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Dryblower on the rising tide of mutual discontent in Africa

AFRICA has never been an easy place to do business and from what <i>Dryblower</i> has seen over the past week, it could get even tougher in future years.

Staff Reporter
Dryblower on the rising tide of mutual discontent in Africa

At the risk of stretching the point, the change that has started could become an “out of Africa” exodus as foreign explorers and mine developers re-assess the attractions of the continent and discover that it is becoming easier, safer and more profitable to do business elsewhere.

Unaffected, and potentially the winner from the sea change in conditions are Chinese companies, which have a totally different set of objectives to western companies in that they are simply seeking access to raw materials to be used in factories at home rather than a profit generators for investors.

Just as happened a few years ago the Chinese are poised to launch a bargain-basement shopping expedition, snapping up assets that western companies are quitting.

The problem with Africa, as has been said many times before, is not geological – the continent has some of the richest orebodies in the world.

Nor is it location to market, with Europe due north and Asia and North America off to the left and right-hand side of the continent, which means there are plenty of buyers for the raw materials Africa produces.

The problem is people, more specifically it’s the problem caused by overblown expectations of what the mining industry can deliver to African people and the failure of western miners to deliver on their promises.

Last week’s column from Dryblower was on roughly the same topic but largely confined to one country, South Africa, as a precursor to the annual Mining Indaba conference.

This week’s column is based on a series of observations of other African countries and the problems that are starting to emerge from the bout of low commodity prices, falling profits, inability to raise fresh capital and the entirely understandable frustration of African governments with mining – and vice versa, the frustration of miners with government.

In a nutshell, what was once a beautiful relationship that blossomed as commodity prices rose has become a less-than-happy relationship because there is not enough money to share around, either as capital investment or taxable profits.

Consider as a case study, because it is so fresh, the decision of Paladin Energy to mothball its Kayelekera uranium mine in Malawi, a move which some financial analysts had expected but one that will nevertheless annoy the government of the host country because it means workers will lose their jobs and a source of tax revenue disappears.

While the government of Malawi is yet to react it would not surprise Dryblower if someone in power asks an embarrassing question, which goes something like this: “If Paladin can’t operate the mine profitably perhaps we should find someone else who can because, after all, it is Malawi’s uranium?”

Therein lies the first seed of the great dilemma confronting all foreign investors in third-world countries – will they always be welcome, or will the welcome mat be whisked away when the money dries up or, as someone’s grandmother once said: “Love flies out the window when money walks out the door”

A second emerging problem is the surprisingly fractious relationship between Base Resources and the government of Kenya.

In theory, it ought to be a marriage made in heaven.

Base, with the aid of its bankers and investors, has tipped more than $US300 million ($A335.2 million) in fresh capital into the Kenyan economy to develop the country’s first big mine of any sought.

As a project the Kwale titanium minerals mine is simple and well built, albeit with a few commissioning issues, which are being sorted out with most of the pain being borne by engineering contractors who messed up pipe welds and other minor bits and pieces.

Ilmenite and rutile are being trucked to a purpose-built warehouse in the port of Mombasa and the first ship is due to load this week – or will it?

Welcome to yet another African people problem because while the ship is already in the port (if not at Base’s jetty) and the first 25,000 tonnes of ilmenite ready to load, someone in the government of Kenya is yet to issue an export permit.

If it wasn’t so astonishing and it wasn’t so African, Dryblower would have to laugh.

Here’s a $300 million project largely completed and ready to go and a single civil servant buried somewhere in the administrative section of the Kenyan government has declined to sign a critical piece of paper.

The next few days will be critical for Base and its Kwale mine.

Base CEO Tim Carstens reckons common sense will prevail and a public relations train wreck will be avoided.

But, as you read these words there is a sense of the train rushing towards a brick wall and the wreck could soon follow with the entirely predictable damage it will do to the international reputation of Kenya and the appeal of Africa to foreign investors.

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