No rapid rebound for African mining
A new report by BMI Research, a Fitch company, forecasts subdued growth for the mining industry in Africa through 2020.
BMI says Sub-Saharan Africa’s mining sector growth will remain slow as a muted recovery of mineral prices will continue to put pressure on profit margins of metal producers.
The authors of the report “expect some growth bright spots, the region will continue to face both significant operational and regulatory challenges over the coming years.”:
- The muted recovery in metals prices will result in further divestment of assets, output cuts and bankruptcies, and mergers and acquisitions as mining and metals companies remain under significant stress.
- Both operational challenges (illegal gold mining being a particular problem in South Africa, Ghana, Nigeria and elsewhere) and regulatory uncertainty in countries including South Africa and Zambia will pose the greatest challenges to miners operating within SSA over the coming years.
- Chinese (mostly copper) and Indian (primarily coal) outbound mining investment will remain resilient due to SSA’s vast mineral reserves and low production costs, but South Africa’s investment attractiveness will decrease in favour of markets like the Congo, Mozambique and West African states.
- SSA’s natural resources sector will remain a crucial contributor to GDP (accounting for as much as 18% of the Botswana economy, 11% in the DRC and nearly 25% in Mauritania) despite subdued mineral prices causing mining companies to curb capital expenditure and limit new projects coming online.
Miners operating on the continent will have to get use to a “lower for longer” commodity price environment. Using a basket of eight metals (aluminum, copper, iron ore, lead, nickel, steel, tin and zinc), BMI forecast annual average price growth of a moderate 3.2% over from 2017 to 2019. That compares to a fall in prices of 5.4% in 2016 .