Madagascar's mining sector 'is sick'

2013-12-03 12:41

(Shutterstock)

Multimedia   ·   User Galleries   ·   News in Pictures Send us your pictures  ·  Send us your stories

kalahari.com

  • Marc Ravalomanana
    Marc Ravalomanana (born December 12, 1949, in Imerinkasinina) is a Malagasy politician who was the... Now R585.00
    buy now

Antananarivo - Madagascar's next president will struggle with low metals prices and distrustful companies as he seeks to revive a mining industry that was the main source of foreign investment until a 2009 coup cut flows to a trickle.

The primary risk is that neither of the two candidates clearly wins a mandate on 20 December, prolonging political turmoil. But both say they aim to restore mining, which five years ago attracted $8 out of every $10 in foreign direct investment to the Indian Ocean island.

"The mining sector is sick," Mines Minister Rajo Daniella Randriafeno told Reuters. "It's like a person who is slowly losing the blood that keeps him alive.

Madagascar's deposits of nickel, titanium, cobalt, iron, coal and uranium as well as its hydrocarbon prospects had previously encouraged foreign firms to queue for deals. Among them, Rio Tinto (RIO.L) began mining ilmenite, an ingredient used as pigment in paints, paper and plastics.

The political turmoil that has followed the 2009 power grab by President Andry Rajoelina, however, has choked off the issuance of all but a handful of new mining permits.

The army-backed government, faced with a cash crunch that became acute when foreign donors cut aid, also failed to pay tax refunds for exploration and alarmed investors by threatening to hike royalty fees.

Few permits issued

"Madagascar went from flavour of the month to 'wouldn't touch it with a stick'," said one mining expert with detailed knowledge of contract negotiations.

The government says the freeze in new permits was a condition of a 2011 deal to end a crisis that left Rajoelina struggling to secure international recognition.

A few permits have been issued. Wuhan Iron and Steel Co (WISCO), China's third-largest steelmaker, paid $100m for a permit to explore for iron ore in 2010, shortly before the pact to halt such licenses was agreed.

Firms in Madagascar need to obtain licenses for everything from initial research to final production, which has meant that most existing miners have been unable to extend their operations.

The Madagascar Chamber of Mines said the suspension should have applied only to newcomers. The mining minister said it has drained the life out of the industry.

"If you don't have permits, you can't operate," said one executive at a firm operating in Madagascar, withholding his name to avoid harming ties with the government. "Many (explorers) cannot raise money without permits in their hands."

"Run-off hopes"

Voters hope the second round of the presidential vote will change their fortunes after poverty has deepened in one of Africa' poorest nations.

The run-off pits a former finance minister under Rajoelina against an ally of Marc Ravalomanana, the man toppled in 2009.

The winner - assuming a vote goes ahead calmly - will have to review an estimated backlog of 4 000 mining permit requests now gathering dust at the ministry.

He is also likely to try to unblock foreign aid, bring back tourism and end the suspension of a US trade agreement, which has hobbled the labor-intensive textile sector.

Foreign direct investment has slumped to an estimated $455m this year and $425m in 2014, the World Bank estimates, from $1.36bn in 2009, of which $1.06bn came from mining inflows.

A resurgent mining sector would create jobs needed for the construction of new roads and even ports, generate badly needed revenue for the Treasury and bring in foreign currency to help pay for imports.

"Mining is key"

Madagascar has few other avenues to boost growth quickly. Tourists, who had visited the world's fourth-largest island for its rare animal species and unique ecology, have been scared away. Many Malagasy depend on subsistence farming.

"Mining is key" to help the crippled economy, said Lydie Boka of French risk consultant StrategieCo, after annual growth slumped from 7%  before 2009 to 2%, not enough to keep up with the increase in the 22 million population.

The industry is currently dominated by two players that were licensed under the previous government. Both their projects were well advanced before the coup and have survived.

London-listed Rio Tinto owns 80% of the ilmenite mine on southern tip of the island, and Toronto-listed Sherritt International (S.TO) owns 40 percent of the $5.3bn Ambatovy nickel mine, which started up last year.

In that first year of production, nickel became Madagascar's main export, worth an average $30m a month, the World Bank said, and the company is still ramping up towards full capacity.

Newer entrants including China's WISCO and smaller firms have either scaled back exploration activities or departed.

Any efforts by the new president to attract mining investment will come at a bad time for the industry after metals prices have slumped.

Revenues of governments across Africa have been pinched by the price slide, in large part due to stalling growth in China the top buyer of many of Africa's minerals.

Clear statement of policy

"So even if the elections go smoothly and Madagascar declares itself open for business, they're going to be hard pressed to find interested parties," Hunter Hillcoat, a mining analyst at brokerage Investec in London, said.

