UNITED NATIONS
ECONOMIC AND SOCIAL COUNCIL
Distr.
LIMITED
e/cn.u/t.hNc8o/5
2 December I98O Original: ENGLISH
ECONOMIC COrMISSION FOR AFRICA
Regional Conference on the Development and Utilisation of Mineral Resources in Africa
Arusha (Republic of Tanzania), 2-6 February I98I
Exploitation of Mineral Resources and Development Trends of the Mining Industry,
in Africa
For technical reasons, this document has not been formally edited.
LIST OF CONTENTS
A. Introduction
1,~ historical perspective
2. Late post-independence to present ; 1
(a) Minerals produced in developing:. Africa 1.-3 (b) Mineral production and consumption indeveloping Africa o-*
(c) IVsitive and negative aspects of the development of miiing industry in the
economies c,f developing Africa 4 (i) Share of minerals output in GDP 4-5
(ii) Share of minerals exports in totalexports ■ d — D
(iii) Share of minerals in government
ft 7
revenue formation u — /
(iv) Share of employment in mxning in
1 ft
total employment . •■_. ■ ■' "
(v) Role of mine development in infra- ,
structure development , ( o°
(d) Importance of developing Africa*s mineral
production in the world ° ~
(e) Factors affecting runeral production in
developing Africa
(i) World demand 1°
< (ii) fcrId inflation , - 10 - 11
(iii) Domestic factors n " 12
B, Some apsects in mining and mineral development in
developing Africa 12
1. tfedn trends in mineral output ™ ^
2« Trends in mine financing
(a) Financii^g by'foreign private equity capital supplemented by internally
generated cashflow -^ ~ ^
- 2 -
Page
"" (b) Development in the framework of trans
national vertically integrated operations '15
(c) Project financing 16 -" 17
(d) Mine financing by producer countries : " 1?
(e) Mine financing by international agencies 18
3. Difficulties relating to mine financing
(a) Difficulties arising out cf mine financing
the point of view of the producer country 18 - 20
(b) Difficulties arising out of mine financing the point of view of the foreign mining
coBpanies and financial institutions , 20-22 4« '"" Summary and conclusions 23 — 2o
TABIJ3S
1. The role of developing Africa in world mineral production 1938, 1948, 1958, 1970 and 1978
2. Share of mining and quarrying value added in the total GDP of African countries in per cent 1970,
1974 and 1978 (constant 1970 US& factor cost)
3. Proportion of the value of the major mineral commodities exported fron countries of developing Africa in per cent of each country's total exports 4. Contribution of copper industry to domestic product,
revenues and exports: Gambia (current prices)
5. Employment in the mining industry in Zambia in ,x 1970, 1974 and 1978
6. Categories of work-force in the iron ore mining ,■.
industry in Liberia and corresponding wages and ...-.
salaries paid to each category during January - March, 1978
; 7/ The role of developing Africa in world mineral exports, 1975
A. Introduction
1. HISTORICAL PERSPECTIVE
The evolution of mineral exploitation in developing Africa can be divided into three main periods, namely, the pre-colohial i.e. before the partition of Africa in 1890, the colonial and early post-independ
ence (i.e. 1890-1969) and the late post-independence to the present (i.e.
1970 to present).
The pre-coionial period, consisted of small-scale mineral exploitat- tiona by the ancient Africans whose mining activities are marked by the extensive metal workings'of_especially copper and iron ore scattered in many places on the African continent.
After the partition of Africa which ushered in the colonial period, Africa was inundated by minerals explorers. Among them were individual mineral prospectors and companies. Some of the companies became so influential that in.addition to trading and exploring and exploiting for minerals, they administered the areas where they operated on behalf of their home governments. The British South Africa Company, under Cecil Rhodes, was such a company which not only carried out trade and exploitations for a variety of minerals in Southern Africa but succeeded in conquering and curving out a large area in the heart of Africa which were to becoifle Northern a.nl Southern Rhodesia, now the independent nations of 2kmbia and - Zimbabwe1, Respectively. \ '
The colonial period that followed immediately after the partition of Afric.sUis marked by an intensification in exploration and exploitation for minerals in the colonies by both individuals and companies origina ting from the nations of the cblonial powers; the Belgians in the Congo now Zaire, the British in north, central, east, west and southern Africa arid the French in West and North Africa.
' As mining activity grew, the colonial administrations set up mines and geological surveys departments in their respective colonies and were responsible for geological mapping and mineral prospecting and the
controliing of mining activities in the colonies. These colonial organ izations were particularly active, during the first and second world wars, in the search for mineral raw materials to support the war effort.
Their duties also included the granting of concessions and the collecting of lanri ¥eesand royalties on minerals won through mining and
prospecting activities.
2. LATE POST IND^ENDENCF TO THE PRESENT ■ . a, Minerals Produced in Developing Africa
The countries of developing Africa produce a whole range of mineral raw materials which are needed for modern industry. In the steel industry minerals the countries of developing Africa produce significant amounts of cobalt (in Morocco, Zaire and
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Zambia), chromium (Hfedagascar, Sudan and Zimbabwe), iron ore (in several countries in northern, western and southern Africa), Manganese ore (especially in Gabon, Ghana, Morocco and Zaire),
(Botswana, Morocco and Zimbabwe) tungsten and tantalum and
niobium (especially in Mozambique^ Nigeria, Zaire and Zimbabwe). ,
Vanadium another important ferrous mineral is also produced in
;significant amounts in Namibia- .
