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Energy and Natural Resources: Horizons

We are at an inflection point in the energy and natural resources industry. Across the world, we're facing change of every order; the question is - how do you deal with it?

For Australians, Africa can be a gold

mine — literally

By Warren Beech and Matthew Johnson

As the Australian mining sector continues to perform strongly, there’s a rush for gold among Australian mining companies — and no one wants to miss the boat.

With a high degree of competition for domestic options, Australians are looking overseas for new assets. Given their stability, jurisdictions such as Canada might seem like the natural choice. Yet for a variety of reasons, we expect Australian investment in Africa to not only continue, but grow.

The foremost of which is that African assets are more numerous, less expensive, and less competitive to attain; whereas projects in more developed markets may be less challenging, projects in Africa potentially offer greater long term financial upside.

Potential investors need to acknowledge that working in Africa presents its own set of challenges. For example, investors need not only understand the technical risk at hand, but the individual country’s risk: the political regime, the policy/regulatory structures, infrastructure constraints, and, significantly, how to get buy-in from local communities. Investors that succeed in investing in African jurisdictions are patient — they know that working through complex requirements and red tape, at all levels, takes time.

Australian investors understand these issues, demonstrated by the deep history of Australian mining investment in Africa, which this year will exceed A$40bn over a decade. It helps too, that Australia has a uniquely strong relationship with Africa. Australian investors clearly recognize that Africa is a continent, not a country. They understand that there are distinctive regional, national, and local attributes that don’t necessarily apply to the continent on the whole. As a result, Australia’s government and NGO spend efficiently supports safety, security governance, and human capital development at all geographic levels on the continent.

Understanding these various dimensions takes time and requires investors to take advice from a wide-range of sources and practice areas. But it doesn’t mean they should avoid investment in the region. Given the current state of play, mining for gold in Africa is well worth the challenge.

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