In one encouraging sign, there has been movement in the oil and gas industry. Four years after declaring force majeure, Exxon Mobil Corp (XOM.N) said in November its affiliates had secured license extensions, allowing exploration to resume.

Madagascar has yet to prove it has offshore hydrocarbon reserves, but it shares a maritime boundary with Mozambique, where gas reserves have been found. Onshore, Madagascar Oil (MOIL.L) plans Madagascar's first commercial crude sales next year but will need a decade to reach full capacity.

As for mining, the new president will have to deliver a stable investment environment to encourage investment into already proven commercial mineral deposits.

That will include providing reassurance that a widely praised mining law will be honoured.

"They have to make a clear statement of policy," Rupert Cook, a Madagascar-based extractive industries consultant, said. "Do they want to keep the legal framework for mining and for oil and gas as it is or do they want to change things?"

Madagascar's mining law has been praised by companies as good for business. Environmentalists say it is too good, arguing that expanding the industry threatens the lemurs and other animals and plants found nowhere else on the globe.

Miners pay a 2% royalty on the value of gross exports of the raw commodity or 1% on minerals processed locally and exported with added value. Regional mining giant South Africa levies royalty fees of between 0.5% to 7%.

"Madagascar already has a progressive, internationally recognised mining investment law," Sherritt International said in a statement sent to Reuters.

"The free, transparent and credible election of a government in Madagascar, and the resumption of international aid following the recognition of that elected government, would be positive for investment in the country."

Read more on:    marc ravalomanana  |  andry rajoelina  |  madagascar  |  southern africa
NEXT ON NEWS24X

Read News24’s Comments Policy

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
1 comment
Add your comment
Comment 0 characters remaining
 

Inside News24

 
 

An uncomfortable election

The latter few weeks of election 2014, have seen South Africans reeling from an assault on their comfort zone when it comes to voting, writes Daniel Silke

 
 

Latest elections multimedia

Why Jack Parow wants you to vote on 7 May
The ad the SABC doesn't want to air
Elections 2014 in one cartoon
This year's election posters
 
Traffic
Lottery
 
  • Thursday Sir Lowry's Pass - 05:35 AM
    Road name: Old Sir Lowrys Pass Road
    TRAFFIC LIGHTS not working at Bezweni Road
  • Thursday Cape Town - 05:35 AM
    Road name: Buitengracht Street
    TRAFFIC LIGHTS not working at Waterkant Street
 
More traffic reports...
 

Jobs in Cape Town [change area]

Property [change area]

Travel - Look, Book, Go!

Escape winter, head to Mauritius

Escape winter by spending 7 nights in Mauritius' tropical bliss from R13 215 per person sharing. Includes return flights, airport transfers and accommodation. Book now!

Kalahari.com - shop online today

Get many eggs in one basket!

Gaming bundles: 2 Super Hits games for R99, 3 Disney games for R99 and more + exclusive accessory bundles only available on kalahari.com. While stocks last. Shop now!

25% off bestselling books!

The Real Meal Revolution by Tim Noakes, Jeffrey Archer’s Be Careful What You Wish for, Man’s Search for Meaning by Victor E. Frank and many more titles. Shop now!

Up to 25% off electronics

Buy top electronics and save up to 25%. Such as kalahari.com’s 1# selling product the gobii eReader, Patriot X Porter flash drive, Asus Nexus 7” 3G tablet, Samsung Galaxy SIII, Lenovo G580 Notebook and many more. Shop now!

DStv HD PVR Decoder now R949

The DStv HD PVR Decoder has further revolutionised the television experience with lifelike viewing, sharper images, more vibrant colours and precision picture quality. Now R949, save R550. Offer valid while stocks last. Shop now!

Up to 30% off appliances & homeware

Save up to 30% on appliances and homeware this Easter! Offer valid while stocks last. Shop now.

OLX Free Classifieds [change area]

Samsung Galaxy s4

Mobile, Cell Phones in South Africa, Western Cape, Cape Town. Date October 24

Best bargain in big bay

Real Estate, Houses - Apartments for Sale in South Africa, Western Cape, Cape Town. Date October 25

VW Golf 6, 1.6 Trendline (Excellent condition)

Vehicles, Cars in South Africa, Western Cape, Cape Town. Date October 25

BlackBerry Bold Touch 9900

The Blackberry Bold Touch 9900 is as the name says...

From R3565.00

I'm shopping for:

Horoscopes
Aquarius
Aquarius

You may be required to travel or get information for your job. This may be restricting in some way or something may slow things...read more

There are new stories on the homepage. Click here to see them.
 
English
Afrikaans
isiZulu

Hello 

Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.


Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire 24.com network.

Settings

Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.








Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.