challenges in the southern african mining sector

20
Challenges in the Southern Africa Mining Sector Factors hindering growth in the Southern African mining sector Neelofar Shariff Mining Research Associate 24 th April 2013

Upload: frost-sullivan

Post on 16-May-2015

386 views

Category:

Business


1 download

DESCRIPTION

The Southern African mining sector is expected to drive economic growth for its respective countries in the coming years. The region has been a key area of investment from international companies due to the large amount of untouched reserves available.

TRANSCRIPT

Page 1: Challenges in the Southern African mining sector

Challenges in the Southern Africa Mining

Sector

Factors hindering growth in the Southern African mining sector

Neelofar Shariff

Mining Research Associate

24th April 2013

Page 2: Challenges in the Southern African mining sector

Today’s Presenter

Functional Expertise

Particular expertise in:

- Collecting primary and secondary data

- Research and project delivery for consulting projects

- Monitoring and Evaluation

What I bring to the Team

- Ability to work efficiently under pressure and as well as in a deadline driven environment

- Excellent research methodology and researching skills

- Highly motivated and results driven

- A positive and professional work ethic

Career Highlights

- Internships in the financial industry including retail bank and foreign exchange bureau

- Investment director for the Do-it foundation

- Owner of pay-per click start up business

Education

- Honours in Financial Analysis and Portfolio Management from the University of Cape Town, Cape Town (South Africa)

- Bachelor of Commerce (Economics and Finance) from the University of Cape Town, Cape Town (South Africa)

Neelofar Shariff

Mining research associate

Page 3: Challenges in the Southern African mining sector

3

1

2

4

Going forward5

Overview of the Southern Africa mining sector

Key challenges faced

Impact mapping of key challenges

Conclusion

CEO 360 Degree6

Focus Points:

Page 4: Challenges in the Southern African mining sector

Overview Of The Southern Africa Mining Sector

C

C

Cr

Resource Share of Global Reserves

Platinum 88%

Chromium 84%

Diamonds 48%

Gold 35%

Coal 15%

Copper 5%

Mineral Resources in Southern Africa, 2012Mineral Resources Distribution (Southern Africa), 2012

Southern Africa has a vast mineral resource base and is the only region in Africa that hosts platinum

Platinum

Gold

Coal

Diamonds

Key :

Page 5: Challenges in the Southern African mining sector

Key Statistics of The Southern Africa Mining Sector

Mozambique

Mining sector contribution (GDP)

3.0%

Mining contribution to foreign exchange

35.0%

Key commodities Coal, Titanium

Investment trend

Zimbabwe

Mining sector contribution (GDP)

13.0%

Mining contribution to foreign exchange

40.0%

Key commodities Platinum, Diamonds

Investment trend

Zambia

Mining sector contribution (GDP)

11.0%

Mining contribution to foreign exchange

60.0%

Key commodities Copper, Cobalt

Investment trend

South Africa

Mining sector contribution (GDP)

8.0%

Mining contribution to foreign exchange

50.0%

Key commodities Coal, Gold, Platinum

Investment trend

Page 6: Challenges in the Southern African mining sector

Key Mining Companies In The Southern Africa Mining Sector

South Africa

PlatinumGold Coal

Zambia

Copper

Zimbabwe

Platinum

Coal

Mozambique

Gold

Increased investment by existing and new mining houses is projected to drive growth of the Southern African mining sector by 6.0% annually

Page 7: Challenges in the Southern African mining sector

Southern African Mining Sector Challenges, 2012-2018

Page 8: Challenges in the Southern African mining sector

Key Challenges: Resource Nationalism

Indigenisation law in Zimbabwe

Implementation of rental tax in South

Africa

Resource nationalism continues to pose a high risk as governments go above and beyond taxation to attain sustainable benefits from the mining sector

Increased mining royalties in Zambia

Transformation of mining industry

Resource Nationalism

Page 9: Challenges in the Southern African mining sector

Key Challenges: Safety Concerns

Companies not meeting fatality rate

targets

Mechanisation imperative for safety

in operations

Mechanisationvs

Job creation

In order to improve safety measures mining companies will need to dedicate a portion of earnings to new capital expenditure to ensure a lower fatality rate in future operations

Page 10: Challenges in the Southern African mining sector

Key Challenges: Cost Inflation

Over the last decade cost inflation in the mining sector has averaged 5.0%-7.0% per annum and this trend is expected to continue increasing by an average of 10.0%-12.0% over the next five years

