Africa Outlook Issue 5 by Outlook Publishing

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95 Happy birthday

Madiba The people celebrate Nelson Mandelaâ&#x20AC;&#x2122;s 95th birthday

Lucara Diamond Corp

Drake & Scull 104

The Karowe diamond mine keeps giving

Best in FM

Baobab Resources

INVESTMENT PROFILE 08

Kenya

High hopes for Tete

AFRICA OUTOOK ISSUE 05 A L SO T H IS ISSUE : N D T C | E x x a r o | St e f a n u tt i St o c k s S w a z i l a n d | O r a g r o u p

W E L C O M E Diamonds, iron and Madiba...

Editorial Editor: Ian Armitage ian.armitage@outlookpublishing.com

We’ve a real mixed bag for you this month, from Mandela to South Africa’s civil engineering industry and everything in between. This issue, like those before it, has a common theme: growth; African growth more precisely. And whether it is natural resources, infrastructure, energy or tapping into the growing consumer class, there is plenty to get excited about. KFC is one firm we’ve featured a lot of late and this month we look at how the franchise is spreading its wing in Kenya, Uganda and Tanzania. Kenya is actually the focus of this month’s investment profile too, where we take a closer look at its investment and business potential. You can read that piece on page eight. For me though, two stories really stand out this month: Baobab Resources and Lucara Diamond Corp. They’re the stories we are particularly excited to bring you. On page 16, we learn more about Lucara’s flagship Karowe mine in Botswana where a recently discovered 239 carat diamond sold for $5.75 million. On page 64, we talk to Ben James, Managing Director of Baobab Resources, about the development of the Tete pig iron project in Mozambique, one of the most exciting development stories in southern Africa. Ian Armitage We’ve much, much more inside. I Editor, Outlook Publishing suggest you get reading...

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Outlook Publishing Managing Director: Ben Weaver ben.weaver@outlookpublishing.com Chairman: Mark Weaver Contact Africa Outlook / UK 22 Wensum Street, Norwich, UK, NR3 1HY Sales: +44 (0) 1603 559 551 Editorial: +44 (0) 1603 559 144 Fax: +44 (0) 1603 559 553 Africa Outlook / SA The Colosseum, First Floor, Century Way, Century City, Cape Town, 7441 Tel: +27 (0) 21 527 0053 Subscriptions Tel: +44 (0)1603 559 144 ian.armitage@outlookpublishing.com

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In this issue of Africa Outlook...

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N E WS All the latest news from across Africa

Telecoms FOCUS E r i c s s o n S U B - S A H A R A N A F RIC A Globally, the telecoms industry has been facing rough trading conditions, but Africa seems to be growing from strength to strength

I n v e s t m e n t p r o f i le : k e n y a Africa Outlook takes a closer look at Kenya’s business and investment potential M a n d ela

Birthday Madiba 12 Happy In July, as he lay critically ill in hospital, SA’s first black president and African icon Nelson Mandela celebrated his 95th birthday

Finance FOCUS

C o n t i n e n t o f d r ea m s Oragroup is expanding as demand for banking services in West and Central Africa grows

I n i t f o r L i fe We talk to Agnes Chakonta, the Managing Director of Madison Life Insurance Company Zambia

Fo od & Drink FOCUS

Mining FOCUS

D i a m o n d i n t he r o u g h Lucara Diamond’s Karowe diamond mine keeps giving

M o r e t ha n bla c k g o l d Exxaro is one of South Africa’s largest diversified resources groups

A n e w b r ee d o f bla c k m i n e A look at the opening up of South Africa’s Kalahari manganese fields and Kudumane Manganese Resources’ R1.5 billion manganese mine

D r i v i n g o p e r a t i o n al e x c elle n c e Africa Outlook profiles South African phosphates firm Foskor

Namibia Diamond T r a d i n g C o m pa n y Beneficiation success and the pride of Namibia

58 64 70

O n t he w i n g s o f l o v e Gavin J Bell, GM of Kuku Foods Kenya Limited, the KFC franchisee in Kenya, Uganda and Tanzania, tells us more about exciting expansion plans

Construction FOCUS

Routing for success DipCivils (Pty) Ltd is a Civil Engineering contractor that specialises in the construction of roads and other services throughout South Africa

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Supply chain FOCUS

104

Best in FM Facilities management is the cornerstone of operations of Drake & Scull

Healthcare FOCUS

B a o bab Re s o u r c e s High hopes for Tete Bannon Limited Emerging mineral resources exploration company with ambitious plans for the future

Ta k i n g s t o c k Africa Outlook profiles Stefanutti Stocks Swaziland

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T he s c i e n c e o f s p e c i al i s a t i o n Surgitech is a leading supplier of innovative speciality surgical devices throughout South Africa events

