Balancing risk and reward: navigating Africa’s mining landscape

Africa’s mining sector remains one of the most dynamic and complex industries globally, playing a critical role in the world’s supply of critical minerals.

As the global economy shifts towards sustainable energy solutions, Africa's rich deposits of cobalt, lithium and copper have become indispensable. These minerals are essential for clean-energy technologies, including electric vehicles and renewable energy systems.

Despite these strengths, the continent’s mining landscape is not without its challenges. Political instability, regulatory uncertainties and infrastructural deficits continue to pose notable risks.

However, recent developments across various countries on the continent suggest an improving and more favourable investment environment, indicating the sector is set for further growth if these positive trends continue.

The evolution of mining finance in Africa

Over the past decade, there has been a marked shift in how mining projects are financed across Africa.

Traditionally, debt funding from international markets dominated, but now a more diversified financing structure is emerging. This shift is driven by the increasing global demand for critical minerals essential for the energy transition.

As these resources become more valuable, equity investors are showing greater interest in African projects, particularly those that align with sustainability goals.

An important focus has been on securing equity from global markets, as Africa’s mineral wealth alone is not enough to attract the necessary capital. The financing models now cater to critical minerals, which have always been part of Africa’s rich resource base, but which are now receiving renewed attention owing to their role in green-energy solutions. This transition is evident in the growing investments in minerals such as copper and cobalt, which are crucial for modern technology to operate. 

Tanzania’s mining policy changes, which include a ban on exporting unprocessed lithium, reflect a broader trend whereby African nations aim to add value domestically. Similar policies in Zimbabwe and Ghana have attracted large-scale investments, with Zimbabwe securing more than $1.2bn (about R22bn) in its lithium industry between 2021 and 2023. 

Balancing risk and reward

Investing in Africa’s mining sector remains complex, requiring a deep understanding of both risks and opportunities. High-risk regions often hold the most promise in terms of untapped resources, but they come with challenges such as political instability and inadequate infrastructure. However, the potential rewards for those willing to navigate these complexities are substantial.

The global influence of China has reshaped the investment landscape. China’s aggressive acquisition of critical minerals has led to tighter supply chains and increased competition, driving up asset values. Despite these challenges, the right projects in Africa still attract substantial capital. The African Continental Free Trade Area (AfCFTA) agreement has further boosted the sector, facilitating a 30% rise in intra-African trade by reducing tariffs and simplifying customs procedures.

The market for critical minerals such as copper, which has seen a resurgence in demand as an energy-transition mineral, exemplifies this trend. Investors must now balance the high-grade opportunities in Africa with the associated risk premiums — a trade-off that has become central to investment decisions.

Navigating the policy and regulatory landscape

African countries are making notable progress in improving their regulatory frameworks to attract more investment.

Zambia’s Mineral Regulations Commission Bill of 2023 and Angola’s privatisation programme are prime examples of how governments are simplifying processes and boosting investor confidence. These reforms have made investments more secure and attractive, positioning these nations as important players in the global mining landscape. 

However, not all countries have kept pace with these positive changes. SA, once a powerhouse in the global mining industry, continues to struggle with policy uncertainty, which has dampened investor confidence. Despite government efforts, including the announcement of a R400m fund to support new mining explorations, the sector remains in need of comprehensive reforms to regain its competitiveness.

The SA mining industry, which has historically been a substantial contributor to the national economy, has seen a decline in profitability owing to these ongoing challenges. This situation underscores the importance of stable and investor-friendly policies in maintaining the strength of the sector. 

In contrast, countries such as Zimbabwe and Tanzania are using strategic policies to attract midstream investments, particularly in lithium processing. These efforts have resulted in large infrastructure development, which is essential for adding value to Africa’s mineral wealth.

The role of ESG

The global shift towards sustainability has placed environmental, social and governance (ESG) factors at the centre of mining investments.

By 2024, 70% of large mining operations in Africa had adopted sustainability frameworks that align with global standards, a notable increase from 55% in 2023. This trend reflects how sustainability has become a competitive advantage, attracting investors who favour ESG-compliant projects. 

Social responsibility, particularly in remote and underdeveloped communities, is now a vital component of ESG in mining. Meaningful engagement with local communities, respect for indigenous rights, and contributions to local development are essential for maintaining a social licence to operate. Companies that neglect these aspects risk protests, legal challenges and disruptions, while those that succeed in these areas are more likely to establish sustainable, long-term operations.

The emphasis on ESG is transforming Africa’s mining sector. These considerations are not just about regulatory compliance but are critical in building a sustainable and profitable industry capable of thriving more than the long term. Companies that prioritise ESG are more likely to secure investments and avoid the challenges associated with environmental and social issues.

Africa’s mining future

Africa’s mining sector holds immense potential, but realising this potential requires a careful balancing of risk management, strategic investment and sustainable practices. The continent is rich in critical minerals that the world increasingly depends on, but to unlock this value, stakeholders must navigate a complex landscape marked by both opportunities and challenges.

The recent policy reforms in countries such as Tanzania, Zimbabwe and Zambia are encouraging signs African governments are committed to creating a more favourable investment environment. However, ongoing challenges in other regions such as SA highlight the need for continued vigilance and reform.

As global demand for critical minerals continues to grow, Africa’s role in the international supply chain will only become more important, offering substantial rewards for those willing to navigate its complexities.

For investors, the message is clear: Africa’s mining sector is open for business, but success will depend on a long-term perspective, a deep understanding of local dynamics, and a commitment to sustainable development.

The future of Africa’s mining industry is bright, but a strategic and co-ordinated approach is required to fully realise the sector’s potential.

Nedbank Corporate and Investment Banking (CIB) is a sponsor of the Africa Down Under mining conference in Australia. On until September 6, this event aims to strengthen Australian—African business ties, while advocating for sustainable mining finance.

This article was sponsored by Nedbank CIB.