permission for Areva’s vast new mine, which will make the country the world’s second-biggest uranium producer after Kazakhstan.”

Observations:

  • This month’s acquisitions of Vale and Vedanta and earlier investments by Bellzone in Guinea count up to over $5 bln of investments. Over 50% over these investments will be in infrastructure, helping not only the resonsible mining company, but as well contributing to development of the country.
  • Total development aid to Africa in 2008 was $26 bln. Foreign Direct Investment in infrastructure related to mining is quickly bypassing this figure. Total FDI in Africa was $88 bln in 2008 (UNCTAD WIR), of which a very significant part is related to mining & metals.

Implications:

  • Although the Chinese approach of buying resource access by offering infrastructure development and more symbolic gifts is still regarded to be unethical by many westerners, western companies are working hard to catch up with the Chinese, trying to secure access to the good resources in central and west Africa.
  • Infrastructure developments are arguably the most important capital investments required for economic development of a country (J. Sachs).
  • Key problem for African leaders is the vicious circle of the resources trap they are in. Africa needs the infrastructure investment to develop the economy, but needs the resources that are shipped abroad in exchange for the infrastructure development in order to create an industry of value adding services.