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CRIM E

Shrien Dewani to be extradited to South Africa Honeymoon murder suspect Shrien Dewani is to be extradited to South Africa to face trial over his wife Anni’s death in November 2010. Chief Magistrate Howard Riddle has ruled that Mr Dewani, who has depression and posttraumatic stress disorder, and strongly denies any involvement in his wife’s murder, should return to the country with prosecutors successfully arguing that there had been a “significant and sustained improvement” in his mental health in recent months. The 33-year-old (pictured in 2011) is accused of plotting and MA N D E LA

Tata on the mend South Africa’s ex-President Nelson Mandela’s condition remains critical but is now stable. “Former President Mandela is still in a critical condition in hospital but shows sustained improvement,” President Jacob Zuma’s office said on the day of his 95th birthday. “We know that Madiba is a fighter, he’s been a fighter all his life and he’s tough,” said presidential spokesman Mac Maharaj, using Mandela’s clan name. He said the latest medical report had brought “a little bit of relief.” Mandela’s current hospital stay is his longest since he was released from prison in 1990, after serving 27 years under the apartheid regime.

ordering the killing of his new wife, 28, who was shot as the couple travelled in a taxi on the outskirts of Cape Town. “It is not impossible that if returned now, then after a reasonable period of further treatment and assessment he (Mr Dewani) will be found fit to plead and a trial can take place,” Chief Magistrate Riddle said.

Mr Dewani’s lawyers claim he is a high suicide risk and his human rights could be breached because of the risk of violent and sexual assaults in jail and of contracting HIV. Last year, Xolile Mngeni was convicted of premeditated murder for shooting Mrs Dewani, while taxi driver Zola Tongo was jailed for 18 years after he admitted his part in the crime, and another accomplice, Mziwamadoda Qwabe, was handed a 25-year prison sentence. Chief Magistrate Riddle ruled in 2011 that Mr Dewani should be sent back to South Africa but this was successfully appealed and he was ordered to look at the high profile case again. Mr Dewani has 14 days to appeal the latest ruling.

P OLITIC S

Morsi accused of plotting with Hamas It has emerged that ousted Egyptian President Mohammed Morsi, the country’s first democratically elected president, is being held over allegations of links with Palestinian militants Hamas and plotting attacks on jails in the 2011 uprising. He is to be questioned for an initial 15-day period, according to a judicial order. The order says the former president is suspected of conspiring with Hamas, which rules the Gaza Strip and has strong links with Mr Morsi’s Muslim Brotherhood, during the uprising against former President Hosni Mubarak. Since Mr Morsi was ousted dozens of people have died in clashes between his supporters and opponents.

CRIM E

South African ‘serial rapist’ found dead A man accused of being one of South Africa’s worst serial rapists, Sifiso Makhubo, has been found dead in his prison cell, officials say. Makhubo, who faced 122 charges, including murder, was found hours before he was due to stand trial accused with attempted murder over allegations he knowingly infected his victims with HIV. He is believed to have hanged himself with a blanket but authorities are investigating the circumstances of his death. He was accused of raping 35 children and two women between January 2006 and February 2011.

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T E C H N OLOG Y

Internet usage in South Africa hits 14 million Internet usage in South Africa has significantly grown this year, to be almost 14 million users, research conducted by the Digital Media and Marketing Association (DMMA) and Echo Consultancy has revealed. The 14 million figure was derived from the All Media Products Survey (AMPS) and independently validated by Effective Measure (EM), the DMMA’s official measurement provider for digital audience data. 14 million represents 39 percent of the adult population. DMMA said it was good news for advertisers, as it reflects a larger internet audience than basic AMPS levels. “We needed to provide our members with a more realistic view of the total internet population in South Africa. The validated figure of 14 million users is significant as it indicates that a greater percentage of South Africans are consuming media online than previously reported,” says Jarred Cinman, Chair of the DMMA Steerco. “This has direct implications for the media mix that marketers purchase.” South Africa is Africa’s biggest economy and has a population of more than 52 million.

BUSINESS

AngloGold Ashanti reports ‘solid’ Q2 AngloGold Ashanti, the largest gold company on the JSE, has reported a “solid second quarter operational performance” with production of 935,000oz at a total cash cost of between $900/oz and $920/oz. The firm said it was “in line with market guidance” of 900,000oz to 950,000oz at a total cash cost of $900/oz to $950/oz. “It’s been a strong performance in a challenging environment from our operators and from the teams developing our two new, high-quality projects,” AngloGold Ashanti’s CEO Srinivasan Venkatakrishnan. “In light of the $220/oz drop in the average quarterly gold price which will negatively impact our second quarter results, we’ve moved decisively on all fronts to sharpen our focus on efficiency and to tighten up on costs, overheads and capital.” AngloGold Ashanti is the world’s third-largest gold producer with 21 operations in 10 countries and a portfolio of exploration assets. In addition to its existing portfolio, two new mines – Tropicana Joint Venture in Australia and the Kibali Joint Venture in the Democratic Republic of Congo – are in development and are scheduled to start production before the end of this year. Together, these two projects are expected to add in 2014 attributable production of approximately 550,000oz to

