“The infrastructure related to mining, it’s very important to unlock this value. Resource-driven growth in Africa is very important, even a mature market like South Africa where it’s declining, but still has 500,000 employees and contributes to 50 to 60 per cent of the forex exchange,” Klaus Findt, chief operating officer of global infrastructure for Africa at KPMG, told CNBC Africa.
“We must ensure that we have infrastructure in place who can underpin this growth going forward. In South Africa, I think it’s the most developed market and with the best infrastructure.”
Given Africa’s large infrastructure deficit, mining companies will have begun to reassess their future mining investments by financing infrastructure related to their projects.
“Mining houses are investing in big mining projects, but these investments are idle, they are not underpinned by an associated infrastructure. Take the example of Rio Tinto in Mozambique. We’ve got Rio Tinto, Jindal, investing,” Findt explained.
“On the African continent I think only Transnet has got the mandate to deliver infrastructure ahead of demand. At least we have got something in place which allows the mining houses to get confidence, but it’s still not enough.”
Mining companies are however already developing infrastructure for current projects. United Kingdom company Vallar, for example, is developing the Nacala corridor in Mozambique, where roughly 950 kilometres of rail infrastructure and associated port infrastructure will be established.
“Investors don’t like risks, and if you have risk attached –maybe the development of infrastructure is delayed –it’s got enormous impact on the overall cost of your mining,” said Findt.
“The underpinning business case is very important. Even if you have copper mining in Zambia, which at this point in time takes to export copper by truck round about 20 to 22 days, they still a have a viable business case even without a functional infrastructure behind it.”
Engineering, procurement and construction (EPC) contracts have become a crucial means of funding infrastructure projects in the industry, as well as reducing risk.
Influence on how to shape infrastructure development may be significantly minimised but risk is outsourced to an external party when using the contract.
“It comes with higher cost attached to it, but for funding of infrastructure projects it’s a preferred model, because the funding institutions have certainty. It’s a preferred model going forward,” said Findt.