Travel restrictions, supply chain disruptions and risk aversion since the start of the COVID-19 pandemic have slammed the brakes on mining exploration in Africa, jeopardising the minerals supply pipeline.
Inward investment will be a key focus at the annual Investing in African Mining Indaba virtual conference, which took off yesterday and is ending this Wednesday, with companies looking to capitalise on higher metals prices and the transition to green energy.
Without exploration, the continent’s rich mineral resources are at risk of being unutilised as older mines become unviable.
Mining companies’ exploration budgets for Africa fell 10% to a four-year low in 2020, according to S&P Global Market Intelligence.
“COVID-19 has had an impact on all aspects of the mining value chain, and exploration is no exception,” said Alex Khumalo, head of social performance at the Minerals Council, South Africa, an industry trade group.
While Africa did not fare as badly as Latin America, where budgets fell by 21%, the sharp decline was in marked contrast to the 1.5% dip in the United States and Canada.
In many cases companies have been turning more towards their home jurisdictions and what they see as their safe-haven investments, said Chris Galbraith, senior metals and mining analyst at S&P Global.
“With many of these companies based in Canada, the U.S. and Australia, more of their exploration has been focused on domestic exploration … and oftentimes that has come at the expense of African development,” he said.
For junior explorers and miners, raising capital on public markets has been a challenge while the pandemic has made it even more difficult to access private equity capital.
SOUTH AFRICAN GLOOM
South Africa – a leading producer of platinum, palladium, chrome and gold – was the worst-hit African nation, with overall mining exploration budgets at a 17-year low. The Democratic Republic of Congo, Burkina Faso and Ghana also had sharp falls.
“I’ve seen 20 or 30 projects that have probably collectively cut 200 million to 300 million rand (about US$13M to US$20M) worth of exploration spending this year,” said Errol Smart, CEO of Orion Minerals.
Investors have been unable to visit projects during the pandemic while restrictions on borders have delayed equipment deliveries.
“Nobody invests in something unless they can go there and see it, touch it, kick the tyres. They want to visit the site,” said Smart.
Orion, which last month said it had discovered further significant copper, zinc and nickel deposits around its flagship Prieska Project in South Africa’s Northern Cape province, has been waiting for equipment from Australia to conduct geophysical surveys.
“We still have uncertainty over when they can get to site to be used,” said Smart.
With less exploration activity, African mineral resources might not be developed fast enough to replace older mines as they become depleted.
There is hope, however, that COVID-19 vaccination programmes will speed the world’s recovery from the pandemic and boost the mining sector. Post-pandemic economic recovery could drive higher metals demand and prices, potentially encouraging increased exploration spending this year, particularly in gold.
Exploration budget increases in Ivory Coast, Guinea and Senegal have indicated continued interest in gold-rich West African countries despite the pandemic.