Among the non-ferrous^ base mineral raw materials group, copper heads the list both in its development in several countries of developing Africa as well as in its volume and value. In addition lead and zinc are produced especially in countries of the Maghrebine as well as in the countries of Central Africa; namely, Congo
(Democratic Republic), Zaire and Zambia. The fourth important base mineral is tin which also has a wide distribution in its production especially in Nigeria and in several countries of central, eastern
and southern Africa* . , . - :
Bauxite, magnesite., spodumene and or lepidolite or petalite and rutile are exploited as raw materials for the light metals
(respectively aluminium, magnesium, lithium and titanium) in a number of countries in developing Africa, Bauxite is currently being produced in Guinea, Ghana, Mozambique, Sierra Leone and Zimbabwe. I'jfeignesite is mainly produced in Zimbabwe and to a small extent in Kenya. Lepidolite and petalite are mined in Zimbabwe and Namibia and rutile (and ilmenite) in Sierra Leone.
; Gold and silver;are among the important precious mineral raw materials which are produced in the countries of developing Africa Gold, in particular, is produced in several countries but j.n very small,amounts. Silver is mainly produced as by-product of zinc and lead mining. Platinum group metal resources although known to exist in large amounts in association with the Great Dyke of Zimbabwe, only small amounts are currently being obtained from these resources,
A few countries in developing Africa, Zaire in particular, produce some of the nuclear and electronic mineral raw materials*
These include berylium, ceasium, zirconium, hafnium, cadminium,
selenium and tellurium.
Developing Africa is also endowed with large r> of radio-active mineral raw materials* uranium and thorium* These are located in Algeria, Central African" Republic, Gabon, Namibia, Niger and Zaire, but only those in Gabon, Namibia and Niger are currently
under exploitation.
The countries of developing Africa are also rich in fossil fuels. _ Petroleum, natural gas and qoal are (except in I-biocco) produced abundantly in the north African countries, in Angola, Gabon and in Nigeria, Coal is only produced in large amounts in Botswana, Zimbabwe, Zambia, Zaire and Swaziland and presently the
production of coal is increasing.
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The countries of developing Africa especially those in the northern region produce large volumes of phosphate rock among the mineral r£.w materials needed for the chemical and fertilizer industrieso These include, Algeria, Egypt, Morocco, Tunisia and Western Sahara* For the rest of developing Africa phosphate rock is produced only in Senegal and Togo while Zimbabwe and Uganda produce apr.tite*
The majority of countries of developing Africa produce (mostly for internal use) substantial volumes of■mineral raw materials needed for Construction and Ceramic industries. However there are among these countries whose production of industrial minerals is Zarj*e enough to meet the needs of both the home and the expert markets,, For instance Swaziland and Zimbabwe, the biggest produc ers of asbestos in developing Africa utilize some of their produc tion domestically and export the remainder. Other examples
include Egypt and TCenya which produce large tonnages of cement both for the domestic and export markets.
b, Mineral Production and Consumption in Developing Africa
i.tfineral production for lo major mineral commodities in develop ing Africa and ths world is shown in table 1. Generally mineral production in developing Africa increased from 193$ up "to 1970 but from 1970 to 1978 (or 1976/1977 as indicated in the table) mineral
production has declined with the exception of chromium, nickel, bauxite, antimony, uranium, petroleum, phosphates and asbestos. The data on world production on the other hand indicates that mineral
production has been increasing over the 193& to 1978 (or 1976/1977)
period except for nickel, lead, zinc, gold, antimony and diamonds which showed declines between 1970 and 1978,
Developing Africa*s mineral consumption is very negiligible as almost all the hard minerals produced are exported with the exception of iron ore in Algeria, Sgypt, Tunisia and Zimbabwe where it is utilized in■the local iron and steel xndustries, phosphates for local consumption in North Africa, the building materials and the raw materials for cement industries anc' the salt.
c. Positive an<~! negative aspects of the development of mining industry in the economies of developing Africa
The importance of mineral production in the countries of developing AZrica. can be assessed on the basis of the contribution of mineral production in GDP, exports, government revenue, employ ment and infra—structural development which are briefly discussed in the text that follows.
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(i) Share of minerals output in GDP
The. share of mining in the GOP of countries of develop ing Africa can be conveniently discussed if the share contribu tions are arranged in groups which have similar1 magnitudes as indicated in table 2a
The first group (a) comprises of countries whose shares of mining and quarrying in total GDP have been greater than 30 per cent during at least one year since 1970* This group includes Gabon, Liberia, Libya, JViauratania, Namibia and Zambia. It should be noted that the chares of mining and quarrying in the (DP of the countries in this group is cons istently above the average share of mining and quarrying in the GDP for developing Africa and Africa as a whole which in 1970, 1974 and 1978 was respectively 10B7 per cent, 8.3 per cent and 7«3 per cent, and 10,6 per cent, 12r6 per cent and 7»5 per cent*
The ...second .group, (q) cortiprises of countries whose share of mining and ^oarrying in the countries1 GD? ranges between 5 and 30 per cent*
The third group (C) comprises of countries whose share in mining and quaryying in the countries" GDP ranges between 1 and 'frper cent and the fourth group consists of countries whose share of mining and quarrying in the countries' GOP is less than 1 per cent or where mineral extraction industries are insignificantc
Generally, the share of mining and quarrying in the total GDP of countries of developing Africa has been declining since 1970* Cn examination of the mineral produotion statistics for 1970 and 1978 in the countries of developing Africa in table 1, it is seen that with the exception of nickelj bauxite, antimony, uranium, petroleum crude, phosphates and asbestos, production of the remaining mineral comintidities in countries of developing Africa has been below the 1970 levels.