600,000ozs at a combined average total cash cost of “less than” its current average. It added that Randgold Resources Limited operation may produce gold as early as October of this year and that it is also seeking aggressive savings in both operating and indirect costs, as well as sustaining capital expenditure over the next 18 months. The low gold price has led to a tightening of the belt and AngloGold Ashanti said “capital expenditure is being focused on the group’s highest quality assets, while curtailing spending or suspending operations at projects that may yield lower returns. In addition, we may seek partners for certain of our projects. Exploration spending is being reduced through a more tightly focused global drilling programme and overhead costs are being significantly rationalised.” The gold price has retreated about 24 percent so far this year. Details of progress made on its cost saving and efficiency improvement programmes will be provided along with secondquarter financial results next month.

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k en y a

Investment p r o f i le

Kenya

Africa Outlook takes a closer look at Kenyaâ&#x20AC;&#x2122;s business and investment potential. Writer Ian Armitage

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In v es t men t

hen it comes to investing around the globe, no longer are most investors detouring around Africa. The continent is the world’s fastest growing and its rise over the past decade has been very real with GDP accelerating more than five percent on average according to the World Bank. What’s driving it? Natural resources in the main, but so too is the rising consumer class. Kenya is among a number of sub-Saharan African countries with a rapidly growing middle class and its expansion is being fuelled by increased investment in the consumer sector such as banking and retail. In its latest economic analysis on Kenya titled ‘Time to shift gears’, the World Bank forecast a growth rate of 5.7 percent in 2013, which is remarkably higher than the growth rate it recorded in 2012 (that was 4.7 percent). It said this was thanks to a stable macroeconomic environment, the peaceful elections in March and smooth transition of political power. “Kenyans are reaping gains from a smooth election process and sound macroeconomic conditions, but much more remains to be done to achieve the target growth rate of 10 percent envisaged in Vision 2030,” says Diarietou Gaye, World Bank Country Director for Kenya. “The government needs to create an enabling environment for private sector-led growth by continuing to invest in infrastructure, increasing domestic energy production, removing bottlenecks to doing business and sustaining sound monetary and fiscal policies.” The report pointed out that the economy is still operating below its potential and remains vulnerable to external pressures, which

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Kenyans are reaping gains from a smooth election process and sound macroeconomic conditions, but much more remains to be done to achieve the target growth rate of 10 percent envisaged in Vision 2030”

Davis & Shirtlift has been rapidly expanding

undermine its prospects for growth and poverty reduction. This could be cushioned by increasing both domestic and foreign savings, the World Bank said. “The economy needs structural reforms to improve the business environment and for more Foreign Direct Investment flow to Kenya,” Continued

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Central Business District of Nairobi

says John Randa, the Bank’s Country Economist for Kenya. “Such reforms will include tax and expenditure measure that will increase savings and investment to expand manufacturing exports, taking advantage of Kenya’s low labour costs and its coastal location.” Many foreign companies have set up assembly plants in Kenya to penetrate the lucrative markets in the region, with Kenya topping the list of highest exporting countries in the 19-member COMESA trading bloc. Several Asian manufacturers, predominantly from India and China, have established warehouses where they send the semi-finished goods to, and then use EAC trade protocols to move them around East African countries like Tanzania, Uganda and Rwanda.

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More and more of our business has been coming from outside Nairobi, which was our only branch just 20 years ago, and we continue to see a need to penetrate the East and Central African region”

“Kenya has become a focus of attention for international businesses looking to penetrate the emerging markets of East Africa,” says Alec Davis, CEO of Kenya’s Davis & Shirtliff, a firm that has been rapidly expanding its horizons across the region. Last year, Kenya imported goods valued at $200 million and re-exported goods worth $520 million. “More and more of our business has been coming from outside Nairobi, which was our only branch just 20 years ago, and we continue to see a need to penetrate the East and Central African region,” adds Davis, who believes the lifting of trade barriers has “aided our regional expansion and made it easier to export products across the neighbouring national borders”. He has a strong passion not just for the future of his company, but

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p r o f i le

resources, building and construction, agriculture and ICT. Indeed, in terms of the latter, Kenya is making an international name for itself as a technology centre. It’s known amongst other things as Silicon Savannah. IBM and Google have set up regional centres in Nairobi, promoting innovation and research as well as selling. Google’s chairman Eric Schmidt spoke highly of Kenya’s tech prowess during a recent visit. Kenya represents a wonderful investment. Why not investigate further?

