It is possible to work in most African countries, provided there is an investor-friendly fiscal regime, the correct asset, a diverse management team and a flexible execution strategy, says mining consultancy Madini’s Andries Cilliers.

Madini has supported African mining projects for the past 20 years, bringing its practical, on-the-ground experience to projects ensuring engineering solutions that are fit for purpose; simplified and cost effective. Madini often finds itself on the client’s side of the table helping to reduce costs and eliminate unnecessary complexity which looks great on the design table, but creates unforeseen problems when implemented in remote sites in Africa, explains Cilliers

In recent years, the business environment in Africa has changed substantially.

“Advancements in technology, such as Internet connectivity and mobile communications, have allowed for effective remote monitoring and management of focused field teams. This, in turn, has reduced operational costs and made early-stage project sites more accessible than they previously were.”

Cilliers adds that investment in infrastructure, better banking systems, increased government capability and capacity, better personnel skills, as well as improved logistic chains, flight routes and transparency have all assisted in advancing projects.

Subsequently, investors are becoming increasingly cognisant of the fact that Africa is a major opportunity. However, an understanding of the risks involved in operating in Africa is still lacking and, for the most part, these risks are overstated or can be effectively mitigated, says Cilliers.

He highlights that there are still numerous high-quality mining assets in Africa that can be developed to provide a significant return on investment for all stakeholders.

“Additionally, mining service providers have started appreciating the importance of Africa, with the quality and competition of various services and machine suppliers rapidly increasing, as these companies race to establish themselves on the continent.”

Tackling Challenges

Cilliers adds that Madini’s strength is operating in African jurisdictions that are generally viewed as having challenging business climates by most investors.

“We devote a lot of time to developing plans and strategies that acknowledge and deal with these concerns. It takes time to operate efficiently in a new country, but we are assisted by our network of contacts and experience in various countries and commodities.”

However, the Covid-19 outbreak has presented mining companies with new challenges, such as the lack of available risk capital and consultants not being allowed to travel.

“During this time, we have been working with clients to help them define development programmes that result in reduced investment, where possible, and ensure that expenditure is likely to lead to a significant change in value. In some cases, however, to the dismay of investors, projects need to be stopped, as there are more viable projects available that present better investment opportunities.”

In response to the travel restrictions, Madini is looking at historical data sets to potentially assist clients with decision-making when evaluating new projects. The company is also reaching out to contacts with experience in popular commodities or countries to expand the company’s reach and understanding.

Meanwhile, the imbalance between governments’ requirements and the correct execution strategy for a mining project remains a considerable challenge.

“African governments need to attract investment, create jobs and collect tax revenue as quickly as possible to assist with the continent’s economic development. Conversely, a mining company needs to carry out drilling and required studies while spending capital as efficiently as possible to ensure that it attracts new investors to fund its project as it progresses through different development stages,” outlines Cilliers.

In some instances, the short-term needs of government place a heavy burden on smaller developing projects and can compromise the economics and, thus, the project’s ability to attract investment capital, he says.

Madini believes that proactive engagement with government and relevant ministries can help foster goodwill and help mining companies to influence government policy to encourage the “right” investment and avoid overpromising and underdelivering.

Although active in several African countries, including the Democratic Republic of Congo and Gabon, Madini is focused on Guinea, which presents some risks that need to be managed carefully, but the scale and quality of the country’s assets present “exciting opportunities”, says Cilliers.

“The African business environment needs to be viewed in the context of asset quality. Most issues can be overcome, but they will need greater investment from management as they go through the learning curve with government.”

Guinea, for example, has come a long way in the past ten years and, although there are often various challenges, it is possible to take projects from exploration through to production, states Cilliers.

Early-stage projects with small executive teams in Africa are presenting the greatest opportunities for Madini, as the employment of multiple full-time workers on a project is often not the most efficient option for early-stage assets. It is also important for companies to secure the services of consultancies that have the required practical on-the-ground experience in developing, building and operating projects, he adds.

“Madini offers a helpful middle ground by providing practical consulting services on an efficient basis. We practise transparency with our clients and are not afraid to raise potential issues with a project or highlight that further capital investment may not be appropriate.”