. The data on-.the .shares of mining, and quarrying in the total GDP of especially, the.mineral—rich countries.of developing
Africa indicate a mineral industry which :.s still primitive and underdevelopedd Taking the illustrative cases of South Africa, Zimbabwe and Zambia, it: is seen thit the value of these
countries8 mineral output for 19?8piwas approximately tiS^jOOO;
2,000 and 300 million respectively^'1 Yet the share of mining
and quarrying value added in the total GDP of the three countries was respectively £,3 per centr 9«6 per cent and 27 per cent* The principal reason for this reversal in the level of output and share in GDP is that South Africa has a highly developed integrated mining sector and Zimbabwe is on its way to achieving that, while Zambia*s mineral industry has yet to take advantage of the multiplier effects associated with mineral
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processing and fabricating. It .follows therefore•that the large shares of mining and quarrying, in the total GDP of many countries of developing Africa are not necessarily a good indicator of the health of a country's fining industry.
In actual fact large shares of mining in (DP might point to the'weakness "that the economy has not exploited fully the benefits that the mining industry is capable of generating,
(ii) Share of mineral exports in total exports
The contribution of minerals in; the exports of coun- tries of developing Africa is very important because in. some of the mineral-rich countries the share of minerals in a
country's exports is very often as ijigh as 90. per cent. As
indicated in table 3 the mineral commodities account for more than 90 per cent of total exports in five countries, more than 50 per cent in 13 countries and 10 per cent to 30 per cent in
6 countries. Furthermore, table 3 indicates three groups of
mineral-exporting countries of developing Africa. The first group consists of countries with one principal mineral commodw ity whose value in a country's total exports is more than or nearly equal to 50 per "cent,. The /second group consists of countries where two or more mineral commodities account for more than or nearly 50 per cent of the country's total exports. The third group .c.oraPrises of mineral^producing countries where the value of mineral commodities in the respective countries exports is less than 50 per cent. It must be'emphasized, however, that these groupings refer only to a given period of time for the value of mineral e;cports in one country could, rise or fall depending on the level of the market prices prevailing, at a particular1 time or on the-level of production if the prices are more or less stable* However, the arrangement helps.one to identify those countries whose exports are dominated by the minerals sector and which of the countries have a diversified mineral industry*The majority of mineral exporting countries in developing Africa whose total exports are dominated by mineral exports are vulnerable whenever there are down-turns in the mineral markets. In particular the impact is greatest in those countries where one mineral dominates the country's export sector. For example in 1970 Zambia exported 534,000 tonnes of copper from which the country earned US£ 954 million.but in 1976 the country earned only USC 953 million, from.745,700 tonnes of copper exported. The fall ,in mineral prices r^ich coincided with the increases in the costs of production which were brought about mainly by the increases in the costs of imported materials and supplies needed to sustain mining further diminished the earnings obtained from mining opera tions. It should be noted here that the astronomical increases in the costs of manufactured goods in the industrialized
nations was a result of inflation caused mainly by the petroleum price increases of 1973/1974*
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For the countries in group H whose exports are dominated by a group of mineral commodities, are sometimes able to absorb the impact of decreasing mineral prices because it is unlikely that mineral prices for all the minerals will all decline at the same time. For instance, the average yearly price for lead in 1971 which was about
US? 270 per tonne rose steadily to reach US? 530 per tonne in 1974
before dropping to reach US? 430 per tonne in 1975 and rising again steadily to reach US? 780 per tonne in 1977. For the same period the average yearly price for zinc was about US? 300 per tonne in 1971, rose sharply from 1972 to reach a peak of about US? 1,000 per tonne in 1974 before falling down sharply to reach US? 700 per tonne in 1977.For a country like Tunisia which produces a variety of mineral commodities of which the most important are in order of declining importance petroleum, phosphate rock, zinc lead and iron ore, is able to absorb the effects of falling mineral prices of some of the minerals the country produces, provided of course, declines are not affecting the
whole group of minerals en masse.
Although the shares of minerals in the exports of the countries of group III in total exports are not as high as those of group I and II, .in some countries of this group, the value of mineral exports is very
important when the overall balance of payments is considered. For example, in the Central African Republic in 1977, the value of diamond exports which amounted to only abcut US? 10 million represented 17 per cent of the country's total exports. The significance of this example is that there exist several small mineral reserves in many developing countries of Africa which if they were exploited could add
significantly to the countries1 total exports,
(iii) Share of minerals in government revenue formation
The contribution of mining activity to government revenue in many countries of developing Africa is very important and in a number of eases governments depend heavily on revenue derived from the mining 'sector. As an example Nigeria in 1978 derived more than 75 per cent of
government revenue from royalties and taxes levied and profits made by right of its share-holding in the various petroleum-producing companies in the country. In fact during 1977/78 the country obtained nearly US? 7,400 million from the industry out of a total government revenue amounting to about US? 9,800 million.
However, it should be emphasized that too great a dependence of governments of mineral-producing countries in developing Africa on mineral export earnings as well as government revenue derived from
mining can be detrimental to the country's economy in times of declxmng mineral prices, a subject which is discussed in detail in section B.