Kenya is making an international name for itself as a technology centre

To learn more visit www. investmentkenya.com. Kenya and East Africa. “There is a huge amount of potential. Kenya had elections earlier on this year and the economy had been flat leading up to it. But now we have had successful elections and the new government is settling in, the growth profile is resuming. Most of our product segments are related to development and infrastructure and so certainly there are huge opportunities in the region. Although Kenya has been a bit flat this year, we have subsidiaries in Rwanda, Uganda, and Zambia and in Tanzania all of which are doing extremely well. We also have a branch in Sudan and a new market we are exploring with enormous potential is Somalia. Also one of the fastest growing segments is the distribution of solar equipment. The ever decreasing cost of solar photovoltaic modules and recent technology advances have really opened that up. Of course us being on the equator, there is no better way to power things than through solar power. There are huge opportunities there as well.” There are investment opportunities in energy, tourism, manufacturing, infrastructure, natural

RECOMENDED READing

90 KUKU FOODS www.aFRICAoutlookmag.com

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Happy birthday Madiba From his childhood in the rural village of Qunu to lawyer, boxer, militant activist, fugitive, world’s most famous political prisoner, first black president and champion of good causes, Nelson Mandela’s has been an eventful life. In July, while in hospital, the icon celebrated his 95th birthday. Are we prepared for life after Tata though? Writer Ian Armitage

uly 18 is a date in every South African’s diary. It is Mandela day, Tata’s birthday and the day people celebrate the life of a true icon. And what a day the last one was. Millions of school children sang “Happy birthday, Tata Madiba” as South Africa celebrated another extraordinary achievement in an extraordinary life. The day arrived after weeks fraught with concern about the beloved elder statesman. At Melpark primary school in Johannesburg, around 700 students sang happy birthday in a hall filled with posters honouring Mandela’s contributions to peace and education. Tata’s 95th birthday was a day we thought we’d never see: it was a milestone that seemed too much to hope for. And now, while still critical, his condition in hospital is showing ‘sustained improvement’, according to the South African Presidency. “Former President Mandela is still in a critical condition in hospital but shows sustained improvement,” President Jacob Zuma’s office said. Mandela’s ex-wife Winnie Madikizela-Mandela described the 95th birthday as “a gift to the nation”. Mandela’s current hospital stay is his longest since he was released from prison in 1990, after serving 27 years under the apartheid regime and Mandela day encourages people across the globe to take the responsibility for making the world a better place by giving 67 minutes of their time to a worthy cause (for those of you that don’t know, it’s a minute for every year he devoted himself to the political struggle). The so-called “born free” generation have no memory of Mandela’s historic release from prison and have grown up hearing legends of his exploits – from his Continued

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h a p p y

b i r t h d a y

m a d i b a

childhood in the rural village of Qunu to lawyer, boxer, militant activist, fugitive, world’s most famous political prisoner, first black president and champion of good causes. Much has been said about the details of his political journey; the challenges he overcame and the battles he fought. Mandela’s victory in the first multiracial elections in 1994 put an end to the apartheid system and came just four years after his release from prison. We all look to the legacy of his truths and wisdom. But his recent hospital stint – his fourth in six months – has left us all asking ‘After Nelson Mandela, what next for South Africa?’ Yes, he has not been active in South African politics for at least a decade, but he remains a potent symbol of the promise of the nation.

Tata’s 95th birthday was a day we thought we’d never see: it was a milestone that seemed too much to hope for. And now, while still critical, his condition in hospital is showing ‘sustained improvement’”

A woman prays outside the Mediclinic Heart Hospital

South Africans celebrate Madiba’s 95th birthday

Andrew Mlangeni, who served more than two decades with Mandela on Robben Island prison, recently said South Africans had to release Mandela spiritually and let him go. Most ordinary South Africans have resigned themselves to that fact. Mandela will pass away. Some have

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already said their goodbyes, though some wish he’d stay a bit longer. The vigil outside his Pretoria hospital continues and some believe his eventual death would spell the end of his vision, a notion Winnie Madikizela-Mandela rejected. “There are sometimes prophets of doom who say the country will come to a standstill,” she told Radio 702. “The country will solidify, come together and carry on.”

Most ordinary South Africans have resigned themselves to that fact. Mandela will pass away. Some have already said their goodbyes, though some wish he’d stay a bit longer” But is there some foundation to such fears? A fair amount of recent media attention has focused on a “looming race war” against South Africa’s whites; the statistics – and recent savage killing of Roelof du Plessis – appear to support the claims. “It is definitely coming down to a race thing,” his widow Laura du Plessis said. What’s causing it? Anger mostly. But President Zuma hasn’t helped – the ANC’s leader and the country’s third black president since Mandela was filmed at a party centenary gathering last year singing struggle song ‘Kill the Boer’, the old name of much of the white Afrikaner population. For many, white and black, the ANC is a cold government and though the majority of South Africans worship Mandela and the ANC for defeating apartheid, the rainbow nation has not fulfilled all expectations. Many feel

Birthday wishes during the Nelson Mandela Football international

Children dance and celebrate outside the Mediclinic Heart Hospital

betrayed or let down and are turning to renegades like ‘Juju’ Malema whose policies are increasingly popular among young black South Africans. Yes, public education is now free in principle, government spending does not discriminate by race and no one is forced to learn Afrikaans. But, little has been done to improve black schools that are characterised by overcrowding, no electricity or water supply and dilapidated infrastructure. And enormous gaps still persist in income and employment and these inequalities largely follow racial lines, according to the government’s own data. White households in 2012 earned on average about six times more than black households. I wonder what Mandela makes of it all?

