Don’t bet on bulk - comment

The geology of the African continent is as diverse as its people. There are countries in Africa that are incredibly rich in natural resources, but for a number of reasons a large percentage of exploration projects never get off the ground.


There are some deposits currently being explored that will remain below the African soil forever. Their remote locations do not make them viable to pursue. Currently the Achilles heel of most junior exploration companies is the vagaries of the commodities market and the reluctance of investors to let go of their money when times are tough. When there is a commodities boom, however, it is easy to get funding. At the same time it then becomes a lot easier to solve infrastructure challenges.
At USD170 (R2 500) per tonne, iron ore projects in West Africa looked mouthwatering in 2011. Investment flowed in and it made perfect sense for even the most prudent economist to build preposterously long railroad lines in excess of 400km for the product to get to port. Five years later, all but the most resilient mining companies have left, leaving their host countries in shambles, and returned to their countries of origin with burnt fingers. Africa is not bulk material friendly.
Ask those brave coal miners in Mozambique and the abovementioned West African iron ore pioneers. Hauling tonnes and tonnes of coal, manganese or iron ore from remote locations to port over hundreds of kilometres just doesn’t make any sense, especially at ridiculously low prices. And to make things worse, all indications are that bulk materials are not likely to reach those historic highs again soon, if ever. So it is highly likely that these deposits are the ones that will remain untouched for at least the foreseeable future, as they should.
In comparison to bulk materials, precious metals like gold, silver, platinum, palladium and diamonds deliver much better returns. Gold and diamonds don’t require road or rail to be transported – the product can be flown out. Gold will always remain a safe haven in the global economic pressure cooker, and diamonds have been in demand for centuries.
Gold and diamond prices are not as volatile as bulk materials, and not as dependent on Chinese demand. The gold price held firm when there was carnage all around it on the markets last year. And Africa has no shortage of gold and diamonds. They are the backbone of Africa’s mining industry and they have been so for a long, long time. And just to prove the fact, gold has been the shining star over the last four months in a mining environment that has not looked as rickety in many years.
Therefore it is encouraging to see such a host of new gold and diamond exploration projects gaining momentum, many of them being developed into full scale producing mining operations. Good results from gold exploration projects in Mali, Burkina Faso, Ghana, Ethiopia, Liberia and even Zambia are being made public.
Most new mines currently being built in Africa are gold mines, and most of them are in West Africa. A good example is Ghana, which boast 45 mining projects covering five commodities. Thirty-two mining and exploration companies are active in Ghana. The largest share of current mining projects is exploration-based and account for 27 (or 61%) of the total 45 projects recorded. Current exploration projects comprise four of the five main commodities produced by Ghana; gold makes up 90%, while oil, manganese and diamonds represent 3% respectively.
However, for me the place to be is probably Mali, where joint ventures, new discoveries, intrepid explorers, established mining companies and colourful executives make it one of the most vibrant and diverse mining regions in the world, despite its perceived political risk. 

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