Sunday, June 23, 2024

Commodity prices slump will discourage mineral exploration

A report from a Canadian think tank shows that the commodity prices slump currently crippling Botswana’s mining industry is only half the bad news for the national economy. Over the years and as a result of downturn in commodity prices, there has been a continuing trend of decreases in exploration spending year after year: exploration spending fell from US$3.2 billion in 2013 US$2.7 billion in 2014. The latest Survey of Mining Companies report published by Fraser Institute in Canada says that the situation is not getting any better.

“According to data from the World Bank, commodity prices for metal and minerals in 2015 have decreased by almost 40 percent since 2011. The decline for precious metalsÔÇögold, platinum, and silverÔÇöduring the same period was just over 30 percent. In particular when prices are low and the market is uncertain, as it is now, onerous costs and uncompetitive policies can discourage investment in exploration endeavours, thereby diminishing the chances that a viable deposit will be found and eventually developed into a producing mine,” Fraser Institute says.

The report may not mention diamonds and copper which are mined in Botswana but those minerals have also been affected by the current commodity prices downturn. The fall in commodity prices is a direct result of China’s economy slowing down. By one estimate, if China’s economic growth undershoots the International Monetary Fund’s projection of 6.3 percent for the year by 200 basis points, global commodity prices could slide by up to 31 percent in 2016. Botswana is already feeling the pinch. BCL copper mine in Selebi Phikwe is expected to cut a third of its employees as copper prices plummet and globally there has been a depressed demand for diamonds.

Last year, Botswana cut its diamond production target from 23 million carats from 20 million carats. On the whole, the country’s mining revenues are expected to fall by 8 percent because of the slump in commodity prices. Addressing the Botswana Stock Exchange’s Inaugural Listings Conference last month, a Rand Merchant Bank South Africa analyst, Celeste Fauconnier, said that Africa will “face pain” for the next two years because of the downturn in commodity prices. For thousands of Batswana who work in mines, that pain would be in the form of staying jobless for that period of time. Fraser Institute makes clear another challenge that Botswana faces in terms of mineral exploration. While the country is the highest ranked in Africa in terms of policy, it does not do so well in terms of “mineral potential”. The Institute’s “Best Practice Mineral Potential” index ranks jurisdictions based on which region’s geology “encourages exploration investment” or is “not a deterrent to investment.” In other words, a region’s pure mineral potential. Botswana is ranked 69 out of a total of 109 jurisdictions.

The Fraser Institute Annual Survey of Mining Companies was sent to approximately 3800 exploration, development, and other mining-related companies around the world. The survey was conducted from September 15th to November 27th, 2015. The companies that participated in the survey reported exploration spending of US$2.2 billion in 2015 and US$2.5 billion in 2014. The survey is an attempt to assess how mineral endowments and public policy factors such as taxation and regulatory uncertainty affect exploration investment.


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