Miners head to Africa

High costs in Australia force miners to look overseas

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published August 30, 2012 3:41 pm AEST

Not just do Australians have to face risks to our economy from falling commodity prices, but now it seems we could see our mining industry pack up and move offshore as well.

The high cost of developing mines and energy projects in Australia is forcing mining and energy companies to look to Africa. BHP Billiton (ASX: BHP) recently cancelled its $20 billion Outer Harbour at Port Hedland and its $20 billion Olypmic Dam mine expansion, partly as a result of falling commodities prices, but also because of the huge cost of developing projects in Australia.

Recently, colleague Bruce Jackson reported that riggers were earning $220,000 a year, for a company providing construction and maintenance services to the resources industry.

KPMG mining head Ian Kramer has suggested that miners "should avoid Africa at your peril", and added "You are getting access to resources that give you mines that last multiple decades".

More than 2,500 delegates are attending the Paydirt Africa Down Under conference in Perth that started this week, including 17 African resources ministers and mining department heads.

Many Australian miners are already entrenched in Africa with at least 200 companies undertaking more than 650 projects across 37 countries. Sundance Resources (ASX: SDL) has iron ore operations in Cameroon and the Congo. Discovery Metals (ASX: DML) is starting up a copper mine in Botswana and Paladin Energy (ASX: PDN) operates a uranium mine in Namibia and another in Malawi.

Employment costs in Africa are another of the attractions, and with unemployment high in many countries, salary levels are very low. A rock drill operator in South Africa, which is one of the most demanding jobs in the mines, earns around R120,000 (A$13,800) a year. Imagine what a rigger would earn!

The risks of investing in Africa are high. Much of the Congo is controlled by rebel groups who use the proceeds from the sale of minerals to fund their fight. Oil pipelines in Nigeria are regularly breached by locals looking to on-sell the oil. But for Australian companies willing to take on the risks, the rewards could be worth it.

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Motley Fool writer/analyst Mike King owns shares in BHP and Discovery Metals. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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