Focus: Western miners lag as oil powers enter race for Africa's critical metals

Ivanhoe Electric

02/02/2024 09:14

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      Saudi Arabia, UAE show interest in Africa's minerals
    

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      China has invested over more than a decade
    

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      Boards worry about shareholder appetite for risk 
    

  
    By Felix  Njini and Clara Denina
       JOHANNESBURG/LONDON, Feb 2 (Reuters) - Risk aversion is
likely to leave major Western miners lagging in a race to tap
Africa's reserves of critical raw materials that has gathered
pace now Middle Eastern oil powers have begun to emulate China's
years of investment on the continent.
    Attracting the capital needed to advance copper, cobalt,
nickel and lithium projects in Africa will be high on the agenda
when executives, bankers and government officials gather in Cape
Town, South Africa, for the annual African Mining Indaba
beginning on Monday. 
    For the big listed miners, the problem is convincing board
members anxious to keep shareholders onside, an issue China and
the state-backed funds from the Middle East with a mandate to
diversify from oil and gas do not face.
    Major mining companies' mergers and acquisitions teams have
been busy negotiating in countries including Democratic Republic
of Congo, the world's top cobalt supplier, and third biggest
source of copper. Potential deals in the country, however, are
being held up in the boardrooms of Rio Tinto  RIO.L   RIO.AX 
and BHP Group  BHP.AX , two sources with direct knowledge of the
matter told Reuters.
    The sources said boards were mindful of the shareholder
focus on ESG (environmental, social and governance) concerns and
past scandals in countries viewed as high risk.
    The reserves of a country such as Congo, however necessary
for the transition to cleaner energy, have to be weighed against
political strife, the danger of corruption and a lack of vital
infrastructure. 
    Rio Tinto and BHP have held informal talks with Ivanhoe
Mines  IVN.TO  to explore partnerships in the Canada-listed
miner's Western Foreland project in Congo, one of the world's
richest copper deposits, the sources said. They spoke on
condition of anonymity because they were not authorised to speak
publicly on the issue.
    Anglo American  AAL.L  has also sought projects in Congo,
showing interest in Eurasian Resources Group's (ERG) assets in
the country, a third source said, adding a potential deal might
have foundered as the company tries to control costs. 
    Rio, BHP and Anglo declined to comment.
    "Any mining company knows that it will face tough questions
from shareholders if it makes a move into the DRC," Patrick
Edmond, Managing Consultant for Africa at advisory firm J.S.
Held, said.
    "The majors especially will need to think very carefully
about how to answer investors' questions, and how to build
strategies to succeed in the DRC in a way where the rewards for
shareholders outweigh the risks."
    Other African countries also have challenges that alarm many
investors.
    After a wait of almost three decades, Rio Tinto has begun
advancing the giant Simandou iron ore project in Guinea. It
almost walked away from the deposit in 2016, citing the risk of
operating in the West African country. 
    Together with BHP and Anglo, Rio also backs smaller
explorers in Angola, Malawi, Rwanda, Tanzania and Zambia, but
the majors have avoided bigger deals.
    
    RISING COSTS
    The costs of gaining a stake are being inflated by an
increased appetite for critical minerals needed for the
transition to a greener economy, of which Africa's copperbelt,
stretching from southern Congo and Zambia to Botswana, has an
abundance.
    Oil powers Saudi Arabia and United Arab Emirates are among
those most able to take risk.
    For Western companies, the hunt for assets is complicated by
emerging challenges in jurisdictions previously seen as safer.
    Copper and lithium mining projects in Latin America, for
example, are threatened by factors including adverse weather
conditions, a lack of water, poor ore grades and regulatory
challenges that have sometimes forced existing mines to close.
    Chinese miners, meanwhile, have strengthened their hold in
Congo and are broadening investment throughout Africa.
    Late last year, state-backed MMG  1208.HK  agreed to spend
$1.9 billion to buy Khoemacau copper mine in Botswana.
    Meanwhile, Saudi Arabia "is a neutral player with a big
wallet," and together with the UAE "could potentially be a
source of funding for Africa," Ivanhoe CEO Marna Cloete told
Reuters. China's Zijin Mining has a 39.6% stake in Ivanhoe's
Kamoa-Kakula copper mine.
    Ivanhoe, founded by billionaire Robert Friedland, said in
December investors interested in helping advance its Western
Foreland project range from "major international corporations to
sovereign wealth funds".
    Saudi Arabia's mining company Ma'aden  1211.SE  last year
formed a joint venture with Ivanhoe Electric  IE.TO  for mining
projects in Saudi. It also created a fund set to source iron
ore, lithium, copper and nickel abroad. 
    A unit of Abu Dhabi's giant International Holding Company
(IHC) agreed to invest $1.1 billion in Zambia's Mopani Copper
Mines in return for a 51% stake. 
    "It behoves us to take advantage of our natural competitive
advantages to try and knit together a mineral strategy that
stretches from Asia to the tip of Southern Africa," Robert Wilt,
Chief Executive Officer of Ma'aden, told Reuters. 

 (Reporting by Felix Njini and Clara Denina; Editing by Veronica
Brown and Barbara Lewis)
 ((Felix.Njini@thomsonreuters.com; Reuters Messaging:
felix.njini@thomsonreuters.com))