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Stubborn conflicts in Kenya and elsewhere highlight the political risk involved in African investment, and the Western world’s credit crunch is not making projects any easier to finance. But many wars are over, for now at least, and a lot of the ‘kleptocrats’ have left the political stage, while foreign exchange-starved governments vie to attract investment.

In a few weeks, AIM-quoted Mano River Resources, a gold and diamond hopeful with tempting potential assets in the West African states of Liberia and Sierra Leone, hopes to raise £10 million to £15 million by floating its subsidiary Stellar Diamonds on London’s junior investment market. Luis da Silva, the tough mining man who is beefing up the hitherto lacklustre concern, argues that ‘positive factors’, such as gold hovering around US$900 (£456) an ounce and a new democratic government in Liberia, will outweigh caution induced by international financial turmoil and stock market plunges to make the float a success.

Another diamond project developer, Australian DiamonEx, lately made it onto AIM, armed with a mining licence for Lerala in gem-rich Botswana. Dan O’Neill, boss of the Brisbane-based company, argues Lerala can start producing later this year at an annual rate of 330,000 carats, and promises a low-cost operation with a fast payback.

Recently floated Niger Uranium is starting to drill in the Tim Mersoi Basin in Niger, a recognised uranium province, following the grant of a government mining permit over 1.7 million prospective acres. Ian Stalker, a key figure at UraMin before it was bought by French uranium giant Aveva, is chief executive officer.

Zinc oxide miner and tailings treatment specialist ZincOx has successfully raised £61 million for its Jabali mine in Yemen and £20 million for zinc recycling projects in Ohio and elsewhere. Phillip Woollett, the company’s ebullient chief, admits that an 11.5 per cent coupon is tough, but points out that the deal was done without political risk insurance, ‘which would have cost 8.45 per cent’, or pre-arranged off-take deals or process guarantees. ZincOx has accompanied this deal with a sweetener in the form of a zinc price-linked ‘ZIPPO’ bond, which will pay handsome returns if zinc stays above certain price levels.

Woollett concedes that it was not all plain sailing: ‘We negotiated the financing last March, but had to wait for the mining licence to be awarded – and then came the banking crisis.’ Two hedge funds pulled out, but other investors came to replace them and did not renegotiate the terms, while deferred production-linked payments on the sale of ZincOx’s Shaimerden operation in Kazakhstan came in, as hoped, at the last minute.

Chasing the deals
Seasoned mining entrepreneur Algy Cluff’s Cluff Gold has started producing from Angovia in Côte d’Ivoire at an annual rate of 40,000 oz. He expects to begin mining at Kalsaka in Burkina Faso before July at an annual 60,000 oz.

With another potentially interesting project at Baomahun in Sierra Leone, Cluff says of current financing conditions facing companies in Cluff Gold’s position, ‘You can get $30 million from a bank, though it is harder than before. But if you want $300 million – which would involve a syndicated loan – forget it.’ Equity is available, if there is the prospect of new cash flow shortly from the project concerned, at a time when mining costs are rising.

Life is less tough for companies with projects already generating cash or plausibly within sight of doing so, as opposed to the ‘blue-sky’ exploration plays that beguiled the market three or four years ago. ‘Big is beautiful,’ enthuses Mark Honnen, chairman of Kalahari Minerals, which is targeting a resource of more than 250,000 tonnes of copper in Namibia’s Witvlei district and boasts strong gold, lead and zinc prospects in the same region, as well as 36 per cent of the encouraging Husab uranium project. Insistent AIM-quoted Kalahari is no longer an exploration company – Honnen says it is considering its funding options and argues for more consolidation in the industry: ‘In today’s capital market conditions, the smaller companies must come together.’

He draws encouragement from the fact that, while Western companies may find the going tough for a while, the resource-hungry Chinese ‘are crawling all over Namibia’ and almost everywhere else in Africa. Honnen recalls how the Chinese recently gave a £200 million palatial state house to the President of Namibia and says Korea’s Natural Resources Corporation is looking for uranium and copper there, too.

Douglas Perkins, CEO of Maghreb-focused GMA Resources, which recently began gold production in Algeria, has commented on Chinese efforts to establish a School of Mines in that country. Chinese companies, some quoted in Hong Kong, have taken stakes in several African projects and companies.

In South Africa, once the world’s leading gold producer and a treasure trove of other minerals, platinum player Ridge Mining hopes that the new resource figure for its key Sheba’s Ridge project in the Bushveld will impress the market. Expecting first production from its Blue Ridge mine in October, finance director Donald McAlister nevertheless notes that widespread power cuts and the election of populist Jacob Zuma as leader of the ruling African National Congress have dented the country’s image.

But he argues that South Africa’s banks are, to some extent, ‘ring-fenced’ from the financial chaos in the US and Europe. Ridge has signed $100 million of loans, with two of the country’s parastatal banks in the lending syndicate and, with platinum recently testing all-time highs at nearly $1,600 an ounce, is striving to have a forward hedging programme accepted.

