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The Toronto Stock Exchange is great for Africa
Toronto in the top spot
Saturday, 01 Sep 2007
By Mark Sorbara
In our regular survey on trade, we zoom in on changing relations with Canada. We look at listed mining companies, and at government efforts to support entry into Africa
"I love Africa," says David Kaiser, Head of Global Resources at Canada’s Toronto Stock Exchange (TSX Group), the financial epicentre of international mining finance. By the end 2006, the TSX had raised more than US $10.1 billion for more than 1,293 mining financings, representing 38% of total value of mining financings worldwide.
It’s little wonder Kaiser is so enamoured of Africa - it looms large throughout the exchange. TSX Group listed companies operate more than 325 producing mines worldwide, of which 61 are in Africa, second only to Canada itself with 79. In 2005 alone more than $1.25 billion was raised for companies with assets in Africa, increasing their market capitalisation to $2.4bn.
Of the 8,706 mineral projects held by TSX Group listed companies, almost 700 are in Africa. The 150 TSX Group has listed companies active in 37 African countries, which operate 61 producing mines. Together they spent more than $200 million in exploration in 2005, representing 25% of total African exploration costs for that year. Between 2000 and 2005, Canadian companies invested $5bn in African mining projects.
And Africa’s presence is growing. By 2010 Canadian mining operations in Africa will double. In the next four to five years, new projects with a value of $15 billion in 15 African countries are planned. Nine mining companies with Africa-focused operations listed for the first time on the TSX in 2006 (Africo Resources, First Uranium, Forsys Metals, Katanga Mining, La Mancha Resources, Mega Uranium, Uramin, Vaaldiam Resources, Luiri Gold).
Among the 150 Canadian companies operating in Africa is Banro Corporation (TSX:BAA), which is presently undertaking extensive gold exploration in DRC’s South Kivu and Maniema provinces; with its Eastern DRC office located on the plush hills overlooking Lake Kivu, in Orchid’s Villa, the last remaining luxury hotel in Bukavu.
Canadian-listed Global Alumina (TSX:GLA) is in the process of tapping one of the world’s largest known bauxite reserves in Guinea to produce alumina for the world market.
Barrick Gold (TSX:ABX)is one of Canada’s largest gold producers, with 27 producing mines worldwide. It has two gold mines near Mwanza, one in the Mara region of Tanzania and another south of Johannesburg.
Axmin Inc (TSX-V:AXM) is actively exploring concessions in western Mali, eastern Senegal, central Sierra Leone, northern Burkina Faso and throughout the Central African Republic.
Worldwide competition
There are several options for mining companies looking to source capital on the public markets, but the TSX Group has maintained its leadership position. Although the London Stock Exchange’s Alternative Investment Market (AIM) is similar to the TSX-V, has less stringent listing criteria and a greater historical connection to Africa and other parts of the developing world, AIM has not been able to displace the TSX Group as the world premier mining financing market.
By the end of 2006 the LSE-AIM offered 67 new mining listings raising more than $2.2bn in equity capital compared to 86 and $7.9bn for the TSX. The TSX Group has more than 1,190 listed mining companies, whereas the LSE-AIM only has 183. The other two important mining exchanges, the Australian Stock Exchange (ASX) and the Johannesburg Stock Exchange (JSE), raised $654m and $191m respectively in new mining financings. Although very active in Africa, the ASX and the JSE have only 484 and 50 listed mining companies and managed to only list 55 and six new mining companies respectively in 2005.
TSX/JSE reverse listing has become a popular financing method since the 2004 Anooraq-Pelawana deal. Pelawana Investments, led by its executive chairman Tumelo Motsisi - former head of ANC intelligence - became the first Black Empowerment Enterprise to get Reserve Bank of South Africa approval to reverse list on the TSX. Motsisi became deputy CEO and Managing Director of the merged entity known as Anooraq Resources Corporation and together with South African expertise and Canadian capital will exploit one of the world’s largest platinum deposits on its 67,000 sq km Bushveld complex. Other companies that have subsequently reverse listed on the TSX and Johannesburg Stock Exchange (JSE) are SXR Uranium One, Great Basin Gold Ltd, and Teal Exploration.
Legal legends
Canada is also at the forefront of mining in Africa when it comes to their legal aspects, be they securing tenure or negotiating royalties. Canada-based Fasken Martineau DeMoulin LLP has become the world’s leading mining law firm. The Fasken Global Mining Group has more than 35 lawyers and is headed by John Turner in Toronto, Jean Gagne in Quebec and Richard Peters in Calgary. Fasken was the first Canadian law firm to open shop in Africa and opened an office in Johannesburg headed by Al Gourley in 2003, to enhance its competitive edge in Africa’s booming resource sector.
Without a legal framework a mining asset can become valueless, so it is important for countries to have a well functioning legal system, but this may not be the case in parts of Africa. According to Darryl Levitt, lawyer and strategic advisor with Fasken and director of the Malawi Chamber of Mines, such countries must strive to "abide by the laws of the source of finance". Another important aspect of undertaking a mining operation in an Africa country where a legal vacuum may exist is to make sure it is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958; because as Levitt suggests "how do you sue a government?"
Reining in the industry?
While the TSX Group looks set to continue its dominance as a premier international mining finance centre, it stands to lose some business to major competitors such as AIM and ASX, should Canadian civil society organisations that are pushing for greater regulation of Canadian mining companies operating abroad meet with success.
