Invest Africa Virtual Mining Summit Report
Before Covid-19 wreaked havoc on the world economy, Africa’s mining industry faced a rapidly changing global landscape as stakeholders pushed the fight against climate change up the agenda. Invest Africa’s Mining Summit on 28th January assembled 300 leaders from across the sector to discuss its long-term future in a decarbonizing economy and changing market dynamics as miners face both disrupted supply chains and a flurry to secure safe assets.
Global trade at a crossroads
The economic disruption caused by the Covid-19 pandemic has provoked a rush to gold as a means of securing value. Opening the Summit, Robert Friedland, Founder of Ivanhoe Mines, highlighted that “the longer this virus persists as a depressant in the world economy, the more incentive there is for governments to print money” creating inflationary pressure. In the USA almost 20% of the dollars in circulation were printed this year, leading Mark Bristow, CEO of Barrick Gold to point to a fundamental shift in the world’s reserve currency. “Reserve currencies are never the same for too long” he reflected “and we’re definitely at the crossroads of how the world contracts trade.”
ESG no longer on the periphery
The severe economic pressures created by the Covid-19 pandemic have placed local mining communities under strain while rising gold prices has driven an increase in artisanal mining and smuggling. These short-term pressures highlight a longer term imperative for mining companies to build strong partnerships with local communities and engage with governments to develop viable and sustainable ways of formalizing the sector. “Security is responding to a breakdown in relationships between local communities and stakeholders” commented Colin Brown, Senior Vice President at GardaWorld.
This imperative comes against a backdrop of changing demands from stakeholders in terms of environmental, social and governance (ESG) performance metrics, reflecting a change in the ways in which equity funds and institutional investors look at investments. Over the last decade a number of standards from the International Council of Mining and Metals Principles to the International Finance Corporation’s Operating Principles for Impact Management. Now “stakeholders and investors are looking for how you move beyond these voluntary standards” Froydis Cameron-Johansson, Head of International Government Relations at AngloAmerican highlighted. It was clear that the direction of travel will continue to be towards more ambitious ESG targets, and the sector will need greater convergence on standards to navigate these metrics across the value chain.
Investing in the future
Looking to the future, a greater focus on environmental and social impact can present significant opportunities for the Africa’s mining sector. No energy transition will be possible without a ready supply of electrically conducting metals and Africa, with its extensive natural resources, finds itself well placed to take advantage of these opportunities. As capital looks for real assets, Mohamed Dhorat, Co-Founder of Black Mountain Investment Management, called on African governments to build navigable regulatory processes to capture FDI flows. “Commodities are undervalued compared to other asset classes”, he concluded, and “we may be entering a commodity super cycle”.
Key Takeaways
Commodities have been undervalued compared to other asset classes. We could be on the verge of a commodity super cycle as investors seek to store value in real assets.
As governments turn to monetary stimulus, the value of gold as a reserve currency is likely to increase.
Electrically conducting metals will be essential to the energy transition but supplies will not be able to respond quickly to rising demand. Miners need to prepare now for changes in demand patterns and this presents a significant opportunity to investors.
Increases in artisanal mining and smuggling as a result of Covid-19 have highlighted the need for mining companies to build partnerships with local communities and engage with governments to find viable and sustainable ways of formalizing the sector.
Environmental, Social and Governance standards have moved to the center of mining companies’ priorities to meet changing demands from stakeholders and investors.
More ambitious environmental targets are likely on the horizon for many mining companies, including engagement with Scope 3 emissions (those produced by the end consumer).
The make-up of boards could be reconsidered, incorporating experience in managing environmental, social and governance goals to drive more effective ESG practices across mining companies.
