Central Africa Mining Report Q3 2012

Central Africa's mining sector is set to follow much of the continent by developing its substantial mineral wealth. As yet, the region is still far from achieving its full potential, but these recent developments could indicate a changing tide for these three countries and indicate that the mining sector is set for sustained lift-off. However, many of the issues which have held back the region from achieving its potential for much of its history remain. Political risk and a lack of adequate infrastructure are the most pressing concerns, and while there are some efforts to address these problems, a lot more needs to be done if the region is not going to be considered 'frontier' for many years to come.

Ore To Play For Like that of much of Sub-Saharan Africa, Central Africa's iron ore mining sector remains at the early stages of development, having lain dormant since the region's independence. In the Democratic Republic of the Congo (DRC), foreign firms have been showing interest in developing the country's considerable resources. A number of projects are in the formative planning stages, with Core Mining's Avima project currently the closest to beginning production, with output of 20mntpa (mn tonnes per annum) expected in 2015.

With growing interest in Africa's largely untapped iron ore resources, the DRC's considerable deposits of the mineral have fallen under the gaze of international mining firms. Indeed, one of the largest projects in development in the region is Sundance Resources' Mbalam project, which spans the border between Cameroon and the DRC.

This foreign interest has spread to Cameroon and the Republic of the Congo, which have several huge iron ore projects set to come online over the coming years. Chinese companies have shown an increasing interest in the region and are currently looking for joint ventures (JVs), a trend we expect to continue and gather pace.

Regulatory Structure The regulatory structure in much of Central Africa is far from optimistic; however, there are increasing signs of improvement. Starting with the negatives, the expropriation of First Quantum's Frontier mine in the DRC illustrates the risks of investing in a county that comes second to bottom in our business environment ratings for the world. While this may be the exception rather than the rule, it still illustrates the problems that mining companies face, and fear, in the country.

The Republic of Congo and Cameroon have fairly similar regulatory environments as they both attempt to transition away from highly bureaucratic mining sectors towards open and transparent investment opportunities. As well as endemic corruption, which is unlikely to go away anytime soon, the lack of clarity over transition will weigh on investor sentiment.

However, there have been some promising signs with recent investment from companies such as Equatorial Resources and Sundance seemingly untroubled by the country's red-tape. Looking ahead, we expect to see higher taxes in these courtiers as they have yet to follow suit with the rest of the continent in raising revenues from their respective mining sectors. While there has been little indication that this is set to happen as yet, declining oil revenues in both countries could push these governments to turning to the 'cash cow' of the mining sector to milk new sources of government revenue.

Key Players Central Africa's mining sector is fairly well consolidated at present, with only the most intrepid companies venturing there. The most well-developed sector is in the DRC, where global gold miners such as Randgold Resources, AngloGold Ashanti and Minmetals operate. Looking ahead, we expect Central Africa's mining sector to become more fragmented over the coming years as the region's substantial mineral deposits attract greater interest