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americas@eiu.com Economist Intelligence 1301 Cityplaza Four 12 Taikoo Wan Road Taikoo Shing, Hong Kong Tel: + 852 2585 3888 e-mail: asia@eiu.com GURGAON DUBAI Economist Intelligence Skootr Spaces, Unit No 12th Floor, Tower B, Building No DLF Cyber City, Phase - III Gurgaon 122002 Haryana, India Tel: +91 124 6409486 e-mail: asia@eiu.com Economist Intelligence PO Box No - 450056, Office No - 1301A Aurora Tower Dubai Media City Dubai, United Arab Emirates Tel: +971 4463 147 e-mail: mea@eiu.com For more information on our solutions and how they can help your organisation, please visit www.eiu.com MINING IN AFRICA: THE BENEFIT OF ELEVATED PRICES AMID INFLATIONARY PRESSURES A REGIONAL OUTLOOK ON THE LANDSCAPE Mining in Africa: the benefit of elevated prices amid inflationary pressures • Rich in natural resources, the African continent has attracted a large inflow of investment in recent years Although extraction of Africa’s reserves has been largely hindered by weak domestic governance structures and policy impediments, the continent is set to remain one of the major supplier of a number of commodities in the coming years • Sanctions against Russia—which have largely been more severe than initially expected—will disrupt Russian mining activities in Sub‑Saharan Africa, without having a serious negative impact on domestic mining sectors themselves • African economies will face manageable downside risks, which are markedly outweighed by the risks to the upside that stem from steep commodity price growth This is due mainly to the insignificance of Russian exports for African economies • As sanctions become increasingly severe we expect that Russian miners will struggle to finance current and prospective operations, and may ultimately be forced to sell their concessions for reduced amounts • Russia’s mining activities in Africa have been growing in recent years, and are increasingly concentrated in weakly governed and authoritarian states We expect this to continue as the West continues to exclude Russia from the global economy • Although higher prices will benefit current production and operations, inflation will disrupt exploration activities and prospective projects High energy costs, coupled with heightened global risk and uncertainty, will add to the costs of project development The African continent is home to substantial reserves of copper and cobalt (in the Democratic Republic of the Congo—DRC—Zambia, South Africa and Zimbabwe), diamonds (in Botswana and Angola), platinum (in South Africa and Zimbabwe), uranium (in Namibia, Niger and South Africa), gold (in Ghana, South Africa and Sudan), iron (in South Africa), manganese (in South Africa, Gabon and Ghana), bauxite (in Guinea), lithium (in Zimbabwe), coal (in South Africa and Mozambique), natural gas (in Algeria, Egypt and Nigeria) and petroleum (in Nigeria, Angola, Algeria and Libya) Africa contains about 12% of total global oil reserves, 12% of natural gas reserves, more than 80% of platinum group metals and more than 40% of the world’s gold Extraction of Africa’s reserves has been largely hindered by weak domestic governance structures and policy impediments, alongside the high risk of investments in Africa and low commodity prices during 2016‑20 This has resulted in a notable shortage of exploration activity in the African mining sector However, many African commodity exporters—Zambia and Namibia in particular—have initiated procedures to create a business-friendly environment in order to attract investments into their domestic mining sectors Elevated commodity prices are fuelling an export boom across Africa High prices for copper, oil, iron ore, aluminium and gas will stoke investments and are all helping to reduce external imbalances, stabilise currencies and boost economic growth However, downside risks abound The continent depends on energy imports (as