Artisanal and small-scale mining is a significant global livelihood. To date, the sector has been left largely on the edges of the economy, with little access to formal financing.
Currently, mining is largely financed by the informal economy with a finance-first mandate. This prioritises commercial financial returns and has little or no regard for Environmental, Social or Governance (ESG) considerations. Seemingly, formal financing has generally been restricted to donations and grants, with negligible evidence of funds from commercial lenders and impact investors.
This is primarily because, to grant mining banking, some of the largest credit funds cover a broad base of asset funding and seek excellence, great commodity, good trading background, good management and solid projects where ESG is at the forefront.
Private companies on the other hand seek to invest and take equity positions in private projects and companies to build dominant minority interests, in certain cases controlling interests.
For volatile markets in Africa, access to capital is a big constraint to small miners – and a big source of negative impact on competitiveness; relative to China which is very dominant and has access to cheap capital. In a bid to raise money for early-stage exploration companies in Africa, some funding institutions have leapt to pay dividends further along their growth cycle and growth curve. While tracking investors and driving value, the money is invested back into the ground. Ultimately, this creates value for all stakeholders including targeted communities – bringing all the pieces of the puzzle together.
How important is the growth story?
Investors’ overarching desire is to fund mining companies and products that bolster the drivers of demand for which the investors are catering – the growth of which is exponential.
However, Environment Social Economic Governance (ESG) is a key component rated on report cards to guarantee that the firm is on every investor’s list – from the large institutional funds to the hedge and pension funds. This makes it an integral part of business and finance.
Today, the ESG debate is moving away from box-ticking and risk management to value addition, which requires imagination and top-notch creativity. This goes a long way to gain firms ESG funding sources, which not only enable miners to make money from institutions or equity and debt but increasingly gain impact funding sources – which up to now have been very wary of extractive industries. ESG should therefore be viewed as an opportunity for value addition as opposed to risk mitigation.
From a footprint point of view, ESG Compliance also adds value to mining products, creates transparent compliance and creates an independently verified pipeline of supply.
“As investors, we are primarily looking for a unique resource that has economic viability and is competitive – with alternative channels of value addition elsewhere in the world – then we can add value to that resource domestically to realise the value of our investment. This requires scale, cheap financing and power. It is therefore important to note that all the resources and advantages born in China are very challenging to duplicate in Africa.
However, it is a very essential challenge to face, not only because it adds value, but because increasingly, this is a requirement of the host Governments before maximising economic activity and value addition on their natural resources.
In so doing, as investors, we consider adding to our standing in the country – in terms of the communities, political environment, and leadership and therefore making our position much more secure – including security on tenure and rights in addition to product margin. ” Brian Menell – C.E.O TechMet.
Infrastructure – Roadblock to Value Addition in Africa
There is a critical need for private sector investors in Africa to assist Governments to create an enabling environment that makes the value-adding undertakings practical and feasible. This could be amplified through the provision of local security, local infrastructure and an enabling environment to make manufacturing and (or) processing simple. In any case, this has been hampered by fizzled endeavours to reach a commonality of interest; and the inability to communicate honestly and openly.
More and more, investors are relying on local expertise, funding projects and dialoguing, subsequently causing a boom in the market through partnerships. Typically, this is a noteworthy opportunity for mining companies to convert their portfolios through alliances.
