July 2013

James Fungai Maposa, Frost & Sullivan’s Programme Manager for Mining & Manufacturing, Africa

“50 Years of Growth, Innovation & Leadership”

The Impact of Depressed Global Commodity Prices on Sub-Saharan Africa’s Mining IndustryMarket Insight

The Impact of Depressed Global Commodity Prices on Sub-Saharan Africa’s Mining IndustryMarket Insight

© 2013 Frost & Sullivan Page 2

The first half of the year has been extremely difficult for the sub-continent and the rest of

the globe’s mining industry. Global commodity prices, for most commodities, have

continued to plummet, operating costs continued to soar, and margins remained under

pressure. Most of the world’s leading mining companies have heeded to dissatisfied

shareholders, reducing respective expenditures and shelving some of their planned high-risk,

high-value capital expansion projects. Asian demand for mined mineral commodities

continues to be flat, implying more tough times ahead for the globe’s mining sector, writes

James Maposa, Programme Manager for Industrial Automation, Mining & Manufacturing at

growth consulting firm, Frost & Sullivan.

To sustain or enhance profitability, companies extracting minerals in Africa are expected to

adopt new business models that prioritise the integration of mechanical equipment and other

enabling technologies to improve efficiency, effectiveness and profitability. In addition, the

adoption of more advanced systems, such as process automation technologies, is also

expected to rise as mining companies invest in improving their strengths to offset the risks

and challenges prevailing within the external environment. This integration of mechanical

equipment and automation technologies is expected to create sizeable supply opportunities

for equipment, consumables and other technology suppliers into sub-Saharan Africa’s mining

industry.

What does the future hold for sub-Saharan Africa’s mining industry?

Over the short and medium terms, local mining companies are expected to continue to

implement a cautious spending approach, which will be focused on limiting both capital and

operational expenditures to critical spends. With the exception of ongoing development

projects, investors in Africa’s mining sector will prefer to fund the smaller-sized, lower-risk

projects as opposed to the larger-sized, higher-risk investment opportunities. Mechanisation

of the regional mining sector is expected to rise significantly during the latter stages of the

medium term. Although mining companies are expected to encounter significant resistance

from regional governments and labour unions, mechanical equipment adoption rates are

expected to rise, driven by escalating labour costs, declining ore grades and a rise in deeper-

level mining activities.

Technology adoption rates are also expected to increase as new inventions will render

commercially unviable deposits viable. Boards and senior management teams of global mining

companies with geographically distributed assets are expected to install systems that enable

them to gather information on these assets in real time. Installation of these advanced

information technology systems will allow the aforementioned to make quicker and more

informed decisions. Companies that own and operate mature mines are also expected to

integrate technologies that enable them to recover more of the mined commodity from

declining ore grades. It is also anticipated that the industry will replace energy-inefficient

systems with more efficient technologies that reduce these mining companies’ annual energy

spends, in particular the mineral processing phase, which is energy-intensive.

Infrastructure shortages within sub-Saharan Africa will prompt most mining companies to

include the cost of constructing the necessary infrastructure to ensure that they are able

to extract and transport their mined commodities to respective Asian, European and North

American market destinations. Partnering with respective regional governments and other

public and private sector agencies to construct roads, railways and ports is a strategy that

most mining companies are expected to adopt to ensure sustained success within sub-

Saharan Africa. In addition, to ensure sustained demand for respective mined commodities,

mining companies are also exploring entering the sub-continent’s beneficiation sector. The

sub-continent’s urbanisation and industrialisation is expected to create significant supply

opportunities for locally manufactured beneficiated products. Most of the region’s leading

mining companies are conducting investigative studies to identify beneficiation industries

that they can enter into, through the identification of key trade, and establishing

operational and financial partnerships in order to ensure market success.

What do the above initiatives mean for mining value chain stakeholders?

Equipment suppliers - Over the next few years the sub-Saharan African mining sector is

expected to significantly increase its mechanical equipment purchases, driven by the need

to improve operational efficiency. Escalating operational costs will see mining companies

investing in equipment that can help them reduce these costs, notes Frost & Sullivan.

Regional equipment suppliers should, therefore, position themselves to fully benefit from

the anticipated rise in the mining sector’s mechanical equipment demand. Although

equipment supply opportunities are anticipated to rise substantially, regional suppliers will

face intense competition from lower-priced Asian imports. Regional suppliers should

prioritise being competitive on price within an end-user sector that has become increasingly

price sensitive due to the sector’s tightening expenditure.

Engineering, procurement, construction and management companies (EPCMs) - A rise

in regional mining activity is a factor that will contribute to an increment in the sub-

continent’s demand for EPCM services over the next 10 to 20 years. EPCMs will be

engaged to construct, operate and maintain mines, processing facilities, transport, logistics,

power generation and distribution infrastructure. A proven track record in terms of

expertise and experience is something that EPCMs can showcase to be engaged by mining

companies to develop and operate the mining infrastructure.

Consumable suppliers - A larger installed base of mechanical equipment within sub-Saharan

Africa’s mining industry is a factor that will also raise the sector’s demand for consumables

that include fuel, lubricants, filtration products and tyres. A projected rise in the sub-

region’s mining throughput and output will increase consumption rates of the

aforementioned consumables. To fully benefit from potential supply opportunities,

consumable suppliers should invest in aggressive marketing campaigns that are aimed at

keeping them top of mind within these priority end-user markets. In addition, establishing

in-country presence within growing mining economies and forming partnerships with key

equipment suppliers are among the other strategies that consumable suppliers can adopt to

enhance respective market positions.

© 2013 Frost & Sullivan Page 3

The Impact of Depressed Global Commodity Prices on Sub-Saharan Africa’s Mining IndustryMarket Insight

© 2013 Frost & Sullivan Page 4

Chemicals and explosive suppliers - Exploration, extraction and processing activities are

expected to rise considerably over the next few years. Significant investment will be

committed toward developing Africa’s base, energy and precious mining industry. Increased

extraction and processing of the mineral commodity groups is a factor that will raise the

sub-region’s mining sector chemicals and explosives demand. Competitive pricing, ease of

use, effective route-to-market and a wider geographic presence are strategies that chemical

manufacturers can explore to maintain a strong market position within Africa’s growing

mining industry.

In conclusion, Frost & Sullivan expects the mining sector in sub-Saharan Africa to grow,

evolve and modernise over the next 10 to 20 years. Modernisation of the sub-continent’s

mining sector will be aimed at regional mining companies remaining competitive in a market

where returns are low due to declining global commodity prices. To remain competitive,

African mining companies should follow in the same vein as their Australian, Canadian and

Russian counterparts by investing in equipment and technologies that reduce production

costs and improve operational effectiveness and efficiency. Adoption of such a trend will,

therefore, create substantial opportunities for the regional mining sector’s leading

equipment, consumables, EPCMs, and chemicals and explosive suppliers.

For more information on Frost & Sullivan’s analysis of metals and mining in Africa, please

contact Samantha James – samantha.james@frost.com

The Impact of Depressed Global Commodity Prices on Sub-Saharan Africa’s Mining IndustryMarket Insight

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