net crude exporters have insufficient refinery capacity), and the war in Ukraine is set to stoke strong inflationary pressures © The Economist Intelligence Unit Limited 2022 MINING IN AFRICA: THE BENEFIT OF ELEVATED PRICES AMID INFLATIONARY PRESSURES A REGIONAL OUTLOOK ON THE LANDSCAPE Top mineral per country (the most abundant resource for each African country per tonne of production) Tunisia Morocco Algeria Cabo Verde Libya Egypt Mauritania Mali Senegal The Gambia GuineaBissau Guinea Niger Burkina Faso Sierra Leone Sudan Chad Eritrea Djibouti Nigeria Liberia Côte d’Ivoire Ghana Togo Benin São Tomé & Príncipe Equatorial Guinea Cameroon Gabon Ethiopia South Sudan Central African Republic Rwanda Democratic Republic of Congo Burundi Somalia Uganda Kenya Congo (Brazzaville) Comoros Angola Iron Bauxite Zinc Titanium Copper Gold Diamond Salt Phosphates Gypsum Sulfur Petroleum No data Steam coal Coking coal Zambia Namibia Seychelles Tanzania Malawi Madagascar Zimbabwe Botswana Mozambique Eswatini South Africa Mauritius Lesotho Source: EIU Russian operations in Africa Russian miners currently have their own sizeable investments in metal, energy and mineral concessions in Africa The concessions are largely concentrated in poorly governed and authoritarian states, namely Sudan, Guinea, the Central African Republic (CAR) and Mozambique In 2018 a Russian mining group, Alrosa, increased its stake in Angola’s Catoca diamond mine from 32.8% to 41% In the CAR and the DRC, Russia has substantial concessions in cobalt, gold, coltan and diamond mines In Zimbabwe, another Russian mining firm, JSC Afromet, operates a joint venture with Zimbabwe’s Pen East, developing one of the world’s largest platinum deposits Russian companies also have major concessions in more democratic states, such as a 50% stake in the Nkomati nickel mine in South Africa (owned by Nornickel, a metals company) and a 49% ownership stake in South Africa’s fourth-largest manganese miner, United Manganese of Kalahari (held by the Renova Group, a conglomerate owned © The Economist Intelligence Unit Limited 2022 MINING IN AFRICA: THE BENEFIT OF ELEVATED PRICES AMID INFLATIONARY PRESSURES A REGIONAL OUTLOOK ON THE LANDSCAPE by Viktor Vekselberg, a Russian oligarch) In Namibia, Russia’s Uranium One group owns eight uranium exploration licenses; the largest, the Headspring Project, has sparked local opposition Russian mining concessions in Africa Tunisia Morocco Algeria Cabo Verde Libya Mauritania Senegal The Gambia Guinea-Bissau Gold, oil Mali Guinea Sudan Niger Liberia Burkina Faso Ghana Oil & gas Togo Benin São Tomé & Príncipe Equatorial Guinea Central African Republic South Sudan Rwanda Democratic Republic of Congo Gabon Burundi Gold, diamonds Somalia Uganda Kenya Seychelles Tanzania Congo (Brazzaville) Comoros Angola Banking, mining, oil & gas Namibia Banking Djibouti Ethiopia Cameroon Côte d’Ivoire Eritrea Chad Nigeria Bauxite Oil Egypt Zambia Malawi Liquefied natural gas Mozambique Zimbabwe Botswana Chromite Eswatini Nuclear agreements Mining South Africa Madagascar Lesotho Mauritius Platinum, diamonds Note Companies: JSC Afromet (platinum), Pen East (platinum), Alrosa (diamond), Gazprom (oil & gas), Renaissance Capital (banking), VTB (banking), Evraz (mining), Nornickel (mining), Rusal (mining) Source: EIU Sanctions to disrupt Russian mining operations in Africa but not seriously affect African states Sanctions—which have largely been more severe than initially expected—will disrupt Russian mining activities in Africa, but are not expected to have a serious negative impact on the African domestic mining sector Sanctions on Russian miners (including both metals and energy producers) in Africa will create manageable downside risks, which are outweighed by risks to the upside stemming from steep increases in commodity prices However, given that most Russian mining operations in Africa are joint ventures that rely