The case of Zambia in 1978 shows this clearly. The effects of world recession to the country's copper industry as illustrated in
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table 4 resulted into a fall in the share.of copper in the country's C33P from 48 per cent in 1969 to only 11 per cent in
1978, a reduction in the contribution of raining to government
revenue from 235 million Kwachas in 19&9 to only 12 million Kwachas in 1976, a decline in export earnings with value of copper and cobalt exports dropping from 729 million Kwachas in 1969 to 608 million Kwachas in 1978 with an all time low of 454 million Kwachas during 1971- All these, of..course, had tremendous repercussions on the Zambian economy.-.
(iv) Share of employment in mining in total employment Mining in the countries of developing Africa.as every where in the world is a low-employment sector** However, in some of the major hard-mineral producing countries in Africa such as Zambia, Zaire and Liberia (table 5)s mining contributes about 15 per cent of total employment. However, more opport unities of employment do exist in some countries endowed with the high unit value minerals such as placer gold, tin., tungsen and gemstones since these resources can be conveniently
exploited on small scales with intensive labour methods. In the majority of countries of developing Africaj however, with the exception of Zimbabwe, the mining sector is poorly organiz ed such that the employment opportunities which might have been created by small-scale mining are not fully exploited.
Furthermore, more employment could have been created in the mining industry were fully integrated to include not only mining, but also mineral processing, refining and fabricating activities which have significant multiplier effects and link ages in any country's economic structure.
Also the industry's work force as it exists today in most countries of developing:Africa it includes a small but highly^
paid expatriate staff who- because they repatriate part of,, their savings to their home countries,, the mineraIntroducing country loses valuable and. much-needed foreign exchange. As an
example, the companies operating iron or^ mines in Liberia (table 6) paid out for the months January-I'Iarch 1978, UStf 5-9 million representing 48 per cent of the total wage bill amount ing to US? 12 3 million to only 971 expatriate staff and only US$ 6,5 million equivalent to 52 per cent of the total wage bill for the same period K> a work force of Liberians amount ing to 3,955 persons.
In addition to the group of highly paid expatriate staff found in the mine areas of countries of developing Africa, the nationals working for the mines as a whole are usually paid about four times the country's average. This group of highly paid elite demand consumer goods which usually contain a high
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import element. Not only does thic constitute a further drain on the country's available foreign exchange but there is definitely an imbalance in the stan^ar^ of living in the mine area vis—a—vis ^rhe rest of the country. Thus, most of the large to medium—scale min ing projects in developing Africa are enclaves within the producing country.
(v) Role of mining development in infra-structure development
Because mineral deposits in developing Africa are very often found in remote places without a developed infra-structure, new
infra-structures consisting of roads and or railways, water-supplies, electric power an" telephone links and social services — housing, schools, hospitals and shopping centres for the workers are usually built prior to the commencement of mining operations. ■Nhere these irii'ra—structures have been planned and constructed in such a way as to complement existing infra—structures such as have been the case in Botswana) they are a welcome addition and may stimulate more economic development in the host country. However, more often than not, the majority of the infra—structures constructed to service the mining areas in developing Africa have been built in isolation and without regard to the economic needs of the host countries. For example* the railways line built in Sierra Leone to serve the Marampa Iron Mine 'had a gauge different from that already in existence in the rest of
the country.
d. Importance of developing Africa's mineral production in the world
As table 1 clearly indicates the countries of developing Africa contribute a big share to world mineral production. For instance, in
1970 and 1978 developing Africa was the largest producer of cobalt which amounted to 16,966 and 14,001 tonnes of cobalt metal respectively and accounted for almost 71 and 54 per cent of world production., Again in 1970 developing Africa was the largest producer of diamonds amount ing to 17«7 million carats of industrial diamonds and 7-1 mill:*-0:1 carats of gem diamonds which respectively accounted for 6l.5 per cent and 56.0 per cent of the world. But by 1978 production had declined
to reach 14-6 million carats of industrial diamonds and 4.0 million carats of gem diamonds which respectively accounted for 53°O per cent and 39«3 per cent of world production.
Developing Africa's phosphate production for 1970 and 1978 amount ed to 20.2 million and 27.9 million tonnes respectively and accounted
for 24.2 per cent and 22.7 per cent of world production. Co\:y'j's production for developing Africa was, in 1970, 1.3 million tonnes and
in 1978 1.2 million tonnes and accounted for respectively 20.0 per cent arid I5.O per cent of world production. In 1970 developing Africa is credited with the production of 1.2 million tonnes of manganese pro representing 15 per cent of world production, but by 1977 production had fallen to reach 1.1 million tonnes and accounted for only 12 per cent of world manganese production. In 1970 developing Africa1s
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petroleum production amounting to 294-1 million tonnes accounted fpr; about 13 per cent of world production but by 1978 petroleum production had increased to reach almost 300 million tonnes which accounted for 10 per cent of world production. In 1970 bauxite production amounting to 3-3 million tonnes was produced in
developing Africa and represented about 6 per cent of world produc tion but by 1978 production had increased to more than four times the 1970 level of production to reach 13-1 million tonnes and accounted for 16 per cent of world production.