Increase in labour costs

Increase in energy costs

Increase in input costs

Page 11: Challenges in the Southern African mining sector

Key Challenges: Infrastructure Challenges

Infrastructure Challenges

Port Capacity Constraints

Insufficient TransportationInfrastructure

The inadequate infrastructure has lead to companies halting production as there is no channel through which commodities can be transported to export markets

Page 12: Challenges in the Southern African mining sector

Key Challenges: Environmental Concerns

• Mining activities produce negative externalities to the environment suchas waste, land degradation

• Compliance of stringent mining legislation has led to increased operating costs for mining companies

• It is imperative that mining companies adopt more environmentally friendly practices to maintain shareholder standing and to achieve sustainable operations

Page 13: Challenges in the Southern African mining sector

Key Challenges: Electricity Supply Shortages

Total electricity supply and projected growth in

demand (2012)

• The Southern Africa region is experiencing significant shortages of base-load electricity supply

• South Africa and Zimbabwe are the most effected due to lack of investment in power generation and distribution infrastructure

• Electricity shortages have resulted in mining companies reducing production capacity

C

a

p

a

c

i

t

y

M

w

Source: Frost & Sullivan

0

500

1000

1500

2000

2500

3000

-

5 000

10 000

15 000

20 000

25 000

30 000

35 000

40 000

45 000

Mozambique South Africa Zimbabwe Zambia

Installed Capacity (Mw) Deficit

Page 14: Challenges in the Southern African mining sector

Unimportant Critical

Very Uncertain

Very Certain

InfrastructureChallenges

Cost Inflation

Resource Nationalisation

Challenges

Electricity Shortages

Source: Frost & Sullivan.

Impact Mapping Of Challenges Faced

Safety Concerns

Environmental Concerns

Challenge 1–2 Years 3–4 Years 5–7 years

Resource nationalism High High High

Safety concerns High Medium Medium

Cost inflation High Medium Medium

Infrastructure challenges High Medium Medium

Environmental concerns Medium Medium Medium

Electricity shortages Medium Medium Medium

Page 15: Challenges in the Southern African mining sector

Strategic conclusions

Increased operating cost

pressures

The Southern Africa mining sector will have increased operating expenses. Thiswill add pressure on operating margins which will lead to a decrease inprofitability

Stoppage of production

High costs coupled with inadequate infrastructure will lead to production halts inmines. This will have knock-on effects on the country’s GDP in terms of

Employment of mine workers Revenues earned by mineral sector

Bias in decision making

Increasing government interference resulting in mining companies making decisions on what is politically acceptable than taking into account commercial considerations. Examples include

Zimplats in Zimbabwe Anglo American in South Africa Gemfields in Zambia

Conclusions

Page 16: Challenges in the Southern African mining sector

Going forwardRe-evaluation of high cost and non-core

Business units

Sustainable cost reduction processes

Forming key partnerships

Outlook For The Future

Diversified mineral portfolio

Page 17: Challenges in the Southern African mining sector

Next Steps

17

Develop Your Visionary and Innovative Skills

Growth Partnership ServiceShare your growth thought leadership and ideas or

join our GIL Global Community

Join our GIL Community Newsletter

Keep abreast of innovative growth opportunities

Page 18: Challenges in the Southern African mining sector

Your Feedback is Important to Us

18

What would you like to see from Frost & Sullivan?

Growth Forecasts?

Competitive Structure?

Emerging Trends?

Strategic Recommendations?

Other?

Please inform us by “Rating” this presentation.

Page 19: Challenges in the Southern African mining sector

Follow Frost & Sullivan on Facebook, LinkedIn, SlideShare,

and Twitter

19

http://www.facebook.com/FrostandSullivan

http://www.linkedin.com/companies/4506

http://www.slideshare.net/FrostandSullivan

http://twitter.com/FrostsullivanSA

Page 20: Challenges in the Southern African mining sector

20

For Additional Information

Samantha James

Corporate Communications

+27 (0)21 680 3574

[email protected]

Neelofar Shariff

Research Associate

Mining

+27 (0)21 680 3572

[email protected]

James Maposa

Research Manager

Mining

+27 (0)21 680 3203

[email protected]

Guillaume de Bassompierre

Business Development Director

Mining

(+27 (0)21 680 3203

[email protected]