At Africa's biggest mining conference, foreign investors can't avoid the electricity crisis. The shortage is obvious even in their swish Cape Town hotels, where their rooms are often plunged into darkness from rolling blackouts.
Africa's traditional mining powers, South Africa and Zambia, are under siege from a range of self-inflicted problems these days. South African miners are plagued by worsening electricity rationing and persistent labour unrest, while Zambia is facing a revolt from foreign mining companies after it tripled its royalty tax rate to 20 per cent last month.
While political leaders from both countries were struggling to soothe jittery investors at the African Mining Indaba this week, many Canadian miners are instead finding their own niches in smaller and more obscure African countries – some of which were considered too unstable or risky for investors until recently.
On Tuesday, senior cabinet ministers from South Africa and Zambia took to the stage at the mining conference to put a positive spin on their trouble-plagued mining sectors. But neither was able to offer much to placate the industry.
South African Mineral Resources Minister Ngoako Ramatlhodi admitted that his country faced "power challenges" – a mild term for electricity shortages that have caused substantial losses for many mining companies. He referred vaguely to the long-term development of nuclear and hydro energy which could take nearly a decade to begin production. He also vowed to arrest and jail the perpetrators of the labour violence that has caused havoc in the mining sector.
Analysts were unimpressed. "The minister has not given any indication as to how the South African government intends on assisting the mining community during the nation's current electricity crisis," said Jacques Barradas, a partner in the Johannesburg office of management consultants Grant Thornton.
He said the mining sector was "directly and dramatically" affected by the power blackouts. "If this crisis continues, it will have a serious and possibly irreversible long-term negative impact on the economy and South Africa as a whole."
Zambian Commerce, Trade and Industry Minister Margaret Mwanakatwe defended the tripling of mining royalties in her country. She said it would create a "level playing field" for all miners, and added the royalties could be deferred or discussed if a mining company could not afford to pay. But under questioning from investors at the conference, she offered no hint of any possible reduction in the royalties.
As the bigger African countries lose their appeal, many Canadian mining companies say they are finding opportunities in unorthodox destinations such as Eritrea, Malawi and Ivory Coast, where modern mining has been late to emerge. Those countries are off the radar of most investors because of their small size or their recent history of wars and human-rights abuses.
"I couldn't put a finger on it on a map before I went there," said Michael Hopley, president of Vancouver-based Sunridge Gold Corp., which has spent about $90-million to develop a mine in Eritrea, one of Africa's newest and most repressive countries.
Eritrea gained independence in 1993 after three decades of war with Ethiopia. "It's been very underexplored, and now it's getting a lot more attention," Mr. Hopley said.
He described it as a stable country with good mining laws. "It's very encouraging to foreign investors. … It's safe and there's no corruption or petty theft."
Another Vancouver-based miner, Nevsun Resources Ltd., is the majority owner of the Bisha gold mine, the first modern mine in Eritrea, which helped spark a mining boom in the Horn of Africa country in recent years. Bisha, which provides nearly a quarter of Eritrea's economic output, helped pave the way for Sunridge's own development.
The Sunridge mine is expected to gain a mining licence in April or May, and production could begin by the end of the year, Mr. Hopley said. Its mine is 60-per-cent owned by Sunridge and 40-per-cent owned by a state mining company.
Human-rights groups have criticized Nevsun for allowing a subcontractor to use conscripts as forced labour at its Bisha mine several years ago. As a result, Sunridge and Nevsun have introduced new rules to ensure that conscripts are not included among the subcontractors at their mines, Mr. Hopley said.
Canadian mining companies have praised Eritrea for its strong support of foreign investors, and they have heaped similar praise on Ivory Coast and Malawi two other Africa countries that are beginning to develop a mining sector. Ivory Coast won a mining-industry award in December for the world's best-improved mining code, after Montreal-based mining firm Sama Resources Inc. helped the government to develop its new mining law.
Sama Resources has been developing a copper-and-nickel project in Ivory Coast, despite military conflict that erupted in 2010 and 2011. Two other Canadian-owned mines are producing gold in the same country.
"Canadians love to come in early," said Benoît La Salle, chairman of Sama Resources and chairman of the Canadian Council on Africa. "We understand the difficulties, but we also know the potential."
In Malawi, the Calgary-based mining firm Mkango Resources Ltd. is developing a $217-million rare earth project, which will be among the first modern mines in the traditionally agricultural economy. The mine is expected to begin production in 2017 or 2018.
"Malawi is an underexplored country, and there isn't the tradition of mining that you have in South Africa and Zambia, but there is fantastic potential there," said William Dawes, the company's chief executive officer.