in part on Russian financing, it is possible that sanctions will cause disruption to mining operations and output levels as Russian funding is limited or cut off entirely We expect the © The Economist Intelligence Unit Limited 2022 MINING IN AFRICA: THE BENEFIT OF ELEVATED PRICES AMID INFLATIONARY PRESSURES A REGIONAL OUTLOOK ON THE LANDSCAPE disruption to projects in which Russian miners own stakes to be temporary, and the high prevailing price of most commodities will ensure that there is no shortage of buyers in the market for these concessions Sanctions will limit the ability of Russian miners to repatriate profits and receipts from the possible sale of concessions Currently, there remain options available for Russian miners to repatriate profits and clear foreign currency and international transactions, through unsanctioned Russian banks or foreign divisions of unsanctioned Russian banks Therefore, incomplete sanctions allow Russian miners to continue to operate in Africa, albeit with increased difficulty and probably at a higher cost The risk of a widening of sanctions—which as at March 14th not directly affect Russian firms’ African operations—in the near term is high However, we expect Russian miners to be able to find ways around these sanctions and continue operations before possible solvency issues force them to liquidate and sell their concessions at a discounted valuation Africa’s top mineral producers (South Africa, Nigeria, Algeria, Angola and Libya produce more than two-thirds of the continent’s mineral wealth) Tunisia Morocco Algeria (US$38,699m) Cabo Verde Libya (US$27,027m) Egypt (US$23,225m) Mauritania Senegal The Gambia GuineaBissau Guinea Sierra Leone Liberia Mali Niger Côte d’Ivoire Cameroon Gabon (US$10,920m) Togo Benin São Tomé & Príncipe Equatorial Guinea Eritrea Djibouti Nigeria (US$52,678m) Ghana (US$14,970m) Sudan Chad Burkina Faso Central African Republic Ethiopia South Sudan Rwanda Democratic Republic of Congo (US$13,688m) Somalia Uganda Kenya Congo (Brazzaville) Angola (US$32,042m) Annual minerals production (US$ m) Namibia US$100,000 US$50,000 US$25,000 Source: EIU Comoros Zambia Malawi Zimbabwe (US$9,767m) Botswana Mozambique Eswatini US$75,000 Seychelles Burundi Tanzania Madagascar Mauritius Lesotho South Africa (US$124,963m) © The Economist Intelligence Unit Limited 2022 MINING IN AFRICA: THE BENEFIT OF ELEVATED PRICES AMID INFLATIONARY PRESSURES A REGIONAL OUTLOOK ON THE LANDSCAPE Russia’s invasion of Ukraine in late February 2022 resulted in a rapid increase in commodity prices globally; most notably for energy products—oil and gas—and metals such as aluminium, nickel, copper, palladium and platinum As Russia is a major producer of several base metals (aluminium, titanium, palladium and nickel), we forecast that commodity prices will remain elevated for the duration of the conflict, building on coronavirus-related price growth in 2021 The March 8th ban on Russian hydrocarbons exports by the US and the UK, coupled with delays to the Iran nuclear deal, will put further upward pressure on oil prices, which we forecast will average US$116.3/barrel during 2022, up from US$70.4/b in 2021 We expect aluminium prices to jump by more than 40%, to US$3,213/ tonne (compared with a previously forecast decline of 12%) and nickel prices to rise by nearly 35%, to US$10.52/lb (previously forecast at 22.7%), based on market fundamentals We forecast that copper prices will rise to US$4.54/lb in 2022 (previously forecast at US$4.59/lb), up from US$4.23/lb in 2021, and that gold prices will rise to US$1,897/troy oz in 2022 (previously forecast at US$1,744/troy oz), up from US$1,800/troy oz in 2021 The disruption to commodity markets will benefit African oil and gas producers—Nigeria, Angola, Gabon, Libya, Algeria, Egypt, Congo (Brazzaville), Ghana, Equatorial Guinea and Chad—which will receive a major financial windfall and increased investment