provided the financing needed to develop the infra-structure to developing countries. Examples of such aid are the infra*
structure developments in Botswana to support the diamond and copper nickel mines and in Guinea to support the development of
bauxite mines.
DIFFICULTIES RELATING TO MINE FINANCING
a. Difficulties arising out of mine financing - the point of view of the producer country
Conflicts have arisen between governments of the host mineral producing countries in developing countries and foreign mining companies as each group has attempted to maximise Its financial benefits derived from mining^operations. The host mineral producing countries want to obtain maximum benefits from their non-renewable resources while :the mining companies main interest is to obtain maximum profits, from their invests ments. In addition, the pre-independence.mining agreements had conferred all rights to the mineral resources both in the
ground and after extraction from the ground to the foreign mining companies, a situation that could not be accepted by the independent countries of Africa. In order to exercise more control and to obtain more benefits from mining^operations, some countries in developing Africa have acquired some share participation in the mining operations while others havc^
thought it appropriate to nationalise the indsutry out-right.
However, it must be emphasized that only a few mineral produc ing countries in developing Africa have had success following out-right nationalisation of the mineral industries in their respective countries. Of those countries who:have succeeded in making nationalisation wor'x satisfactorily are the petroleum-producers. The reason for this success is that petroleum as a - commodity is in great demand and therefore the marketing of
petroleum presents no problem. However, the same cannot be said
for the hard-mineral commodities.
As observed .earlier, the majority of the minerals produced in developing Africa are all exported. There is hardly any mineral consuming sector in developing Africa considering the enormous volumes of mineral commoc'itiec. that are proceed and.
exported. In fact, very.often the foreign mining operators in developing Africa are the same consumers of the minerals mined.
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and because foreign, mining companies, as a strategy, possess several mining operavions in politically and geographically located different countries they may decide not to buy mineral commodity produced from a nationalised mining operation in one
country. :
Regarding mining operation developed in the framework of transnational vertically integrated operations, the operating mining companies established in the developing countries are^
obviously not anxious to make direct financial profits. Tlieir main objective is to make available to the consumers of the mineral raw material (i.e.. those who provided the finance to ect-ablirch i;he raining operations in developing countries in the first place) with cheap mineral commodities. It is therefore not surprising that the host governments which have attempted to acquire some equity participation in the operating mining
companies have been disappointed, as Liberia has bitterly learnt that owning a SO per. pent sharing in the profits in the foreign-owned, ircn ore mining, company may mean no financial benefit at all since the prices paid for the iron ore raw material >y "the
consumers are unrealistically low for the operating iron ore mining company to break even,
; Again because the foreign-owned mining company in a
developing country is required by agreement to procure some of its supplies and materials needed to sustain mining from one
supplier (who may be a member of the syndicate that made available part of the financing that enabled tfce mining company in]a
developing country to start mining operations), the prices paid by the ..raining company in a developing country for .Its supplies are therefore higher than vhey would have been had the fining company obtained its supplies through international tender bidding which could result in more competitive prices for .the company's
requirements.
For all forms of mine financing involving foreign mining companies the question of utilising borrowed instead of own capital by;the foreign mining company reduces taxable income^
which a developing country is anxious to earn from the exploita tion of its non-renewable resources- Usually what happens is that when the accounts are being prepared the foreign mining company In a developing country deducts.; interest payments* which are always above the normal average for projects based in the developed nations, .thereby reducing further ice profits wiiicii in turn leads to reduced taxes that have to be paid to the host
government.
Overall as countries in developing Africa have exerted foreign mining companies, to pay more to the host governments, less and less financing ,has been made available for mining projects in developing Africa. And particularly affected has been exploration activity in the region. The difficulty'df
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financing mining development in developing Africa has been increased because of the countries' indebtedness and therefore their inability to service hew debts. Financial institutions usually establish what are called "Country limits1 for lending to a particular developing country and when these limits are reached no further lending will be made for other new projects in that country however economically attractive those projects may be. It must be recognised that the majority of countries in developing Africa, except for the petroleum producing :;
countries, are currently considered by lending institutions to have reached their borrowing limits.
Added to their current indebtedness, the problems of financing in the countries of developing Africa have become almost insurmountable as a rpsult of the sheer size of the mining projects that are currently considered appropriate for financial suppprt. For the project to be developed the host government may be required to contribute to the development of the infra-structure, an<£ for most countries in developing Africa this is a big problem given their already high indebted
ness D
Connected with the large sizes of new mining projects is the usual constraint no two similar projects can be developed in two different countries at the same time, because of the financial and marketing constraints. This situation creates competition between countries of developing Africa having more or less similar projects. The result is that each country tries to offer the most attractive terms and thereby often weakens its bargaining position with the transnational mining corporation on matters such as taxes, royalties? etc.
b. Difficulties arising out of mine financing - the point of view of the foreign mining companies and financial institutions
It was observed in the previous section that there exist a continuing conflict between the mineral producing country which expects maximum financial benefits from the exploitation of, the country's non—renewable mineral resources on the one hand and;the foreign mining company whose driving force is to make maximum profits from its mining operations oh the other. Every time the mineral producing, country takes more from the mining operations it means that the foreign mining company has to take less. As a result foreign mining companies have become reluctant to invest in mineral development in developing Africa.
It will be recalled that under project financing the main essential elements in the financing arrangements were that the project was supported by the mineral purchase agreements on the one hand and the completion guarantee on the other as well as the presence in the project of a team, i.e. transnational
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mining company with effective technical and administrative control and incentives of a major stake in the equity. Tilth.
-independence as observed earlier, many governments took
control of some aspects of the mining operations with a result that the transnational mining company could neither claim to be the sole owner of the ores in the ground nor could they claim to control the proceeds from the sales contracts. In many cases their claim on the assets of the project as a whole
also became questionable. Thus, the basis on which debt-financed
projects were funded two decades ago are no longer available in the mineral-posGceeing countries of developing Africa. Therefore for a project to obtain debt-financial support at this time, it must be exceptionally economically attractive. However, becauseof the recession and low demand for mineral raw materials
economically attractive projects are extremely few and these
include almost only the fuel and precious mineral resources.For this reason several projects involving the hard-mineral resources in the countries of developing Africa cannot hope to easily receive development funds from the debt-financiers in the next five to ten years unless there is an upturn in the economies of the industrialised nations, particularly those
of the Nest.
Another difficultyis that because mining projects these days arc so large it takes a long time for the project sponsors to attract other participants to join the project and to raise the necessary funds to develop a mine. As observed earlier, not only arc large amounts of money needed to carry on mining