In 1970 developing Africa produced 238,300 tonnes of chromium
which represented about 9 per cent of world production but by 1978
production had increased to reach 267,500 tonnes and accounted for 6 per cent of world production. Tin production in 1970 amounted to 18,286 tonnes and accounted for 8 per cent of world production but by 1978 production had declined almost 50 per cent to reach 9,935 tonnes which accounted for only 4 per cent of world produc tion. The increase in uranium production in developing Africa has been phenomenal. In 1970 it was,4Q0 tonnes and accounted for only 8 per cent of world production but by 1978 it had increasedeleven times the 1970 level of production to r^ach 5,641 tonnes
and accounted for almost 17 per cent of world "production. Iron ore production in developing Africa which was 32.5 million tonnes in 1970 declined, by almost 40 per cent to reach,.19.7 million tonnes and accounted. for only 4 per cent; «f world production.
Lead and zinc; whose productions in 1970 in developing Africa were
219,100 and 265,000 tonnes respectively and accounted for 6.4 per cent and 4.8 per cent had by 1976 declined to reach 144,800
tonnes and 180,000 tonnes and their shares in world production had also dropped to 4 per cent and 3 per cent respectively.It must be emphasized that as the bulk of the minerals produced in,the countries of developing Africa and indeed the whole continent are exported, the continent contributes signif icantly the amount of mineral raw materials which are involved in international trade. For instance during 1975 for which adequate data is available, the countries of developing Africa contributed in tonnes and percentage Share of the world (as is clearly indicated in table 7) 212 million tonnes crude petroleum representing 17.0 per cent, 7.0 million tonnes bauxite and 700,000 tonnes of alumina which together accounted for 20 percent of the aluminium raw materials available to the consumers, 35-5 million tonnes iron ore concentrate representing more than 9 per cent,
109,000 tonnes copper concentrates and 28,600 tonnes of blister copper which together with slightly over 1.0 million tonnes of refined copper accounted for over 20 per cent of the world copper exports. Furthermore, the countries of developing Africa were the biggest contributors of natural phosphate rock to world
supplies during 1975- The tonnage available to consumers amounted to about 18 million tonnes which represented 49 per cent of total world.exports. Also the countries of developing Africa supplied 86,440 tonnes lead concentrates which together with 44»87O tonnes on lead metal produced in the region accounted for over 3 per cent
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of world lead exports. There was also 46,700 tonnes zinc concentrates which together with 82,650 tonnes of zinc metal accounted for almost 5 per cent of total world zinc exports.
Developing Africa also exported 8^020 tonnes of tin concent rates and 5»280 tonnes tin metal which together accounted for over 4 per cent of the total world' tin exports, and 3,960 tonne*
uranium contained in concentrates which accounted for over 25 p&r cent of world uranium exports w'
e. Factors affecting mineral production in developing Africa
As already noted in section A3(t>) mineral production in the developing countries of Africa has been declining since- 1970 with
the exception of chromium, nickel, bauxite^ iantimony, uranium, petroleum, phosphates and asbestos. The reasons leading to this decline in mineral production include mainlyr
(i) world demand;
(ii) world inflation; and
(iii) domestic factors in the producer countries.
(i) World Demand
Demand for most mineral commodities except bauxite, antimony, uranium^ petroleum and asbestos has been, on the decline since1the early 1970's mainly as a result of the world-wide recession especially in the industrialized countries of the west. As the recession deepened part
icularly after the petroleum price hikes which began at the end of 19731 th£ mineral markets became depressed further so that many ferrous and non-ferrous mines especially in devel oping Africa were operating at losses. Because of financial constraints resulting from the unrealistically low mineral prices, mining companies were forced to delay expansions to
production capacities and/or establishment of new mines.
Indeed, in many cases companies reduced production instead.
(ii) florid Inflation
T'Jorld inflation which was^ heightened by the petroleum price hikes of 1973 increased the costs of mining operations the world—over and this affected the mineral producing
countries of developing Africa more dramatically. In these countries the foreign exchange element in mine costs is always high because they import the bulk of the machinery, equipment and other various materials and supplies needed to sustain mining operatibns from the industrialised nations of the world. TJhat actually happened is that as the industrial ised nations paid more: for their petroleum imports, they passed on these increases through their exports of; manufactured goods, and especially capital goods, to the non—industrial developing countries. The combined effects of lbw mineral prices and the rising costs of the imported inputs forced mining companies to
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cut back in needed replacements which led to inefficient
operations and subsequently to declines in mineral production.
Particularly hit were the planned expansions and the
starting of new mining projects because as will be shown later, it became difficult to make estimations of the financing need ed for mining projects since one could not accurately foretell how much the necessary inputs would cost at the time of imple
mentation of the project.
Added to these difficulties were the unstable currency relationships which set in, I.feny mining projects nowadays are financed by a number of financing institutions who make their share-contributions in their national currencies. Thus the mining project in a developing country whose source of financ ing comes from several financing institutions of.the world could lose a lot of money because of the: unstable exchange
rates.
(iii) Domestic Factors
Mineral production in developing Africa has been on the decline also because of a number of domestic factors, which include, inter alia, depleted ore reserves, insecurity, poor arid inadequate infra-structures, mismanagement and policies
persued by the producing countries anrl/or foreign mining
companies.
In many countries the rich and. more accessible mineral ore reserves have or are nearing exhaustion. For instance in Ghana the gold ore reserves near the surface are almost exhausted and mining operations are now taking place at deeper levels. In..Zaire the more accessible alluvial and eluvial cassiterite ore reserves are exhausted and the technical manpower and financial resources needed, to mine the ore reserves associated with pegmatites and quartz veins is but VT"1 inadequate. In Nigeria mining for e&ssiterite alluvials has becdcie expensive anc1 difficult as a 10 metre jhick basalt overburden has toj , be removed before reaching the rich cassiterite gravels in the river beds.