Commodity producers such as South Africa and the DRC will also benefit notably from price rises Less prominent producers will also benefit from commodity price growth: Zambia will receive a boost from high copper prices, and Botswana from high diamond prices © The Economist Intelligence Unit Limited 2022 MINING IN AFRICA: THE BENEFIT OF ELEVATED PRICES AMID INFLATIONARY PRESSURES A REGIONAL OUTLOOK ON THE LANDSCAPE Prospective projects to face disruptions Although higher prices will benefit current production and operations, inflation will disrupt exploration activities for prospective projects High energy costs, coupled with heightened global risk and Oil & gas: major African projects Algeria Mauritania Grand Tortue Ahmeyim FLNG (BP) Hassi Messaoud (Sonatrach) 495 2023 Grand Tortue Ahmeyim LNG Hub (BP) 225 2022 Hassi R’Mel Boosting Phase (Sonatrach) 1420 2027 270 2023 Tinrhert Gas Project (Sonatrach) Senegal Sangomar phase (Woodside) Yakaar (domestic) (BP) 175 Gassi Touil Satellite Project (Sonatrach) 225 2023 220 120 Ain Tsala (Sunny Hill) 2021 2023 480 2023 2025 Egypt Atoll phase (Pharaonic) 110 2021 Raven (WND) (BP) 300 2021 Uganda Tilenga (TotalEnergies/Tullow Oil) Kingfisher South (CNOOC) Ghana MTAB (Mahogany East & Teak) (Tullow Oil) 70 Pecan (Aker Energy) Nigeria Anyala and Madu (OML 85) (First E&P) Preowei (Egina FPSO) (TotalEnergies) 2017 300 2027 170 2021 145 2027 Bonga Southwest - Aparo (Shell) 630 2030 Etan - Zabazaba (Eni) 510 2032 ANOH Phase (Shell) 330 Kenya South Lokichar Phase (Tullow Oil) Angola Zinia (TotalEnergies) 75 2021 Platina (BP) 100 2022 PAJ (Block 31) (BP) 150 2025 Agogo FFD (Eni) 180 2025 1450 210 Gas 2025 2026 Mozambique Coral FLNG (Eni) 440 2023 Area LNG (T1-T2) (ExxonMobil) 2325 2027 Area LNG (T1-T2) (TotalEnergies) Type of hydrocarbon Oil (liquid crude) 215 2025 2022 NLNG Seven Plus (NNPC Limited) HA (Shell) 825 2027 195 2027 Oil project Gas project 3590 2024 Resources - m barrels of oil equivalent 300 2027 Estimated start-up date LNG = Liquefied natural gas; FLNG = Floating liquefied gas Source: EIU © The Economist Intelligence Unit Limited 2022 MINING IN AFRICA: THE BENEFIT OF ELEVATED PRICES AMID INFLATIONARY PRESSURES A REGIONAL OUTLOOK ON THE LANDSCAPE uncertainty, will add to the costs of project development, and this will be the case even for operations with no Russian stakeholders However, we expect this disruption to prospective operations to greatly benefit certain African states Natural gas producers (Nigeria, Algeria, Senegal, Mozambique, Angola and Sudan) in particular are set to receive massive investments as Europe looks to secure gas from sources other than Russia Unofficial mining and commodities trading in weak states Several large projects are owned entirely by Russian miners In Guinea, for example, Russian Russian-Ukrainian conflict will drive price growth in 2022 miner Rusal owns 100% of the country’s largest (US$, % change unless otherwise indicated) bauxite mine, the Dian-Dian project (which has Oil (dated Brent Blend, US$/barrel); left scale a capacity of 3m tonnes per year) Rusal also Food, feedstuffs & beverages; right scale owns 100% of Guinea’s declining Kindia mine, Industrial raw materials ; right scale 120 60 and its third-largest bauxite mine, Friguia Russia is reportedly also active in mineral trafficking 100 40 networks in African countries such as Sudan 80 20 and the CAR In these states, close ties with 60 arms dealers—and mercenary groups such as the Wagner Group, a Russian private military 40 -20 company—allow Russian actors to secure mining 20 -40 rights and trade commodities -60 In such cases, we expect sanctions to have little 2020 21 22 23 24 25 26 impact on Russian mining operations Russian Source: EIU miners will find ways around the sanctions by making use of unsanctioned banks or relying on a form of barter in more authoritarian states, with Russia supplying arms and mercenaries