There has been a flurry of deals lately in the African mining sector. These investments enable firms to exploit Africa's abundant natural resources, which have become especially valuable as a result of the construction boom in China, India and the Middle East in recent years, which has driven up the price of raw materials globally.
Hurley Doddy, chief operating officer of African private equity firm Emerging Capital Partners, says: “[The mining sector has boomed] largely as a result of globalisation, with sustained interest from China and India, which has had a dramatic effect on commodity cycles.” He says ECP has increased its exposure to the sector in the last two years, having reviewed it since 2000.
His firm is not alone. Many of the investments by private equity firms in Africa recently have tapped into the sector.
Last month a joint venture between US hedge fund Och-Ziff and African investment firms Palladino Holdings and Mvelaphanda Holdings' Africa Management made its first investment through a stake in South African gold mining and exploration company Aflease Gold. In January, energy-focussed buyout firm First Reserve Corporation, in partnership with AMCI Capital and Pamodzi Investment Holdings, invested $420 million (€285 million) in the creation of a South African uranium company Cooke, from the uranium and gold assets of Harmony Gold Mining Company.
Private equity firms are trying to invest at the right time in such capital-intensive projects in order to achieve good returns. Tom Gibian, chief executive of Emerging Capital Partners, says his firm aims to invest in mining at a fairly late stage so it is able to generate revenues from its investments quickly. “Often we're able to identify a management team which has done a significant amount of exploration and definition of the resources and so it's the last equity round just before the company is re-rated to an operational company.”
Private equity firms' foray into mining in Africa looks set to continue. They will be hoping that bypassing the early years of project development will deliver rich rewards for their investors.
IFC BOSS ADVOCATES AFRICA FUND OF FUNDS
Lars Thunnell, the chief executive of the International Finance Corporation, has said he would advocate a fund of funds approach to encouraging investment in Africa, according to a spokeswoman confirming an article in UK newspaper Financial Times. “We're not talking about aid. We're talking about trying to create a new asset class,” Thunell said. “Some frontier investments can be very profitable.” The World Bank, which backs the IFC, is looking to encourage sovereign wealth funds to invest one percent of their approximate $3 trillion of funds in Africa. Thunnell said an IFC-run fund of funds was “one way” the investment level could be achieved.
BRAIT'S EARNINGS TUMBLE
The South African investment firm's diluted headline earnings per share fell between 16 and 20 percent in the year ending 31 March 2008 from $45.7 million, according to a trading statement. The firm said Brait's earnings had decreased because they are closely correlated to equity prices which have declined since January 2008. Brait said earnings had been affected by the stake it bought in July last year in Net 1 UEPS, a South African electronic payments company, which has declined in value by one-sixth since the start of the year.
CDC'S AFRICAN ASSETS RISE BY HALF
The value of CDC's African portfolio rose in 2007 to £588 million (€730 million; $1.2 billion) from £392 million in 2006, according to its annual results. CDC had made 34 commitments to 14 fund managers focussed on Africa as at 31 December 2007. Commitments of £135 million were made to funds such Actis' third Africa fund, Vantage Mezzanine's fund and Medu Capital's second South African mid-market fund.