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Lucaraâ&#x20AC;&#x2122;s Karowe diamond mine keeps giving. By Ian Armitage Project manager Debbie Clark

outhern Africa-focused gem producer Lucara Diamond Corp has enjoyed a spectacularly good start to 2013 - its first special tender of large and exceptional diamonds, which consisted of 15 single stone lots, sold for revenues totalling $24 million, and confirmed the quality of diamonds mined from its flagship Karowe mine, in Botswana. Itâ&#x20AC;&#x2122;s done so well it has revised its outlook for 2013. Continued

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“We are ecstatic with the results of the special tender and it confirms the quality of diamonds currently being produced from Karowe,” president and CEO William Lamb said at the time. The highest value stone was a 239 carat diamond, which sold for $5.75 million, while four other diamonds sold for more than $2.5 million each. “We’re pleased,” says Lamb, who recently spoke with Africa Outlook and carries around a replica of the huge diamond, “with the results of the special tender which was in addition to our regular tenders which have also gone well. “When the mine phoned us to tell us that they had recovered at 239 carat diamond, we quickly started to put together a press release, only to be called a couple of days later with the news that the mine recovered

Of course the big stone is the one that’s captured the headlines - the 239 carat stone that we sold recently” two more large stones weighing 123 carats and 70 carats. Over the next six weeks, Karowe had produced 85 diamonds larger than 10.8 carats. “Now, as we develop the resource further we are finding that there are ‘unknowns’ in the resource which we need to go back and validate. Of course we are also finding rare blue diamonds. It’s exciting.” Karowe has been developed from kimberlite pipe AK6 and it has an interesting history having been discovered in 1969, but like many of the other small pipes prospected by De Beers, was considered unworthy of further attention at the time. Continued

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Minopex (Pty) Ltd

inopex is a leader in the contract operation and maintenance of mineral processing plants. Our comprehensive range of services is designed to allow owners of mines to achieve optimum profitability by conducting the day-to-day process operation and engineering maintenance of the facility. Minopex offers flexible and competitive contracts to suit the mine owner’s requirements whether it is diamonds, PGMs, coal, iron ore, gold, chromite or base metals. The company is systems based and over time we have established comprehensive controls and integrated our standard operating procedures and to ensure cost effective and highly efficient techniques for the management and control of: Plant management Process and engineering activities Metallurgical quality management, control and analysis

Karowe Mill and stockpile

Scheduled and preventative maintenance Condition monitoring Purchasing, stores control and asset management Cost control Project management and administration

Karowe’s senior staff

Health and safety Skills development Environmental management in conformity with the employer’s overall EMPR Minopex currently operates and maintains minerals processing facilities in South Africa, and through local Minopex companies in Botswana, Moçambique, Tanzania and Lesotho.

www.minopex.co.za

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GTD Consulting

Karowe Mill

TD Consulting provides consulting in all aspects of the diamond pipeline from mine to market. GTD has over 100 years of combined diamond market experience working with many of the world’s largest rough diamond miners and polished diamond manufacturers and retailers. Some of GTD’s services include: General policy advise and consulting on all aspects of the rough and polished diamond industry for diamond miners, buyers/dealers, and government organisations Resource estimations and feasibility analysis including statistical modelling of size distribution, diamond grade, and value distribution Appraisal services for rough and polished diamonds using up to date market pricing obtained through a network of real-time

But De Beers hung on to it and reassessment started in 2003, spearheaded by African Diamonds who had entered the Boteti exploration and development JV with De Beers Exploration. In 2004, John Teeling, African Diamonds’ founder and chairman, famously remarked that the sampling results from AK6 offered “tantalising prospects.” So when did Lucara enter the picture? “Lucara acquired a majority stake in the AK6 project from De Beers in December 2009,” answers Lamb.