Insecurity is another reason that has led to declining, mineral production in developing Africa, For instance, the 1975 civilwar in Angola led to the closure of the bifr Cassinga Iron ore Mines, and also disrupted the Benguela railway thp life-blood- of both Zaire and
Zambia external trade. ;-
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The poor and inadequate infra—structure, is another factor that has led to declines in developing Africa's mineral production* The inadequate and poor* transport facilities for Zaire and Zambia are the best examples0.
I/iismanagement in a few countries of developing Africa has also contributed to the regions declining mineral production. Uganda's Kiiembe limes is the extreme caseQ During 1970 copper production from this mine was 16,000 tonnes of blister but during the Arain Regime production declined to reach only 2?0Q0 tonnes, in 1978o
In a feu cases mineral production has been made to.
decline as government policy in order vo preserve mineral ore reserves for the growing domestic mineral industries.
In Tunisia for instance iron ore production has been reduced from 420,000 tonnes in 1970 to reach 173,-000 tonnes of
concentrates in 1978, representing a drop of 50 per cent.
Also there are known cases where the foreign mining company has instituted policies to reduce production and in extreme cases mines have been run-down until they ground to a halt.
Of course in some of these cases'both political anc! finan cial reasons have all been at play. For instance, the, Kbloum Iron Ore [line near Conakry was closed in 1966 by its British and French owners only 5 years after the Guinean government had taken over some equity in. the project and soon after the rich and huge Ikuritanian iron ore mines, where both the same British and French companies had large interests, had reached full productions
Some aspects in mining; and mineral development in developing :
Africa .
1. UAIN TRENDS IN MINERAL OUTPUT
In an earlier section, the growth trend* of mineral production were examined and it was found that mineral production in developing Africa as a whole increased up to 1970 and then declined for most of the commodities. It must, however, be emphasized that a decline or increase in production of a certain mineral for developing Africa as a whole in a given period does not mean that there is a corresponding decline or increase in production for that mineral in each of the countries of developing Africa. For instance, manganese ere produc tion for the whole of developing Africa declined from 1.1-3A million
tonnes (Lfri content) in 1970 to 1.053 million tonnes (\!in content) in
1970, representing a drop of 11 per cent below the 1970 level of production. However, for the same period manganese production in
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Gabon rose from 729,00:tonnes (l.fti content) iri 1970 to reach 846,900
tonnes (lin content) iri 1970 representing a rise of 16 per cent over the 1970 manganese production. £1 the case of petroleum, production rose from 294.1 million tonnes in 1970 to 299-7 million tonnes in 1973 representing an increase of 2 per cent aboe the 1970 level of production, while in Libya petroleum production was allottee! to decline as government policy from 159." million tonnes in 1970 to 95.8 million tonnes in 1970, a drop of 40 per cent below the 1970production levels.
Generally, however, the last one an£ a half decades there has : been a large increase, in the volumes of minerals that have been
extracted from mining projects based in developing Africa. For example manganese production from the i.'oanda mine in Gabon which was 0.6 million tonnes of manganese concentrates in 1965, had by 1972 reached almost 2 million tonnes of ore concentrates annually representing a rise of 230 percent. The trend in the production of large tonnages of minerals in developing Africa has come about as a result of the advances in bulk,shipping technology which allow the shipping of large quantities of ore to the consuming industrial ised nations of Europe, America and Japan and also makes the mining ventures in these countries economically viable and competitive.
Of course this trend in large mineral outputs from huge mining operations for especially the bulk mineral commodities has rendered small operations of the same minerals uncompetitive because their unit costs are higher than the large operations. Cases that
illustrate this are the Grand Lahou Lianganese Tine in the Ivory Coast and the. manganese operations in Botswana which closed in 1971
because they could not compete against the large operations of IJoan&t in Gabon and of several such operations in South Africa
respectively.
Another trend in mineral output in developing countries
especially in the mineral rich countries has been mineral upgrading through the acquisition of mineral processing facilities. This has particularly been the case for the : Taglirebine countries of Algeria, Iforocco and Tunisia as well as 2gypt, Zimbabwe, Zaire and Zambia.
In these cases, the iron and steel plants at ienzel Bourguiba and El Fouladh in Tunisia and the .El Hagar in Algeria and at Helwan in Egypt and at Redcliff in Zimbabwe all use iron ore feeds produced domestically. In the remaining iron-ore producing countries in Africa only pelletising plants have been built." Other ferrous mineral commodities which are being upgraded or where there are plans to establish processing facilities for them in the African producing countries include nickel, chromium and manganese. The nickel (together with copper) in Zimbabwe is smelted and refined in the country (at Bindura and Gatooma), In Botswana the nickel- copper sulphide concentrates produced at Selebi-Pikwe are smelted into copper-nickel matte. Again in Zimbabwe a large proportion of
as
S/CN.H/lCTN.80/5
lage 14
the chromium producer' is converted into ferro-chrome in I?io
(Zimbabwe) Ltd ahc1 /ji^lo-American f2rro-chro::c plants located rscfifefe- tivsly in the .adlands an" at Gwolo. In Gabon there are plaits to
convert.^ proportion of the nanranocc -oro^xe'1 into fcrr0-f-a.n3s.necc and
silicon-manganese* In Giana there are plane to produce manganese
nodules and"electrolytic manganese dioxide from the carbonate manganese
ores. " '■
The non-ferrous mineral raw materials have also been similarly
upgraded. Samples include the Ifegrine lead-silver^smelter inWsia, the Ghazaouet electrolytic zinc plant in Alge— ««
copper (and nickel) smelting anr? refining facilities :
already noted above and the many copper smelting and refining
facilities and cobalt processing plants found in Zaire and Zambia
as well as the tin smelters found in Zaire and. Nigeria and recent in Rwanda, all attest to the efforts being undertaken by mineral-producing countries in developing Africa to upgrade their mineral
commodities.
