The recent slide in global commodity prices and the slowdown in China's economy have given rise to a number of challenges for the African mining industry. These challenges formed a focus of discussion at Hogan Lovells' Africa Forum. At the event, Hogan Lovells released a survey on the Drivers of Growth and Investment in Sub-Saharan Africa, which was prepared in conjunction with economists from Oxford Analytica. Given mining's importance in the region, it was one of three specific industry sectors on which the report focused.
The outcomes set out in the report were discussed at the Africa Forum and a panel of mining experts including Robert Hansen (Senior Managing Director, Eurasia and Africa, Behre Dolbear), Andrew Heller (Managing Director, Bisichi Mining PLC), Louise Moore (Head of Environment (International) at Hogan Lovells), Christopher Reynolds (Executive Director, Natural Resources Group, Morgan Stanley) and Warren Beech (Head of Mining at Hogan Lovells) gave a variety of perspectives on the challenges and opportunities facing the industry in Sub-Saharan Africa.
The report found that the long-term outlook for mining in Sub-Saharan Africa was very good. The region is largely 'under-mined' and certainly under explored: despite holding over a third of global solid mineral reserves, it contributes only 6-8% of global production. The panellists agreed that many Sub-Saharan Africa countries are high-potential, low-production mining venues and that, in the long term, Africa has a bright future in this sector.
In the short term, however, there remain a number of challenges. The first of these is the current global downturn in commodity prices. As a result, key players in the sector are consolidating, cost cutting and downsizing. This has caused a number of projects in the region to be suspended or terminated, particularly those projects which are marginal, incomplete or scheduled to commence in the near future. One of the potential consequences identified by the panel was the risk of significant numbers of the under-utilised workforce departing from the sector. Low commodity prices have also caused some suppliers to seek to renegotiate their contracts, which may lead to disputes. It is therefore important for companies to consider the termination risks before suspending or terminating any projects. Companies should seek legal advice before taking any steps to terminate projects in order to avoid the potential pitfalls.
Another important short term challenge is increased regulation in the region, including changes to the local regulatory landscape. Louise Moore, Head of Environment (International) at Hogan Lovells, discussed the growing importance of global regulation of mining projects as a result of the increasing use of environmental and social risk due diligence frameworks such as the Equator Principles by project financiers, and the growth of strategic litigation and activism of environmental non-governmental organisations. It is important that companies are proactive in seeking to understand these changes and manage their approach to regulation. In addition to the "hard law" which is being introduced by governments in the region, there is increasingly a need for mining companies to have regard to "soft law" such as industry codes of practice and the concept of the "social license to mine", which focuses to the level of acceptance or approval of mining companies and their operations by local communities and other stakeholders affected by mining projects. Companies need to pay regard to these "soft law" standards and maintain an active dialogue with regulators to ensure that they keep pace with industry best-practice.
Despite the short term challenges, there remains real long term value in the Sub-Saharan African mining sector. As set out above, the region is 'under-mined' and has significant growth potential. Companies' long term success in the region will be defined by their ability to manage the effects of the low commodity price and get ahead of the regulation.