For African Mining, Optimism Is Rising With Commodities Prices. Not Everyone’s Buying It

Written by Dana Sanchez

Improved outlook for the Chinese economy and ongoing global recovery in mining commodities prices have generated a more optimistic view of the African mining industry,  African Business Magazine reported.

What began as a rising demand for coking coal has now extended to copper prices, which rose from $4,300 a tonne in January 2016 to $5,934 on Jan. 15, 2017, according to Neil Ford, a consultant of international affairs. Recovering Chinese demand is largely responsible, Ford said.

The mood is optimistic at the four-day Mining Indaba, which started today in Cape Town.

About 6,000 shareholders, executives and officials are expected at the event, with speakers from Anglo American, Rio Tinto Group, AngloGold Ashanti and South32 Ltd. scheduled to present at Africa’s biggest resource industry conference, Bloomberg reported.

South Africa hasn’t done a great job of attracting mining industry investment.

Regulatory uncertainty, shrinking reserves and rising labor costs have prompted major miners to rethink their presence in South Africa, home to the world’s largest platinum, chrome, and manganese reserves and the source of one-third of all gold ever mined, according to Bloomberg.

The conference numbers reflect recovery optimism, with delegate registrations up year-on-year for the first time in “quite a few years,” organizers told AFP.

Commodities like iron, copper and tin are rising, raising hopes that this year’s conference will produce funding for new mining ventures, AFP reported in ENCA.

“A lot of these prices are up 100 percent from what they were a year before, some only 50 percent, but some 300-or-400 percent, so this should be the biggest Indaba we’ve seen in a couple (of) years,” said Peter Major, a mining analyst at Cadiz Corporate Solutions.

With the price slump, the economy stagnated across Africa and several commodity-dependent companies cut jobs or shut down operations.

Among the worst hit were top African copper producers Zambia and the Democratic Republic of Congo (DRC), with thousand of jobs lost over the last three years. South Africa, the continent’s most diversified economy, also bled jobs as it battled poor growth.

World Bank’s latest commodities forecast confirms the worst is over, with prices climbing thanks to strong Chinese demand and a tightening supply, ENCA reported.

Copper prices jumped 10 percent in the fourth quarter of 2016, “the first double-digit quarterly gain in nearly five years,” the report said.

Not everyone is ready to call it a trend. Despite an improvement in some commodity prices, gold and platinum have remained largely flat, said Peter Leon, a partner at law firm, Herbert Smith Freehills, Independent Online reported.

South Africa has not done well in attracting mining investment, Leon said, and regulatory uncertainty is partly to blame. “Foreign direct investment has been declining in South Africa generally. It comes back to the issue of regulatory certainty. Mining is a long-term and capital-intensive business with long lead times between exploration and production.”

The bouyant, even euphoric mood at this year’s Mining Indaba contrasts with recent years.

The mood at the 2016 Mining Indaba was gloomy, said Shirley Webber, head of ABSA natural resources. Towards the end of the year, commodity prices rebounded. Investors want a stable political environment, regulatory certainty and labor stability, she said.

“Some of the commodity prices are looking better now,” Webber told Independent Online. “In 2017, we are looking at expansion, local and international. Mergers and acquisitions are also starting to take place. There is consolidation.”

By the end of 2016, iron ore was selling at $80 a ton, nearly double its price a year earlier, and zinc was up for the fourth straight quarter, AFP reported.

Major warned against getting too excited about improvement, saying it looks like an “over-recovery” and adding “I don’t trust it.”

The prices will return to the mean “sooner or later,” said Rene Hochreiter, an analyst at Noah Capital Markets, in an AFP report:

“There might be a bit of euphoria at the moment with (prices) shooting over the mean and it will come back down, but that doesn’t mean it’s going to go negative,” Hochreiter told AFP. “I just hope this time it’s not a false start. I’ve seen too many of those and I don’t want to get too excited, but it feels a lot better than it has for a number of years.”

Is Trump a reason for African mining industries to celebrate?

U.S. President Donald Trump’s plans for a $500 billion infrastructure program are expected to increase demand for copper, iron ore and other metals, African Business Magazine reported.