Avril Cole is an associate in the private capital, banking and mining groups of Macleod Dixon LLP. Avril also works closely with the securities group, acting primarily on behalf of agents and underwriters on a variety of transactions, including private placements and public offerings. Macleod Dixon LLP is a global law firm with offices in Canada (Calgary and Toronto) and four emerging markets with natural resource based economies, Venezuela, Brazil, the Russian Federation and Kazakhstan. The firm is known for excellence in the natural resources arena, primarily mining and oil and gas. Nine lawyers from Macleod Dixon were ranked as leading practitioners by Who’s Who Legal, Mining 2010—the highest number of any Canadian-based law firm.

TABJ: Please describe, in your assessment, the current landscape for foreign investors interested in investing in the mining industry in Africa.

Avril Cole: Now is a good time to invest in the mining sector of a number of African countries. Commodity prices saw record drops in 2009 (compared to the prices we saw during the “bull run” between 2005 and 2008) but are expected to normalize at 60-75 per cent of their all-time highs this year driven by growth in demand from the economic powerhouses, China and India, as well as depleted stockpiles. This should drive exploration spending in Africa. The higher demand for gold especially is leading the mining sector’s revival in places like Ghana and Tanzania. The recently released 2010 Fraser Institute Survey of the mining industry captures the optimism within the industry about the economic recovery. Almost twice as many mining companies surveyed said that they expected to increase exploration budgets in 2010 as those who said budgets will remain the same or decrease.

Notwithstanding the recession, in 2009 around $2.6 billion in equity capital was raised on the Toronto Stock Exchange and the Toronto Venture Exchange for mining projects in Africa. According to the TMX Group, there were 169 companies listed on the TSX or the TSX-V operating in Africa in 2009 developing 681 properties, active in 44 countries across the continent.

The traditional mining destinations in Africa have been places like Botswana and Namibia and, in the last 15 years, Ghana and Mali and they continue to be the most attractive mining investment destinations in Africa.

However, a number of African countries that prior to now have been seen as too risky to consider investing in are making progress in those areas that are necessary to attract foreign capital to the mineral sector, such as improved political and economic stability, improving institutional capacity and improving quality and applicability of mining codes.

We are seeing an improved political and business climate in places like Angola, Uganda, Liberia, Burkina Faso, Rwanda, Sierra Leone and Mozambique. Sierra Leone has been through two successive and successful election cycles and Liberia held successful democratic elections in 2005. Both those countries seem to be successfully addressing their long standing governance issues and their respective governments are doing a great job of showcasing the natural resources available. In 2009, Sierra Leone also made strides in improving its regulatory infrastructure including the introduction of a new mining code designed to attract foreign direct investment. Rwanda, Sierra Leone and Liberia have also improved steadily in the World Bank Doing Business rankings in the last three years. Rwanda was ranked the world’s top reformer in the World Bank’s Doing Business 2010 report as it climbed from 143rd place in 2009 to 67th place in 2010. Sierra Leone improved its overall ranking in the same report by climbing 8 spots from 156th place to 148th place during the same period. We are seeing increased confidence in some of these countries from established investors.
 
At the same time, South Africa, a traditional mining destination, is increasingly being viewed as less attractive. In fact, in the 2010 Fraser Institute Survey rankings, South Africa fell by 12 places from the 49th position it held in 2009 to 61st position and the mineral sector’s contribution to gross domestic product fell in real terms by 1per cent. This is a due to a number of factors including the impact of the implementation of its new Mining Charter and the strength of the Rand relative to the U.S. Dollar.

Other countries in the West African sub-region like Guinea are still struggling. The political opposition in Guinea recently announced that it will not recognise Vale’s $2.5-billion acquisition of iron-ore assets in that country if it is victorious in the elections scheduled for June, 2010. This announcement has sent a negative message to investors.

TABJ: Please quantify the advantages emerging from Africa in terms of business and investing in the mining sector.

AC: Africa is a highly prospective continent. A number of countries on the continent have a very strong mineral potential that remains underexplored and underdeveloped because of the global perception of the risks involved in investing in these countries.

With respect to other advantages, it is difficult to generalize. Africa is a diverse continent with 53 different countries at various stages of economic development. Some countries like Botswana have a competitive tax and fiscal regime and most others do not. A few countries on the continent (Botswana and Ghana) have a pool of skilled labour that is available on a price competitive basis. Most do not.

TABJ: What, in your opinion, needs to be done to help African countries prosper as attractive investment locations for the mining industry?

AC: The challenge is to identify those policies that will replace vicious cycles that feed off poverty, corruption and mismanagement with a positive cycle of mining led development.

The role of national governments cannot be overstated to provide the political climate, infrastructure, security of tenure and taxation legislation which are required to attract investment. In this regard, they can be assisted by their multilateral partners (World Bank, IFC, UNCTAD and others) and bilateral partners (DFAIT is very active in Africa), donor agencies and others. These institutions can provide the technical expertise to support capacity building measures to improve the regulation of the mining sector and institutional strengthening to improve the management of the sector.