If we can confirm that we have a large stone population in the South lobe as well then it is a significant game changer for us”

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“African Diamonds also had a share. We acquired African Diamonds in December 2010.” Karowe reached commercial production last July and sits in the Orapa-Letlhakane kimberlite district of central Botswana, a famous diamondproducing region that is home to several operating mines – De Beer’s Orapa diamond mine being the most famous. The kimerlite at Karowe consists of three lobes: North, Centre and South. The pipe is 4.2 hectares at surface and swells to seven hectares at a depth of 120 metres.

market transactions Development of complete rough diamond operations including assorting and staff training, security procedures, stock control systems and timeline management Setting up effective producer marketing strategies and establishing sales through open market tenders, auctions, or direct allocation sales which could include value add contract diamond polishing services Utilisation of a vetted customer base from our own customer data base, which includes the top diamond buyers of any given quality range Tel +852 9172 7032 Email info@gtd-consulting.com

Hong Kong +852 9172 7032 | Antwerp +32 477 57 06 51 | Toronto +647 505 9776 info@gtd-consulting.com

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And while the South lobe holds up to 70 percent of the kimberlite resource, Lucara has been focusing its mining efforts, through the second quarter of 2013 on the Centre lobe, which is the source of its large stones. “Of course the big stone is the one that’s captured the headlines - the 239 carat stone that we sold recently,” says Lamb, who became CEO in 2010. “It is the largest gem-quality diamond recovered in more than 40 years of diamond mining in the Orapa kimberlite field.

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There will always be people with financial resources which they are looking to invest. Large diamonds have proved to be a very viable option” It almost exceeded the size of stone we can treat. We modified our plant to make sure we can recover these exceptionally large stones in the future.”

As Lamb previously explained, the massive stone was one of 85 other diamonds exceeding 10.8 carats that Lucara recovered in during its Q2 production cycle. “We had a fantastic start to 2013 with the recovery of these large diamonds resulting in our first large stone tender achieving revenues of over $24 million and the sale of our second blue stone for $1.6 million,” he says. Following the success, Lucara hiked up its 2013 production forecast by five percent

William Lamb, President and CEO

Continued

Karowe Mine at sunset

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Rough Diamond Broking - 1934 -

DTC Introduction & Profile Raising - 1998 -

Value Chain Intelligence & Consulting - 2011 -

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Joint Venture for Optimisation of Large and Exceptional Stones

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Karowe COO and Mine Geologist

Karowe diamonds including Blue

to 420,000 carats and its annual revenue estimate to $118 million from $90 million earlier. “Our original forecast was for $90 million for the year so if you get a third of it done in the first quarter you are heading the right direction,” Lamb explains. Karowe is projected to process 2.5 million tonnes in 2013. It operating cash costs are expected to be in the order of $23 per tonne treated.

It has five more sales planned for the year. “That excludes the possibility of a second large stone tender,” adds Lamb. Lucara is currently mining the South lobe before returning to the Centre lobe in August. It also plans to access the deeper ore benches in the North lobe later this year after it finishes waste stripping. “For us now it is important to fully understand the resource, as we mine through the Centre lobe and into

the South lobe. With the South lobe constituting more than 70 percent of the reserve, we need to understand whether this lobe will also produce similar results to the centre lobe.” Lamb says. “If we can confirm that we have a large stone population in the South lobe as well then it is a significant game changer for us.” While predicting rare diamonds is almost impossible, Lucara has started a resource update that will focus to get a better picture of Karowe’s potential. “We have engaged an independent party who has started a review of the original exploration data, plus a much larger sample of diamonds which now contains these large stones to revalidate both the Centre and the South lobe resources. “In August, mining at Karowe moves back into the area in the Centre lobe where all the previous large diamonds were recovered. The expectation is that we may recover sufficient large stones again to have a second large stone tender.” Just why are large diamonds so valuable? “It comes down to the Continued

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Bonas and Company is a specialist diamond broking and consultancy company. Family run, now by the fifth generation, it is based in London and has offices or representation in all the main diamond centres.

Recent innovations include offering full rough tendering services to mining houses; investing in an augmented reality company that develops products for the luxury brand sector; the establishment of a major office in Gaborone, Botswana to service its growing importance as a diamond trading hub. Bonas is proud to count many of the world’s leading and most important diamantaires as clients, producing between them over a quarter of the world’s polished diamond output.

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Bonas is proud to count many of the world’s leading and most important diamantaires as clients

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rarity of it. if you look at the 130 million carats of diamond that are produced a year, there is actually only one mine that produces large stones on a regular basis and that is the Letseng mine in Lesotho, which consistently produces the world’s largest gem quality diamonds. They will recover on average six stones larger than 100 carats a year. Many of these stones are bought for investment purpose, not as a piece of jewellery. There is always a market for large diamonds and if you go back and look at what happened during the financial crisis, there was still a demand. Yes prices dropped but they didn’t drop as dramatically as everything else. There will always be people with financial resources which they are looking to invest. Large diamonds have proved to be a very viable option,” says Lamb. It’s an exciting future. “Where we are with the Karowe mine is that we did increase our forecast from $90 million to $118 million and the basic maths around that is that we had a $90 million forecast, we sold $25 million of large stones which was in addition to the regular tenders, which adds to $115

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Karowe Primary Crusher

We had a fantastic start to 2013 with the recovery of these large diamonds resulting in our first large stone tender achieving revenues of over $24 million and the sale of our second blue stone for $1.6 million”

million and we had a few thousand carats left over from last year which we didn’t sell and were put into this year’s sales and that was about $3 million. That’s the quick maths. It doesn’t include the possibility of us having another large stone tender. Indications to date and the ongoing recovery of large stones appear positive in this respect.” It is amazing to think Karowe has only been in production as of July 1, 2012. Just what were De Beers thinking selling up in 2009?