Again in connection with mineral upgrading there is a tendency
for developing countries to negotiate the inclusion of ™"~he
W facilities together with the mining operations. For instance the7 million tonne Jr year Bc*e bauxite; oroject in Oainea ,hich cane Ir^tream in 1975 uses some of the bauxite production to produce
alumina in a plant constructed along with the mining operatons.
It must be noted however that developing countries are showing some progress in the field of mineral processing because in the
1 ...I- .I- i ^^+-^^.«r? +-fcr>r*f* -i s a shortage as wel-L as of mineral
sj?ss ^r'
neede.: in the upgrading of their mineral ores.
2. -TRENDS IN "ISiriE FINANCING AND iHNE DT2VELOHENT
Financ^^^ supplemented -:
by internally generated cash^flow
Before developing countries became independent, the colonial
allowed the staking of large concessions by
companies at nominal fees and operating companies
E/CN..U/MIN.8O/5
•"■ J Page'15
As noted earlier, during and immediately after the world ware, demand for mineral materials was high because minerals were needed to support the war machine industry arid to carry on the expansions of the economies of the industrialised nationa.
At thai: time, the traditional mining companies could not even satisfy the then prevailing demand for mineral raw materials.
At the same time many of the rich ore deposits in the industrialised world were nearly or had been depleted and the majority of such deposits in developing countries ere under exploitation or remotely located and so the industry turned to the exploitation of large but low-grade mineral deposits which, with the advances jn technological development in mineral
extraction from the ground and mineral processing that involved the handling of large volumes of mineral ores, the financial capabilities of a single traditional mining company., For not only Here large amounts of finance needed for mining operations but also large amounts of money were needed for a whole array of new infra-structures which had to be builds and in a number of cases the latter costs far exceeded the funds needed to
develop actual mining operations. Thus, for such projects several mining companies had to pool their resources together to raise the necessary financing. This resulted in the formation of huge transnational mining companies* Indeed these days, it is
impossible to find a large mining operation which is not owneci by more than one or several mining companiesc
One other attraction in the internationalisation of
financing needed for mineral projects in developing Africa was that such arrangements could act as deterents to nationalisation.
Of course nationalisation was not deterred? instead it came.
b. "tevelbpment in the framework of transnational vertically
integrated operations
During the 196O's there evolved another form of financing
designated "development in the framework of transnational vertically integrated operations". This form o£ financing involves a group of consumers of a certain mineral raw material who between them raise the necessary financing to start mining exploitation for that raw material in a developing country. They establish a mining company for the purpose and lend it the funds in order to enable it carry out the mining operations. The bauxite projects in Guinea and Sierra Leone and the iron, ore projects
in Liberia, Ilauritania and Sierra Leone fall under this category and have been financed principally by the consumers of aluminium smelters and fabricators, and the iron and steel-makers of Europe, the Uhitea States and Japan respectively*
5/CNU4/I-HN.8O/5 Parre 15
c. Project financing
TTith independence (1957-1964) the newly emerging nations began to take over control of some key decisions affecting mining operations in their countries as well as those connected with mineral marketing,, In addition they imposed higher taxes and royalties in order to maximise the revenue derived from their non-renewable resourceso Others were content to take some share participation in the mining companies while others resorted to outright nationalisation in order to exercise full sovereignty over their natural resources. The mining transnational companies took this action as being hostile. They reduced mineral explora tion activities in developing countries especially those of Africa,. Mining development projects were deferred,, They concentrated their mineral exploration and mining development programmes in the so-called politically and financially stable countries, namely Australia, Canada, the United States and South Africa and to some extent the then white—ruled Rhodesia now Zimbabwe.
But- as demand for metals and mineral raw materials in the early 1960s continued co grow the transnational mining companies resumed some mineral exploration and mineral development
programmes in the countries of developing Africa -but with a new form of financing in which the sources of financing were more diversified than ever before. This type of mine financing's referred to ac Project Financing with the following essential
elements:
(i) A basic reliance on the anticipated cash flow of the project itself to repay the debt, in contrast to reliance on the overall credit of the project
sponsors >
(ii) A matching of several different sources of finance to the needs of the project, rather than reliance on
a single source of funrJ.su :
(iii) A sharing of the risks involved, usually by syndica ting the project loan on as wide a basis as possible.
The 'Transnational"s project financing for mining projects came principally as a result of the need to -/*aise large and
expensive capital required to start new mining projects without having bo take the risks involved in utilising the transnational own capital. Furthermore, these new arrangements were vividly encouraged to a large measure by the governments of the indust rialised nations who were worried about future supplies of minea
e/cn.U/hin.80/5
Page 17
mineral raw materials for the countries1 industries. It follows therefore that these governments had an obligation to guarantee some of the requirements of the project such as guaranteeing supplier credits.