According to Catherine Coumans of MiningWatch Canada, "local laws are not good enough" in many of the countries in which Canadian mining firms operate. An Advisory Group Report (AGR) report published in March 2007 intends to create a "common set of standards" for companies operating abroad. Its recommendations would apply not only to companies registered in Canada, but also to those that have raised money through Canadian capital markets, whether they are managed in Canada or not.
Although Prime Minister Harper mentioned an extractive industry CSR Framework at the recent G8 Summit in Germany, the government has not yet officially responded to the AGR. Tony Andrews, Executive Director of the Prospectors and Developers Association of Canada, says it is "too early to start tangible reactions" as the report’s impact depends on how conceptual ideas are implemented. Canadian-listed mining firms will watch with interest.
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SIDEBAR: Besides mining
Canadian companies are very active throughout Africa, and Canadian trade with Africa is about US $3 billion a year and growing at a rate of 13 to 15% a year.
The Quebec-based engineering and construction consulting firm SNC-Lavalin was part of the April 2007 report by the Nile Basin Initiative regarding the Bujagali Falls electric power project in Uganda. It is also managing the construction of Ambatovy Nickel Project in Madagascar and has submitted proposals to the government of Angola for the rehabilitation of the Matala Dam.
Ottawa-based infrastructure consultants CPCS Transcom, headed by Peter Kieran, is another key Canadian company active throughout Africa. CPCS has undertaken a variety of railway, port, urban transit and power consultancy contracts in 13 sub-Saharan African countries. CPCS is presently working on the privatisation and un-bundling of the entire Nigerian electricity network and looking to finalise a large-scale integrated infrastructure programme in Angola.
Winnipeg-based Manitoba Hydro a Crown corporation owned by the Province of Manitoba has recently been selected as one of the three pre-qualified bidders by the Bureau of Public Enterprises for a contract to manage the Transmission Company of Nigeria. Manitoba Hydro’s chances of winning the contract my have improved since it won a two year contract to manage the Kenya Power and Lighting Company in 2006.
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BOX: Government efforts to engage
The Government of Canada has been trying to enhance the profile of the Canadian private sector in Africa through two principle vehicles, the Canadian Investment Fund for Africa (CIFA) and the Export Development Bank of Canada (EDC).
CIFA
CIFA was launched in 2005 with $250 million start-up capital, $100m provided by the government and the rest from private investors. CIFA is managed by Montreal-based Cordiant Capital and London-based private equity group Actis.
CIFA looks at investment opportunities across Africa and the "fund is designed to give commercial returns". According to Piers Cumberlege, Vice-President of Private Equity for Cordiant, raising the money "was not easy, but it was easier then we feared". When we launched CIFA in 2005 it was one of the few pan-African private equity funds operating.
CIFA has since purchased equity stakes in businesses operating in Africa such as Banro Mining (Gold - Eastern Congo), United Africa Company of Nigeria (Food - Nigeria), Orezone Resources (Gold Exploration - Mali, Ghana, Burkina Faso) and the Commercial Bank of Rwanda.
CIFA co-invests in money with Actis’ Africa Fund II, giving Actis and Cordiant a total pool capital of $560m. In June, Actis and CIFA invested $134m to purchase a 19% stake in Nigeria’s Diamond Bank. CIFA has also taken equity stakes in various Canadian mining ventures throughout Africa.
Smaller Canadian business and investors find it hard to get their foot in the investment door, however. "It’s a good tool, but very limited," says Lucien Bradet, President of the Canadian Council on Africa (CCA), which represents Canadian companies actively seeking African opportunities. "It’s a very high level fund and not easy to participate in."
CIFA’s investment period will last until 2009, when it will begin to exit various its investments, which may take between three and five years. If the political will is there, CIFA could be renewed.
EDC
Since being appointed EDC’s regional manager for sub-Saharan Africa, Rizwan Haider, former COO of Ecobank, has been busy trying to upgrade EDC’s presence in sub-Saharan Africa.
In 2006 EDC’s business with Africa reached almost $2bn, which represented support for 361 Africa-related Canadian companies. Haider suggests sub-Saharan Africa is "a major growth prospect" especially in the power sector.
With regards to competition in Africa from Chinese and Indian companies, which operate in a more lax regulatory framework, Haider suggests that Canadian companies work under a whole range of restrictions and hurdles that can put them at a disadvantage, but that when it comes to sophisticated technology "there is a realisation that Canada offers something better. What is happening in north Africa in terms of a broader Canadian engagement will happen in sub-Saharan Africa in the coming years."
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SIDEBAR: Putting paid to aid
In February 2007 the Canadian Senate’s Foreign Affairs Committee released the final draft of its two year Special Study on Africa. The report, Overcoming 40 years of failure: A New Roadmap for Sub-Saharan Africa, sent shock waves through Canada’s development community.
Couched not in the traditionally soft diplo-speak of government reports, the report was instead blunt in its portrayal of Canada’s relationship with Africa. With regards to Canada’s most visible presence in Africa, the Canadian International Development Agency (CIDA), it found that it "ineffective, costly, and overly bureaucratic", considering the agency should either be abolished or improved.
"Overall, the Committee was struck by the fact that little attention has been paid to the creation and preservation of decent jobs in Africa," said the report, which suggest Canada should move beyond its aid-centric approach to Africa. In reference to illegal African immigration to Europe, it makes a simple point: "The refugees are not fleeing political or religious persecution. They are what we in Canada called, during the great depression, the unemployed."
