AMN - Lower commodity prices stall investment - comment by Yolanda Torrisi

Weak commodity prices are affecting the global mining industry and the impact is particularly being felt in the East Africa region. Mining companies are delaying or reducing investment while commodity prices stay low due to weak global demand and tightening financial conditions.

Kenya Fluorspar is one company affected by the downturn. They have had to suspend mining and processing operations as costs increased and prices stayed low. They have recorded losses over three consecutive years.

Fluorspar’s price dropped to between $280 and $300 per tonne in the last three years. In 2012 the mineral was fetching prices of $440 per tonne.

Sub-Saharan Africa’s economic growth rate is believed to be between 2.5% and 3% this year.

World Bank Group president Jim Yong Kim was reported saying: “This sluggish growth underscores why it is important for countries to pursue policies that boost economic growth and improve the lives of those living in extreme poverty.”

China was the biggest driver of the global commodities boom from 2000 but China can no longer be relied on as a sole driver as it journeys from a manufacturing base to a service-based economy.

PricewaterhouseCoopers (PwC) has been reported saying Chinese demand for raw commodities seen during the boom will not be replicated as growth is forecast to hover around 6% annually to 2020.

Lower demand for minerals and the bleak global outlook since 2014 has led to a decline in prices. All companies, regardless of commodity diversification or size, have felt the impact with traditional miners taking the biggest hit.

PwC’s annual Mine Report of 2016 shows 2015 as a race to the bottom with the world’s 40 largest mining firms making a $27 billion collective net loss and a 37 per cent market capitalisation decline, wiping out gains made in the commodity super cycle.

PwC Africa mining industry leader Michal Kotzé says: “The top 40 experienced their first ever collective net loss, lowest return on capital employed, drop in market capitalisation and an overall decline in liquidity.

“Investors punished companies for poor investment and capital management decisions. The 'spot mentality' of investors meant they focused on fluctuating commodities prices and short term returns rather than the long term investment horizon required in mining."

- Yolanda Torrisi is Chairperson of The African Mining Network and comments on African mining issues and the growing global interest in the African continent. Contact:yolanda@yolandatorrisi.com