The other advantage is that if for example the overall
rate of return is 15 per cent and 2/3 of the capital is on loan funds at 10 per cent, the return on the l/3 equity could
be 25 per cent.
Usually, the financial institutions are willing to make available long—terra funds for project financing provided three pre—requisites are assured. These ares
(i) geological availability of the mineral resource and economic viability of the project;
(ii) stability of the investment, i.e. political and financial stability (marketing risk and
fij^.;' _ ,„ . politically motivated risks);
(iii) effective technical and. administrative control by a team with demonstrated ability and with
•.'■■'■- incentive of a major equity stake, i.e. the
■■' ' traditional foreign mining company. ;:
Once the debt-financiers are assured about the three prerequisites they may then release the funds on the basis of
(i) project assets or (ii) assigning ,as security the proceeds likely to accrue from the long—term sales agreements for the
'mineral production of the project or (iii) on the basis of the
completion guarantees granted by the project owners or by the companies backing them.
One of the few new projects in developing Africa to benefit from project financing is the Bbke Bauxite Project in
Guinea which came on stream in 1973 at a cost.of U5C 321 million
of which US& 96 million was spent on infrastructure development alone*
d- Mine financing by producer countries
Countries of developing Africa which have the financial strength to commit risk capital for mineral exploration through to mine development are very few indeed. In developing Africa there are only two groups namely the large petroleum-producers on the one hand and possibly three hard-mineral producers on the other. The large petroleum-producers include Algeria, Libya and Nigeria, These countries have earned huge revenues from petroleum and are able to finance most of their small to medium—scale mining development projects. The three hard- mineral producers include Egypt, Morocco and Zimbabwe. The first two countries have had a long history in mining and have acquired both the technical skills and financial strength to enable them to finance some of the mining projects on their own.
3/CN*U/HIN.8Q/5
Page; 18
e. Mine financing by international agencies
Some producer countries have recently been enabled to participate in mining ventures by providing infra-structure needed to service the mines. However, very few of the countries in developing Africa are able to finance such projects on their own and have been helped by especially the World Bank and international agencies like the IAiited States
of America International Development Agency (USAID) and
Canadian International Development Agency (CIDA) who have 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.
/^ E/CN.H/MIN.80/5 , Page 19
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
E/CN.U/MIN.80/5
?a<*e 20
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
E/CNoH/HIN.80/5
' ~- Page 21
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
operations but large amounts of financing are also required for
infra-structure development.
Inflation is yet another difficulty. In many cases the ^ effects of inflation are fully covered by the original financial arrangements and this, very often leads to the need to raise
extra financial support which in turn may require ^^ *"£T
ing. Because of the uncertainties in the financial arrangements caused mainly by inflation, it is claimed that the Tenke
FWrun* Copper eobalt project in Zaire and the Nimba iron ore
SoiSHn Guinea and many others like them in developing Africa have remained underdeveloped. As a result of the uncertainties in the financial arrangements airl the long periods of usually
four to five years which are needed to develop new mining
projects, it takes a long time before a mining project can hope So generate revenue from its operations. Thus, large amounts of
money are needed to cover the cost of interest payments during
the development period.
Finally but not least, capital needed under the arrangements
of project financing is very difficult to raise for miningProjects in developing Africa, because of the alleged instability
of the investment in these countries. Changes in the taxstructures of the project, restrictions on the transfer of funds,
3/CN.U/UIN.80/5
Page 22
imposed by the host government on the mining company to expand its infra-structures to cater for the needs of the country not directly connected with the operations of the mine are some of the reasons given by transnational mining operations for their reduced investment in mining in developing Africa,
/CN.U/MIN.80/5
Page 23
SUMMARY AND CONCLUSIONS
1 Africa produces a variety of minerals and, in many cases,
the mineral output of African developing countries constitutes a It ~ge share:of total world output although there has been
a declining trend in the 1970s.
2 In many of Africa's mineral producing.countries, mineral output is of great importance in the domestic economies. Hie share of mining is as high as 30 per cent or more of total gross domestic produce in a* least s:.x Afrxcan developing countries; and in export revenue, the share. of mineral is even more dramatic: being more than 90 per cent of total export- .
earnings in five African developing countries, more than ^J per cent *n thirteen African countries and ranging from 1O -
30 per cent in six countries. Similarly, mneral revenue is vital to many mineral producing African countries accounting
for as much as 75 per cent of government revenues xn some countries^
-} The major factors that have affected the development of
the mineral-industries are varied. Generally the main onesinclude: (a) world demand for minerals (b) world inflation
(c) domestic factors like the availability of reserves, levels of infrastructural development, security of investment {d) political factors especially with regard to foreign investments and (e) the attitudes of the foreign transnational corporations.
A. Financing mineral projects has been one of the critical elements in the development of the mineral industry in develop ing African countries. Piany forms of financing have been; tried in Africa. These have included (a) financing by foreign private
equity capital supplemented by internally generated cashflows,(b) transnational vertically integrated financing with a group of consumer of a g,v:n mineral joinfy financing the exploita tion of.that mineral, (d) project financing with greatly
diversified sources cf finance, (e) financing by producing
countries thai: have enough resources, and (f) financing by international agencies. Each of these forms of financing has
- its own set of problems ranging from imrxgement on national sovereign!ty to insurmountable levels of indebtedness.
5. '■ ' From the analysis in the paper, it is clear that there are some areas in which developing African countries need to evolve
orbearin^'morc^ruits and being more relevantly related to the
conditions of the developing economies.
