By Shirley Webber
03 February 2021 – For all the challenges and the uncertainty caused by the Covid-19 pandemic, the outlook for the mining sector in Africa looks remarkably upbeat. Furthermore, a shift to cleaner energy bodes well for African mining.
As a sign of the times with many organisations shifting their in-person events to virtual meetings following social distancing recommendations, the 2021 Mining Indaba was held virtually this year on the 2nd and 3rd of February. For all the challenges and the uncertainty caused by the Covid-19 pandemic, the outlook for the mining sector in Africa is remarkably upbeat.
At the time the pandemic hit the African mining sector in the first quarter of 2020, everyone expected the worst as mining operations were closed and the global demand for minerals and metals dried up on the back of economies grinding to a halt, with a focus shifting to preserving human lives.
The sector went into a challenging period. However, mining companies have done very well on the back of high commodity prices, and we believe the outlook for mining for minerals and metals is optimistic.
The pandemic has had adverse and far-reaching effects on numerous sectors. However, one of the unintended, but positive, consequences has been the steep acceleration and acceptance of energy transitioning from fossil fuels to greener, more sustainable forms of energy. And while energy transition pressures could decrease Africa’s economic outlook in the short-term, mostly where oil and coal have played such a substantial role in powering local economies, the global shift to alternative and cleaner energy sources bodes well for Africa.
Price, supply and demand will further improve during 2021 and onwards as the world is expecting a recovery from the impact of the Covid-19 pandemic. Africa is rich in natural gas, energy, minerals and metals, particularly those utilised in battery storage technologies, electric vehicles and other power generation alternatives such as copper, lithium, cobalt and graphite. This will ensure that the economic growth of the continent continues, and, over time, more governments will promote the use of these greener energy technologies.
Copper was at a price high during the pandemic and we foresee the price levels holding up in 2021 due to the demand from China, the US and India.
Absa is leveraging its expertise and resources to offer financial and risk management solutions to support sustainability and unlock value across the continent. Absa understands the complexities of the mining sector across Africa, particularly during a time of tremendous social and economic upheaval. Its integral role in society, supporting and helping shape the mining sector, is a key imperative under the Environmental, Social, and Governance (ESG) principals along the mining value chain.
Private equity funds will be looking at diversified portfolio investments with a clear strategy in decarbonisation, with transparency on economic impact, communities, and the environment. The focus on decarbonising strategies is here to stay and will just increase. The sustainability focus will remain, governments will impose this, and companies will have to adhere to stricter ESG policies.
Absa had also seen more requests for proposals from mining companies in Africa to set up power generation supply for their operations. This could either be done by raising financing on the balance sheet or purchasing power from independent power producers to cut dependence on costly utilities.
Capital expenditure in greenfields and brownfields mining operations were likely to increase this year on the back of commodity demand and price forecasts. Simultaneously, over the longer term, the competitiveness of green power solutions and the importance of alternative energy sources will significantly boost Africa’s mining sector.
The industry still faces challenges, including stable operating environments to attract investment, rising production costs, infrastructural challenges, reliable electricity supply, and volatility in commodity and foreign currency markets.
There may well also be further disruptions to mining operations until an effective Covid-19 vaccine roll-out has been secured; but the sector has shown its resilience and ability to innovate and turn around what had the potential to cripple the industry into a positive outcome.
With the increasing and ongoing demand for natural resources globally, Africa will be in focus for many years to come. The key to unlocking this is for industry stakeholders to continue to collaborate responsibly to promote economic growth. Working together to support the value chain is going to be crucial for the success of this industry. Absa is committed to supporting Africa’s economic growth and diverse mining and energy projects across the continent that are environmentally, socially, and economically feasible.
Shirley Webber is Absa’s Head of Natural Resources and Energy at Corporate and Investment Banking, one of the silver sponsors of the annual Indaba.