I am of the belief that the desire to reform cannot be imposed from outside Africa, and that national governments have to lead the way.

The decision to invest in a mining project is based on risk-return considerations. To kick start the resource development cycle, investors require: stable, peaceful, “corrupt-free” democracies; effective and transparent legal and regulatory frameworks which clearly define the rights and obligations of investors; macroeconomic stability; competitive fiscal and taxation conditions; infrastructure services and freely available geological, economic and fiscal data.

TABJ: What is your prognosis on the potential for governments to reform internally?

AC: Developments across the face of Africa suggest that there is a downward trend in conflict, poor governance, mismanagement and corruption and an upward trend towards democratisation and reform. These trends augur well for development of the mining industry across the continent.
 
As I have said, Botswana and Namibia have been able to improve their risk profile. Four decades ago, Botswana was one of the poorest nations in the world and it is now the most attractive country in Africa for mining related investment because Botswana found the political will to improve the investment climate for the mining sector and to use the sector as a springboard to diversify its economy.

TABJ: It sounds as though capital investment in the mining sector might be the catalyst required for the management of so-called “frontier countries” to become more stable.

AC: Capital investment in the mining sector can definitely be the catalyst if it is properly managed. Mining can serve as a springboard and foundation for sustainable development in Africa if local governments can provide the infrastructure to support the sector and allow that to happen. We have seen this successfully implemented to varying degrees in Botswana, Ghana, Namibia, Mali, Burkina Faso and South Africa. It can lead to faster economic growth, increased tax revenues and corresponding increased public investment in human capital and infrastructure and a growing economy which allows other industries to flourish. But governments must take a holistic approach and deal with the difficult dynamic of having to respond to the short term aspirations and needs of the electorate while at the same time implementing policies which may only deliver the needed benefits in the long term.

TABJ: How are Western businesses responding to local civic and political challenges in the countries in which they are invested?

AC: One cannot paint all Western mining companies with the same brush. There are good actors and bad actors and I am not going to name names. What I can say is that mining companies recognize that social responsibility is fundamental to their business strategy. They have to conduct business in a manner that supports the communities where they operate, with a focus on environmental stewardship and sustainable development. The expectations of local communities, national governments and others about the effectiveness of the mining industry in addressing environmental and social concerns have risen significantly over the last decade and they are reflected in changing policies and regulations. There is increased scrutiny on both the local and international level resulting from networking among local communities and civil society groups in Africa and beyond. The more substantive costs arising from an environmental or social impact problem a mining company may have caused, advertently or inadvertently, will often be the damage caused to its credibility and the resulting erosion in trust.

As the head of our global mining group, Richard Lachcik, stated in a recent interview with the National Post, the reality now is that a western mining company cannot get a mining project financed without being squeaky clean and meeting all the international standards with respect to environmental and social regulations. If you do not, international banks and institutions like the IFC and the EDC will not lend to you.

We are corporate counsel to a number of mining companies that have ongoing projects in Africa and our advice across the board is that they employ best practices in the area of community relations and social mitigation by engaging with local stakeholders (local press, local communities), contributing to improving the living conditions of affected populations, honoring commitments to communities, respecting cultural and religious sites and following voluntary codes of practice (such as the PDAC’s E3 Plus initiative) and committing to higher environmental standards than might be required by the host country.

TABJ: Please speak to the role of women in mining and for the future of Africa.

AC: Women are historically under-represented in the mining industry. The reasons for that are multifaceted, stemming from the industry’s history as a male-dominated workforce, its image as providing very physical, masculine-oriented roles and its ingrained corporate culture that makes men feel more comfortable and prepared to succeed than women. I think that this is changing though. The recent bull run in commodities put a spotlight on the skills shortage in the mining industry. Companies realize that combating the skills shortage means increasing female participation in the industry. Women are also perhaps more willing to avail themselves of opportunities in the industry today than in the past.

Some countries are taking the bull by the horns, most notably South Africa. As part of the South African government’s program to accelerate the advancement of historically disadvantaged South Africans (a category that includes women), mining companies were required to have women represent at least 10 per cent of their workforce by 2009.

There are some high profile female executives in the industry. You probably are aware that the current CEO of Anglo American is a woman. Her name is Cynthia Carroll. Debra Valentine is the Group Executive, Legal & External Affairs at Rio Tinto. Leslie O’Donoghue is the Chief Legal Officer and Senior Vice President, Business Development at Agrium Inc.

There are a few female CEOs of junor mining companies as well. I can point to Kim Harris, the CEO of Midland Minerals and Mari Ann Green, the CEO of Formation Metals Inc.

In most of sub-Saharan Africa, women provide the backbone of the rural and informal economies and can play a significant role in the development of the formal economy, including the mining sector, if given the opportunity. When you remove the social, economic and legal constraints on women, you take a giant step towards development of the economy.

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