Commodity prices are at their lowest in 12 years. The
world’s biggest mining companies will scale back spending by $20 billion this
year, according to Macquarie Group Ltd., as they cut growth plans amid waning
demand for raw materials. With projects planned during the decade-long commodities
boom now being shelved, Africa is likely to bear the brunt of the cuts,
investors say. Of the 20 countries most reliant on mineral exports, 10 are in
Africa.
The Nedbank Africa Mining Index, which consists of 20
companies including Johannesburg-based Impala Platinum Holdings Ltd. and
AngloGold Ashanti Ltd., touched a six-year low in December, indicating
investors’ negative outlook for the continent’s prospects.
“Africa has such potential and resources to be developed,”
Pictet’s Moorhead said. “But to realize that, you need to spend a lot of cash
and that’s a story, in general, investors don’t want to hear right now.”
“People are cutting back on Africa more than say Australia
because Africa tends to be high on the cost curve,” said Andrew Lapping, who
helps manage $39 billion at Allan Gray Ltd. in Cape Town. “Suddenly they’re
having to cut capital and decide which are their best projects. There are less
of those in Africa than in other regions.”
Unrest in the Democratic Republic of Congo as well as
uncertainty over mining taxes in Zambia -- the two largest copper producers on
the continent -- has added to investor unease in recent weeks. The pullback
presents a challenge to nations such as Botswana and Guinea which, according to
the International Council of Mining & Metals, derive more than 60 percent
of their exports from minerals.
BHP Billiton Ltd., the world’s biggest mining company, is
moving to spin off its Africa-focused assets into a new company called South32,
while Rio Tinto Group, the second-largest, exited its Mozambican coal business
last year after writing it down by $3 billion. Glencore Plc’s South African
coal unit will cut annual output by half amid a “continued deterioration in the
export coal price,” it said last month. Anglo American Plc is looking to sell platinum
mines in South Africa and its iron-ore unit is planning to reduce capital
expenditure 20 percent. West Africa-based producers of iron ore, which has
declined 54 percent to $61.64 a metric ton since the beginning of 2014, have
been particularly hard hit. London Mining Plc was planning a $400 million
expansion of its Marampa operation in Sierra Leone in July but by October it
had called in administrators. African Minerals Ltd., which also produces the
steelmaking ingredient in the country, shut its mine in December.
“Traditional mining areas, even places like Australia and
Canada, will all be hit but particularly in Africa where you’ve got big
projects being built,” said Clive Burstow, who helps manage $44 billion at
Baring Asset Management in London. “Companies have become very Darwinian in how
they look at capex. Projects have to make a return.”
In Zambia, First Quantum Minerals Ltd. and Glencore are
among companies that have suspended projects valued at more than $1.5 billion
in Zambia because of a tax dispute, while Barrick Gold Corp., the biggest
producer of the metal, has started the process to put its Lumwana mine under
care and maintenance. Vedanta Resources Plc, founded by Indian billionaire Anil
Agarwal, is reviewing its Zambian copper unit amid a 23 percent slump in the
price of the metal to $5,663 a ton since the start of 2013 and higher taxes
introduced last month. Minerals from Zambia, Africa’s largest copper producer
after Congo, comprised 69 percent of the country’s total exports in 2012
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