2018 is fast approaching and it was another year of the roller coaster for the mining industry.
At Hogan Lovells, we were directly involved, or had to provide advice, or consider all aspects from bitcoin mining to space mining and everything in between.
In this latest addition to the 2018 mining newsletter, we include a series of articles dealing with alternative and innovative financing mechanisms for exploration and mining in Africa; the publication of the long-awaited Mining Map in South Africa, the potential impact on health and safety following the decriminalization of the cultivation, possession and use of cannabis for personal private purposes; the contribution that the mining sector makes to the economies; feedback from the Africa Down Under Conference this year in Perth, feedback from the Diggers and Dealers conference this year at Kalgoorlie, Australia; the use of independent experts in dispute resolution; navigate through the winding One Belt One Road, the future of space extraction, consultation with interested parties and stakeholders before mining and prospecting can take place; and how the impact of customary law on environmental protections. We have also included our thought leadership articles that we have previously published as part of our corporate integrity and sustainable development program. We hope you find them interesting and you like reading them, as much as we enjoyed preparing them.
These are also some of our thoughts on the key trends for 2018 and where we think things could go for the mining and natural resources sector, in 2019.
The mining sector remains multi-dimensional
The mining sector can not be considered in isolation – it is the "engine room"of any economy in a country with substantial mineral resources. The mining sector in these countries is also a good indication if the economy is healthy or not.
In countries with substantial mineral resources, the mining sector plays a key role in transformation and development, and where the mining sector does not work, it manifests itself in various forms, including the inability to meet socio-economic expectations, the 39. Increased nationalism of resources (and in some cases, the demand for nationalization of the mining sector, ie complete control and ownership of the mining sector by the government), community unrest and, often, non-democratic and unconstitutional attempts to drive through unsustainable changes to mining laws, creating policies and regulatory uncertainty, and the resulting consequences – a decline in investment and a socio-economic upheaval.
The mining sector generally operates in the broader context of infrastructure development (ports, railways, water and roads), agriculture, telecommunications, construction and engineering. When the mining sector is behaving, these related sectors also behave satisfactorily, with the resulting wider benefits, including greater investment, socio-economic development and consumer spending on aspects such as housing.
Even at the most basic level, the mining sector has an impact, good or bad. In the mining sector, in general, each mining operator supports or provides a form of income for up to ten other people, including direct dependents, extended families, craft and micro businesses (such as transport and food) and the medium-large consumer focused entities that have taken their business in cities and mining communities.
Key trends for the mining sector in 2018 have affected each of these dimensions, which have the mining sector at the center.
The rising narrative in Africa
Africa remains a continent full of mineral resources, providing not only the "usual"minerals such as gold, copper and platinum group metals, but also, for example, those minerals that are absolutely essential for a sustainable future in which energy does not depend entirely on fossil fuels – the"minerals of the battery"This, by itself, means that Africa should be a key investment destination. Add to this growing working age population of Africa and its developing consumer base, and it is a perfect mix, for investments.
In this context, it is quite understandable that foreign direct investment in Africa increases year by year.
While South Africa may have lost this intense investment activity, in the short term, due to several factors, including the uncertainty of policies and regulation, the costs of doing business, the "red ribbon", corruption and licensing delays, other African countries are benefiting from it. These countries include Ghana, Uganda, Angola and Namibia. If countries provide an investor-friendly business environment, capital will naturally flow to these countries.
2018 saw a substantial increase in mining investment in Africa, and will likely continue in 2019 with an emphasis on those countries with highly sought-after minerals, and more investor-friendly policies focused on ease of doing business, an efficient and effective licensing regimes, security of possession, flexible exchange control regulations and where governments are seriously committed to eradicating corruption and irregular practices.
Access to alternative and innovative financing
The mining monopolies seem to be finished, with the exploration, the lifeblood of the Mining Sector, often led by individual projects and patrimonial societies that require access to capital that will allow them to explore and develop assets on the value curve.
The mining sector and its related and satellite industries and sectors depend to a large extent on small and medium-sized enterprises ("SMEsSMEs are critical to the growth of emerging economies and the increase in employment, but access to finance is one of the biggest obstacles. According to the World Bank, formal SMEs contribute up to 60% of total employment and up to 40% gross domestic product in emerging economies, significantly higher when informal SMEs are included.
The need and the opportunity to develop energy and infrastructure in Africa is enormous. In Sub-Saharan Africa, only about a third of the population has access to electricity.
