Shaun McRobert (Partner) writes on his observations from the most relevant global mining sector conference.
Indaba 2015, held in Cape Town, South Africa in February, was not on everyone’s list this year. Many have resorted to “every second year” and resources pricing, tight budgets, Ebola issues, flight safety and political issues in South Africa meant many people chose to take this year off. Delegates were officially down to roughly 6,000 (some noted it was as low as 3,500) as against 8,000 last year, with a noticeable decrease in delegates scrumming around the Westin hotel reception area and even the odd “vacancy” sign on V&A Waterfront hotels.
However, there was much business to be done for those who took the trip that included a group from King & Wood Mallesons offices around the globe. A later Chinese New Year meant that greater interest was shown by Chinese investors, particularly those looking at infrastructure investment in Africa. Junior resource companies were using their resources judiciously while cultivating their long term supporters and eyeing value accretive acquisitions (particularly if they could raise money off the back of them). Mining services providers are looking for the next growth space, and Africa could be it.
Service providers dominated the inside of the conference centre, with only 13 mining companies actually taking up a stand. The smart money was in Camps Bay, with strategic use of meeting rooms around the conference centre to propel things along.
King & Wood Mallesons hosted a dinner on the Monday evening for clients and friends. Our global Managing Partner Stuart Fuller and master of ceremonies David Eliakim welcomed our international set of clients from London, Paris, Shanghai, Beijing, Hong Kong, Perth, Sydney, Melbourne and beyond.
Presentation by Tony Blair
While there were a string of key presentations, however it was standing room only for the appearance of Mr Tony Blair, the former Prime Minister of the United Kingdom, and we kept a few notes which we thought might interest you.
Mr Blair began by noting the changing landscape in Africa, with investment expected to continue to rise. Countries such as China and India, who were previously not investing in Africa, are now major players. The relationship between developed countries and Africa is also changing and becoming more of a partnership, rather than a donor/donee relationship. Companies should build relationships between themselves and the countries and communities that they are investing in.
In light of this, Mr Blair noted that there were five important principles relating to investment in Africa:
- It is important for investors in Africa to invest in infrastructure that benefits not just the investor, but also the people of the country. In particular, Mr Blair stated that power and electricity infrastructure was the “single most important element in a country’s development. If they can’t get access to electricity it’s so much harder not only for business to develop, but for that country to get educated and for the country to be connected to the world”.
- Governments should ensure that local businesses can also take advantage of investment flowing into the country. This could be done through improvements in education and training.
- It is vital that governments are transparent and that corruption is stamped out. Corruption and a lack of transparency make it difficult for investment to go ahead.
- Governments must also aim for predictability in taxation. Investors are unlikely to want to invest in a country if their tax liability is unpredictable.
- The quality of government is a predictor of success. Governments must be effective and able to get things done. Blair drew on his own experience in government, likening it to being the CEO of a company.
In discussing these principles, Mr Blair clearly drew on the work of his Africa Governance Initiative (AGI), a charity based on the idea that change must come from within Africa, rather than from foreign aid. The AGI aims to promote development within Africa by working with leaders of African nations to help improve governance in Africa and spur private sector growth. Fundamental for such growth to occur is investment, both African and foreign.
Mr Blair also said that governments and investors should try to forge deeper relationships and build trust between them to ensure the success of projects. Governments should also encourage cooperation between investors. It is important for governments to seek out a diverse range of investors to avoid having their own economy tied to the fortunes of another country’s economy.
Mr Blair went on to note the progress that Africa has made in the past two decades, despite challenges such as Ebola and extremism. The suggested that governments learn from the slow response to the Ebola outbreak, for example by improving health systems. The Ebola crisis can be seen as an example of the importance of countries working together. The next great challenge facing Africa is the rise of radical Islamism, and Mr Blair stressed the importance of education to face this challenge and for Africa’s future more generally. He also suggested the use of technology and public-private partnerships to drive improvements in education.
PE out in force
It was pleasing to see the breadth and depth of private equity houses at Indaba this year. With many mining and mining services companies feeling the heat, PE houses ranging from small private PRC outfits, speciality small to mid-cap funds and larger SWF types were all running the ruler over various commodities, with particular emphasis on rare earths and copper. With the view over the water at Camps Bay, expect a lot more investments from this group over the next 6 – 12 months.
African infrastructure play
Stranded mines are not mines at all. Much of the talk around the conference was about power, rail and port development to complement existing developments. The French and the PRC are way out in front, but the US and the Canadians may be making a late charge where risks can be appropriately managed. The drive for greater yield seems to be driving a greater appetite for risk.
There were many lessons to be learned from Indaba this year and now the challenge is to put them into action.