Karowe Mine Superintendent

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Lucara is junior diamond producer with an experienced board and management team and extensive diamond development and operations expertise. The company’s two key assets are the Karowe Mine in Botswana and the Mothae Project in Lesotho. The 100 percent-owned Karowe Mine is in production. Mothae has completed its trial mining programme and is undergoing a preliminary economic assessment. William Lamb is the firm’s president and CEO.

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E X X AR O

black gold M o r e t ha n

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Exxaro is one of South Africa’s largest diversified resources groups with interests in coal, mineral sands, ferrous and energy markets: Africa Outlook talks to Ernst Venter, Executive Head - Growth, Technology & Services, who says optimisation measures are paying off and that we should expect a bright future for the firm. Writer Ian Armitage Project manager Debbie Clark

wC’s latest report on mining trends – the 10th review of global trends in the mining industry by the multinational professional services firm – has revealed that the industry has entered a period where there is a “crisis in confidence” about cost controls, delivery and resource nationalisation. In a survey of the world’s top 40 mining companies, PwC said the net profits fell 49 percent last year, while market capitalisation had been severely battered in the first four months of this year. “2013 will be all about asset rationalisation and deal activity will be driven mainly by senior miners looking to divest non-core assets and looking to de-risk projects through joint ventures,” Tim Goldsmith, PwC’s global mining leader, said, adding, “Given how far the mining industry has fallen in the first four months of this year, it will be challenging for the industry to fully rebound in the remainder of 2013.” PwC also warned that companies with financial constraints have been “forced to get creative” when it comes to raising money to fund acquisitions or advance projects. “We’re very aware of what we need to do as a business to remain sustainable into the future,” says Ernst Venter, Exxaro’s Executive Head - Growth, Technology & Services. “Generally, the business is looking satisfactory, except that last year was very challenging, apart from the things that we are doing like merging businesses and putting it all together and restructuring. The coal markets were challenging.” During 2012 Exxaro saw prices of iron ore and coal, pigments and slag go down. Coal production was stable at 40 million tons but exports fell slightly, although it still exported four million tons which is higher Continued

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E X X AR O

than its entitlement at Richards Bay Coal Terminal. Of course there was also the fallout and effects from the Marikana tragedy – a watershed for South Africa’s mining industry – and a three-week strike earlier this year at Exxaro’s coal operations. “The commodity price was the big challenge,” says Venter. “On the coal side, the average price of coal decreased to $84 per ton, free-on-board at the Richards Bay coal export port. We export thermal coal as opposed to metallurgical coking coal for steel production and infrastructure and we think thermal coal prices will stay where they are for the next few months.” Exxaro Resources is South Africa’s second-largest coal producer. It has been, says Venter, focused on “diversifying” and “optimising the portfolio”, ensuring Exxaro’s “future, sustainability and achieving operational

The Grootegeluk mine uses a pantograph system enabling trucks to use electric power to assist in reducing diesel consumption and achieving maximum efficiencies

excellence”. When the company was formed six years ago through the merger of Kumba Resources and Eyesizwe, it committed to “creating a company that would make a sustainable difference,” he explains. “We are conscious to look beyond current commodities. We have also been optimising our portfolio and cost management has been a priority: reducing exposure to base metals, merging our minerals sands interests with Tronox, expanding our presence in the ferrous market and completing a major expansion in the coal market. “We’ve a strong balance sheet, excellent project pipeline and plenty of motivation.”

“Mr Waterberg” on the Grootegeluk expansion

A big focus for Exxaro is the ramp-up strategy for the Grootegeluk Medupi Expansion Project (GMEP) which lies in the Waterberg region of Limpopo, 400km north of Johannesburg. The region has “massive coal deposits”. “South Africa’s principal remaining coal reserves lay in the Waterberg region of Limpopo,” says Venter, dubbed “Mr Waterberg” by Mining MX. “Medupi, one of the biggest coal-fired, air-cooled power stations in the world, is being built there because of the vast deposits. Our Grootegeluk open-cast coal mine feeds the Matimba power station and has been expanded to supply Medupi.” The Waterberg coalfield’s importance in terms of Exxaro’s future cannot be understated, he says. Over 50 percent of South Africa’s remaining reserves lie there. “Waterberg is very important. Medupi will consume in excess of 14Mtpa of coal which gives us the latitude to, out of that complex, produce higher value coal products and even go downstream. Continued

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E X X AR O

INSTITUTE FOR TELLING DEVELOPMENT ITD has a long standing track record of providing organisational development services to Exxaro: The development of Exxaro’s own signature [In]Credible Leadership (ICL) approach. Following the ICL launch, ITD developed an [In]Credible Leadership e-learning course for all Exxaro employees. In light of the dynamic growth and development environment Exxaro finds itself in ITD co-designed, facilitated and implemented numerous change management projects for Exxaro.

