Value for money.

Author:Ross, Priscilla
Position:Mining industry in Africa

Priscilla Ross attended the recent Global Emerging Markets conference in London in an effort to assess the African mining position in the scheme of things. Some surprising discoveries awaited her.

The annual Global Emerging Markets conference in London is a good opportunity to asses just how well African mining is perceived to be measuring up to other emerging markets, and how well mining in general is being favoured by the investment bankers.

Unfortunately Africa is still seen as the poor relation of international emerging markets, but even in this harsh judgement lies an opportunity. The darling of the emerging markets remains Latin America but, for instance, a delegate sitting next to me said he was investing in Africa because it is relatively such good value. The exploration concessions have become cheaper in Mali now that the mentality of 'closeology' is disappearing (any land package close to a known major resource commanding a premium price because of proximity); and the concessions in Africa are liberal in size compared to other jurisdictions.

So much for anecdotal evidence. Africa's performance on the international mining stock-market score-card is worth checking out. Mr John Barker, vice president of Global Mining Analyst, RBC Dominion Securities Inc, pointed out that the Toronto Stock Exchange (TSE) gold index is the best proxy of the gold-mining industry as a whole. The adjusted market capitalisation per ounce of reserves for African gold producers has fallen 52% since March 1997. This is much more than the figure for tier-three northern American producers (production of less than 100,000 ounces), whose adjusted market capitalisation has fallen less, at 47%, despite the ripple effects of the Bre-X gold fraud scandal in Indonesia and the sliding gold price. On the TSE, north American gold producers still command a share price premium to all other producers despite the fact that listed African gold producers have the strongest balance sheets.

According to the Metal Economics Group, global mining's estimated exploration budget grew by a frisky 30% to $4.6m in 1996, but Africa represented only 12% of this total global exploration expenditure with Latin America commanding 27%, Australia 19% and Canada 13%. The question being posed is whether or not internationally, the mining industry is at the tail end of an exploration boom and that in a year's time there could be fewer people in the industry.

The bankers were certainly encouraging...

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