African Mining Looking Rosy After Deal Flow Triples in 2010

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Researched by Industrial Info Resources (Sugar Land, Texas)--Africa's share of overall global deal-flow doubled from 4% in 2009 to 8% in 2010, but in the mining sector deal flows tripled from 5% in 2009 to 15% of the global total in 2010, according to a transactions report focusing on mining and metals, "Africa: A Golden Opportunity," which was released by Ernst & Young during the weeklong African Mining Indaba in Cape Town, South Africa.

Brazil was the leading acquirer in the inbound deals, with 27% of the total, and iron ore led the commodity table with 32% of the deals. China made 13% of the acquisitions. The platinum group metals (PGM) featured in 18% of the deals and uranium in 13%.

Adrian Macartney, mining sector leader for Africa at Ernst & Young, said that in a major deal, Rio Tinto plc (NYSE:RIO) (London, England) offered $3.9 billion to buy Riversdale, the Mozambican coal mining company, and Xstrata plc (OTC:XSRAY) (Zug, Switzerland) was paying $513 million for Sphere Minerals, with the goal of gaining three iron ore projects in Mauritania. With the increasing interest in Africa's mining sector from companies in China, India, Brazil and Russia, it was easy to see why the future looked rosy, he said. In January 2011, the International Monetary Fund (IMF) forecast that Africa would take seven of the top 10 places over the next five years. With a GDP growth rate of 4.7% forecast by the IMF for 2011, the continent is 0.5% above the global average. The World Bank forecasts growth for sub-Saharan Africa of between 3.8% and 4.5% in 2011.

In South Africa, 31 mining and metals transactions were completed in South Africa or by South African-based firms abroad. There were seven domestic deals, 21 inbound and 3 outbound. The total value of the transactions was $2.9 billion.

The race is on for West African iron ore, with the major and junior companies and Chinese investors competing for assets. According to Gold Fields Mineral Services (GFMS), the region is one of the world's fastest-growing gold production areas, and output is expected to grow 30% over the next four years, with Ghana and Mali leading the gold rush. Guinea's ores were expected to figure high on the radar of potential investors. Prospects also are good in Namibia, where the IMF believes a rebound in mining production will result in GDP growth of 4.4% or above.

Tanzania is believed to be the rising star of mining in East Africa, where ongoing geophysical surveys are finding more coal and gold reserves in areas where they were not expected. Chinese companies have invested in a nickel property. Weak infrastructure could be a drag on development, but the government has launched a port improvement program. Zambia's major mineral output is copper and the country is in a strategically strong position to take advantage of robust copper demand, which is set to outstrip supply in 2012 to 2013. Chinese and Brazilian investment will see production expand and new projects open through 2013.

"Perhaps the biggest clue to how well Africa's mining industry is doing is the fact that even Zimbabwe's economy is stabilizing," said Macartney. "Official figures indicate that after a contraction of 17.1% in 2008 in its mining industry, the largest decline in five successive years of negative figures, the sector grew by 8.5% in 2009. Furthermore, it was expected to grow by an additional 31% in 2010. The government has also issued more licenses for diamond mining and has completely liberalized its gold market."

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