Mining commodity prices have rallied during the course of this year, raising hopes that new mining projects could be sanctioned across the African continent. The price of iron ore broke through the $80 a tonne barrier yesterday, up from $38 per tonne at the end of last year, although still below the peak of $182 in 2010.
Similarly coking coal prices have risen more than doubled this year to exceed $300 per tonne; while copper prices are approaching $6,000 per tonne, the highest level for 18 months; and even thermal coal has rebounded to $120 per tonne. The price rises have at least partly been driven by investment by very small scale Chinese investors.
The global mining industry’s recent travails have been well documented. The price of almost all mining commodities crashed in 2014 and 2015 as the Chinese economy slowed down, causing many projects to be postponed or cancelled.
The impact on Africa has been enormous. Just as plummeting oil and gas prices hit the continent’s hydrocarbon producers hard, so falling coal, iron ore, bauxite, copper and manganese prices have shaken the economies of South Africa, Mozambique, Zambia, Sierra Leone and many other African states.
However, the recovery has generated hopes that delayed Central African iron ore projects could finally be developed. Back in 2013, a string of mines were planned, including Belinga in Gabon and Sundance Resources’ Mbarga and Nabeba schemes on the border of Cameroon and Congo, together with new railways to transport the ore to the coast, where new dry bulk terminals would prepare the ore for shipping. All were shelved, as investors struggled to secure the required finance in a low-revenue environment. However, optimism is now rising.
At the end of November, Equatorial Resources’ local subsidiary, Congo Mining Exploration Ltd, announced that it would invest $1.2bn in its Badondo iron ore scheme in north-west Congo-Brazzaville. The company’s CEO, John Welborn, said: “The recent improvement in the price of iron ore makes Equatorial confident that it will find the necessary financing to develop the mine.”
The situation is the same in the Mano River states, where Sierra Leone, Liberia and Guinea have all been badly affected by low iron ore prices but rising demand could encourage ArcelorMittal and others to boost production.
Credit Suisse analysts said: “We believe the main theme for industrial metals equities into 2017 is the potential for valuation stabilisation at a higher level than previously thought. A more positive macro backdrop and greater investor confidence has helped lift metals prices well above levels seen in recent years.”
While South Africa relies heavily on iron ore and coal exports, the situation in neighbouring Botswana is a little different. The country has the potential to export up to 100m tonnes of coal a year but progress on developing export railways to Namibian and Mozambican ports was halted in 2014.
Yet in November, Maputo and Gaborone signed an agreement to build an export line from the Botswana mines to the planned new coal port of Technobanine in southern Mozambique, buoyed by the recovery. Vale Mozambique, Botswana’s Shumba Energy and a handful of other mining firms that kept investing in new projects during the downturn could now benefit by being ahead of the curve.
Although prices are likely to rise further next year, there is little sign of a boom on the horizon. Credit Suisse said: “Underlying supply/demand fundamentals are still challenging in the case of iron ore and copper, and a healthy dose of speculative activity leaves metals equities vulnerable to a correction.”