Another Bushveld player is Jubilee Platinum, which raised £11 million before Christmas for a feasibility study on its Tjate platinum group metals (PGMs) project, where drilling is yielding encouraging results. Headed by the dogged Colin Bird, the company has high hopes for its Ambodilafa nickel and PGM project in Madagascar.

Tanzanian gold prospects have lured Bezant Resources, which is now also focusing on the Philippines. Longer-term Tanzanian player African Eagle is busy on promising copper prospects with mining major Phelps Dodge and others in Zambia, where the company undoubtedly hopes to emulate First Quantum, once an AIM- and Toronto-listed hopeful and now a £2.4 billion fully listed miner targeting a 37 per cent production increase this year to 310,000 tonnes.

Even Zimbabwe has its fans, including some Chinese. African Consolidated Resources, at which Zimbabwean Ian Fisher and controversial UK tax specialist Roy Tucker are players, is using that country’s currency collapse to acquire potentially rich recognised deposits on the cheap.

Politics and intrigue
Two complicating factors are politics, national and tribal, and the sometimes confusing webs of vested interests confronting foreign companies. Most companies say publicly that corruption on the old Nigerian scale is less in evidence than previously, although there are suggestions it does still play a role. Nowhere do these political issues loom larger than in the Democratic Republic of Congo (DRC). The country hosts some of the richest potential pickings in the whole continent, from copper and cobalt to diamonds and uranium, but has only recently emerged from one civil war, and there are fears of another conflict on the way.

Next month, the DRC government publishes a (delayed) review of mining contracts awarded to foreign companies. This should indicate which deals the authorities believe were improperly obtained and which have not been honoured by companies failing to spend what they had promised. These issues dogged Phil Edmonds’s Central African Mining & Exploration Company (CAMEC), when the DRC took steps to revoke some of its licences on the grounds that they had come from Billy Rautenbach, a Zimbabwean entrepreneur thought to be linked to the regime of Robert Mugabe.

Such setbacks were inconvenient for CAMEC, which was trying to bid with shares for Katanga Mining, involved in the tempting Kamoto copper project. In the event, key Katanga backers, such as George Forrest, an influential player in the DRC, accepted a £2 billion rival merger with Isle of Man-based AIM company Nikanor, where Israeli diamond trader turned mining entrepreneur Dan Gertler and his Swiss-based ally Glencore had significant stakes. CAMEC is now proposing a new venture, to tap the claimed cobalt wealth in the DRC’s Makondo Mountain in alliance with another group, Prairie International, where Gertler’s trust is a major shareholder.

AIM-quoted Australian concern Carnegie Minerals was disconcerted the other day when the Gambian government ordered it to stop mineral sands production at Sayang, supplying rutile and zircon for China. President Yaya Jammeh called for more information on Sayang, but the company, which has a potentially much larger project in neighbouring Senegal, points out that this has been election time in the Gambia, and has newly raised £1.3 million at 4p.

Sparkling hopes
Diamonds have been a major draw for British and other mining and exploration companies, especially now that the old De Beers monopoly is no more and China and India are seen as strengthening the retail market. Petra Diamonds, whose chairman Adonis Pouroulis comes from a South African business family, has been increasing production volume and carat values from Koffiefontein in South Africa and is bullish on exploration prospects elsewhere, notably at its joint Angolan venture with mining giant BHP Billiton.

Clifford Elphick, formerly of the Oppenheimers’ diamond empire, now steers fully listed and shrewdly acquisitive Gem Diamonds, with production at Letseng in Lesotho and the DRC.

Irish entrepreneur John Teeling steers two other gem hopefuls. African Diamonds has 28 per cent free carried interest in the AK6 kimberlite deposit in politically stable Botswana, with an 11.1 million carat high-quality indicated resource, worth an estimated £700 million in the ground, which operator De Beers should bring on stream next year.

West African Diamonds expects imminent first cash flows from Sierra Leone and first sales this year of alluvial diamonds from Bomboko in Guinea. Another Irish rocks man, Philip Kenny, heads Firestone Diamonds, which has found 13 kimberlites at Tsabong in Botswana and hopes for £2 million operating profits from Bonte Koe in South Africa.

Tim Read, the former merchant banker who built up DRC-focused Adastra Mining and sold it to First Quantum for £140 million, now heads AIM-quoted Kopane Diamonds, which targets one million carats’ annual output from its already-producing Liqhobong deposit in Lesotho. South African mining man Rob Still’s Pangea Diamond Fields is persisting with its £7 million funding attempt for projects in South Africa, the DRC and the Central African Republic, while Diamondcorp, headed by Aussie entrepreneur Paul Loudon, hopes for great things from the Lace mine in South Africa. Africa remains risky and a world recession would blunt demand for many of its resources. But companies looking longer term have not lost their appetite and could reap handsome rewards by themselves or eventually attract bids.