in return for mining output The African region accounted for 18% of all Russian arms exports in 2016‑20; we expect the sale of arms to continue and to become increasingly linked to the strategic acquisition of mining concessions As Russia is increasingly cut off from the West, it will aggressively seek allies and strengthen its influence—mostly through the provision of Wagner mercenaries and arms—to secure additional mining concessions This will have important implications for African politics, with Russia looking to create and profit from African instability, particularly among resource-rich nations, as it becomes increasingly isolated from the West The growing division among African states as the sphere of influence doctrine re‑emerges, as demonstrated by the varied African participation in the UN Security Council vote on condemning the Russian invasion, will reduce pan‑African solidarity and adherence to African multilateralism China and others to take up lost commodity exports Total African exports to Russia add up to only about US$5bn, with imports totaling about US$14bn Total trade between the regions is small, at about US$20bn, and trade disruptions resulting from the Russia-Ukraine conflict will not seriously affect African economies However, it will affect certain © The Economist Intelligence Unit Limited 2022 MINING IN AFRICA: THE BENEFIT OF ELEVATED PRICES AMID INFLATIONARY PRESSURES A REGIONAL OUTLOOK ON THE LANDSCAPE African industries, such as cocoa and tobacco, and textiles and clothing We expect the clothing industry in Tunisia, in particular, to be hit by negative impact The tobacco industries in Nigeria, Tanzania and Mozambique will also be affected by the conflict Russia is a minor trade partner for African economies Partner Total exports (US$ ‘000) % of Russia’s total imports % of state’s total exports Main product as % of total Main product South Africa 827.38 0.34% 0.43% Manganese ore 12% Morocco 513.07 0.21% 0.97% Citrus 27% Egypt 481.54 0.20% 1.16% Citrus 31% Côte d’Ivoire 195.78 0.08% 0.06% Cocoa 94% Tunisia 141.20 0.06% 0.20% Clothing 15% % of total Guinea 99.04 0.04% 1.50% Aluminium oxide (bauxite) 92% Kenya 94.04 0.04% 1.05% Tea 35% Ghana 88.73 0.04% 0.28% Cocoa 59% Gabon 72.26 0.03% 1.98% Manganese ore 88% Nigeria 44.37 0.02% 0.01% Cocoa 79% Tanzania 36.76 0.01% 0.84% Tobacco 75% Zimbabwe 29.89 0.01% 0.00% Tobacco 90% Angola 29.46 0.01% 0.09% Diamond 99% Ethiopia 26.22 0.01% 0.82% Coffee 61% Mozambique 23.26 0.01% 0.40% Tobacco 98% Source: EIU We forecast that Africa’s mining sector traders will not be heavily affected by loss of Russian exports or activity The total amount of exports to Russia is relatively small, and the growth in commodity prices will outweigh any marginal loss to total exports In addition, alternative export partners, China in particular, will take up the excess output Given the strong demand for global commodities, the small amount of lost Russian exports will quickly be taken up by alternative buyers In countries such as Sudan, Mali and the CAR, discrete Russian mining operations are likely to continue, circumventing sanctions © The Economist Intelligence Unit Limited 2022 EIU Viewpoint We monitor the world to prepare you for what’s ahead Understand a country’s political, 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Capital (banking), VTB (banking), Evraz (mining) , Nornickel (mining) , Rusal (mining) Source: EIU Sanctions to disrupt Russian mining operations in Africa but not seriously affect African states... Limited 2022 MINING IN AFRICA: THE BENEFIT OF ELEVATED PRICES AMID INFLATIONARY PRESSURES A REGIONAL OUTLOOK ON THE LANDSCAPE Russia’s invasion of Ukraine in late February 2022 resulted in a rapid increase... LANDSCAPE Mining in Africa: the benefit of elevated prices amid inflationary pressures • Rich in natural resources, the African continent has attracted a large inflow of investment in recent