The call for more exploration and energy requirements has opened opportunities for alternative lenders to fund the entire value chain, from energy producers, merchants and producers of goods, to other energy infrastructures and logistics services.
In 2018, there was a strong focus on innovative financing mechanisms, with cryptocurrencies without borders and metal streaming arrangements also seriously considered. The unconfirmed figures suggest that over $ 200 million has been collected through cryptocurrency mechanisms. 2019 is likely to see an increase in the use of alternative and innovative financing mechanisms.
Politics and legal certainty
Creating a policy and regulatory certainty, by itself, is not enough to make a country conducive to investment. It is the holistic framework of good law, access to an independent judicial system, a solid banking and financial structure and a commitment by all stakeholders in the mining sector to achieve this goal.
South Africa has made significant progress towards creating the necessary stability in the mining sector through the extensive consultation process and the subsequent publication of the 2018 Mining Charter and the withdrawal of amendments to the mining law of South Africa, namely the mineral and oil Resources development law, n. 28 of 2002. Other jurisdictions also took the opportunity, such as the Democratic Republic of the Congo, which changed the mining code, to include provisions on stability (but the negotiations appear to be stagnant and this could have an impact on the positive outlook. of the DRC). Tanzania, on the other hand, is in a quagmire of litigation, following its legislative amendments.
The formation of the African Free Trade Area ("ACFTA") could provide additional growth and development opportunities that have so far been lacking. The agreement concluded to establish the ACFTA has the potential to significantly change the way trade is conducted in Africa. Once ratified by the 22 signatories, the agreement will establish the ACFTA, which aims to create a common market across the continent for goods and services.The ultimate goal is to create a customs union throughout # 39; Africa.
Where the African countries have moved, in 2018 towards the creation of a more stable policy and regulatory framework, this has opened up new opportunities.
Security and protection
Staff safety and security have become a key consideration in the mining industry, with many multinational companies taking extra precautions when deploying staff.
In countries where security threats have increased in 2018, this has influenced the decision-making process, with more and more decisions being made to focus on safer jurisdictions.
Business integrity, corruption and irregular processes
Actual or perceived corruption played a significant role in investor decisions in 2018 and more and more companies are focusing on compliance, anti-corruption and corruption measures.
If this is driven by requirements for lists, legislation, reputational risk or moral reasons, compliance and monitoring programs have increased in complexity, with a strong emphasis on recognizing the current world without borders of cryptocurrency, the slippery slope of the first "facilitation payment"made to accelerate and facilitate the licensing process and socio-economic realities in several mineral-rich countries.
The fourth industrial revolution
The fourth industrial revolution is a reality and the mining sector is embracing its components, including the Internet of Things, Artificial Intelligence, Mechanization, Automation and Block Chain.
The move towards mechanization and ultimately automation is not necessarily easy: there are a number of concerns, in particular the potential loss of jobs. While there was recognition that the shift to automation offers the potential for improvement, the fear of large-scale job losses remains.
The energy mix
While some countries, such as Canada, are moving towards total electrification of mines and are moving away from the expensive and often ineffective diesel, Africa seems set, at least in the short or medium term, to generate the most part of its energy, from fossil fuels.
Renewable energy sources will play a significant role in a sustainable mining sector and, despite the progress made towards diversification of the energy mix, in 2018, 2019 will probably be focused on renewable and sustainable energy.
There are strong demands for greater transparency from different stakeholders in the mining sector, so that there may be more responsibility and better accessibility, basic information such as where minerals are located, who holds licenses in relation to these minerals and when the licenses expire.
The digital era provided various opportunities for irregular practices and it was interesting to see the progress made on the Trac Diamond Tracciability Chain Trac platform. While diamonds have been the subject of numerous traceability and authenticity programs, traceability principles are likely to receive further attention in 2019 for minerals other than diamonds.
There was a strong move towards an informed decision-making process by investors in 2018, and programs that guarantee traceability from production to end-use could have a significant impact on investment decision making in 2019.
Where in 2019?
The topics and trends, some of which have been addressed in this article, should continue in 2019 with a strong focus on the development of responsibility structures in relation to environmental and other accidents, implementing frameworks to facilitate compliance and eradicate corruption and irregular activities and the development of stakeholder models that ensure that communities benefit from the mining activities at their fingertips and the growing importance of "social license to mine".
2019 promises again, to be a year full of uncertainties and changes. At the same time, however, uncertainty and change create opportunities and we are not looking forward to working with you as we explore some of these opportunities in 2019.