Emerging Markets

Due North shows greatest growth points

Due North show greatest growth points
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Emerging South African mining companies should heed the call to expand northwards into Africa, offsetting low earnings in certain commodity markets by diversifying in terms of commodities, markets and geography, international consultancy, Frost & Sullivan, said in a statement on Monday.

"For an industry such as mining, where commodity prices are cyclical, diversification is one of the key instruments utilised by companies to offset low revenue earnings in certain commodity markets and maximise shareholder value," said Frost & Sullivan mining research analyst Yeukayi Kadzere.

Kadzere pointed to JSE-listed miner Exxaro as an example of an African-owned mining company "leading from the front". Its acquisition of Africa Iron Ore Mining, in the Republic of Congo, for US$328 million, allows it to build on its existing exposure to iron ore, in the form of a 20% shareholding in Kumba Iron Ore.

South Africa's second-largest coal miner plans to invest $320 million in increasing Africa Iron Ore's annual output to 2-million tonnes by the end of 2014, Kadzere noted.

Exxaro is also investing in infrastructure development, "a key success factor for most mining ventures developed in Africa". The company intends to upgrade the railway line leading to the Pointe Noire port, which it will use to export its output.

The world's largest mining companies, such as BHP Billiton, Rio Tinto and Vale, are extensively diversified by commodity, markets and geography, Frost & Sullivan noted. They go on to argue that South African mining companies, not only in coal mining, should consider this strategy to ensure revenue growth throughout commodity cycles.

"South Africa has vast experience in mineral extraction and processing, and this knowledge can be successfully channeled into other African territories, whose mining industries are still within their infancy," Kadzere said.

"While we cannot turn a blind eye to the challenges associated with investing in new markets, it is time for black-owned South African miners to heed the call of expanding northwards into Africa. As South Africa works towards growth in industrialisation, through mineral beneficiation, resource security will become critical, and it is these 'acquisitions' that will increase resource security going forward."

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