Construction at GMEP is already 96 percent complete

“We are looking at the economic viability of moving into highervalue market coke which is used as reductants in steelmaking and ferroalloy businesses. We have already commissioned a 160,000 tonne per annum char facility, and are busy investigating expansion opportunities.” Exxaro’s Grootegeluk mine is one of the most-efficient mining operations in the world and operates the world’s largest coal beneﬁciation complex, where 9,000 tonnes per hour of run-of-mine coal is upgraded in six different plants. “With the Medupi expansion we will treat 12,000tph ROM in eight beneficiation plants,” Venter says. Exxaro is “going downstream in coal beneficiation, with opportunities such as reductants and energy being evaluated, due to shortage of energy supply in the region,” he explains.

“There is fundamentally a strong demand for reductants in South Africa due to its ferro-alloy businesses. In the recent past the demand has however slowed down due to Eskom buying back power from these players. Eskom’s buyback programme ends in July. They will then be re-commissioning smelters and it will lead to us supplying more reductants.” The 96 percent-complete GMEP is set to cost a total of R10.2 billion for the ramp-up to 14.6-million tons of coal a year for State-owned power utility Eskom’s Medupi power station by the second half of 2016. “We have a coal supply agreement with Eskom where they have deferred taking coal from March to November this year. Consequently, we have rephased some of our expenditure on our expansion project. We will supply the Medupi generators with about Continued

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In response to the recent unprotected strikes at several of its mines, Exxaro tasked ITD to assist with their Back@ Work project. The aim was to facilitate employees’ purposeful re-engagement with their work and teams through debriefing conversations with employees. For two months ITD engaged 3904 employees in debriefing groups and conducted 3308 formal and informal individual debriefing conversations. Through these debriefing conversations, ITD fertilised the context for employees to make an emotional commitment to purposefully re-engage at work. ITD created a Diversity Competence Model that includes all levels of employees. Based on this model, the diversity training and coaching empowers employees to competently embrace difference resulting in productivity and profitability possibilities. Diversity programmes run at several of the Exxaro mines. Tel (+27)12 346 2092 Email jpr@itd.ac.za

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E X X AR O

14,6Mtpa of power station-grade coal annually for the next 40 years. The expansion will create about 600 permanent jobs at Grootegeluk.” There have been some delays. “Medupi is behind in terms of construction and because of the delays with Medupi we had to delay some of the latter phases of the development without demobilising costly contractors on site,” Venter says. “We did some optimisation and we decided not to spend money now on items such as the truck fleet and the second pit backfill system, and only get the benefits later. We re-phased our project without compromising our expected benefits while Eskom maintains its focus on completing the project.” At the same time Exxaro is busy developing its Mayoko iron ore project in the RoC. The GMEP re-phasing

has helped with respect to Exxaro’s Mayoko project resource requirement and support in the Republic of Congo (a project we will learn more about later). “We have funds available to aggressively push Mayoko forward in the Congo. Capital allocation is a big success factor for us. We have been putting our bucks where there is value and that’ll be even more important in the future. The world is still recovering at the moment and fortunately we are getting good signs from China from a coal perspective; even from a thermal coal perspective from India as well. So, on the coal front, we are happy we have a good pipeline of organic opportunities. We are also looking at in-organic opportunities. We will be looking further at our current portfolio to see how we can further optimise that by actually combining assets and acquiring assets that make Continued

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E X X AR O

“We are also moving ahead with our “That, on the whole, is coal. It is a Waterberg expansion, the Grootegeluk strong backbone and it will remain so.” expansion – because of its importance Mineral sands in terms of supplying Medupi – and we are planning the Thabametsi mine Venter is equally excited about the which is adjacent to that.” Tronox business. “In the past year The Thabametsi mine is a greenfields we did a big deal where we merged development, an open-pit coal mine assets with Tronox to create the and beneficiation complex supplying current Tronox Limited, the world’s independent power producers. first and largest vertically integrated With an estimated timeframe of mineral sands processing and pigment 2015-2025, it will supply 17Mtpa to company. We have high hopes for it in power stations and 2.8Mtpa to the medium to long term,” he explains. other markets. Tronox has a strong platform for sense in a domestic environment here in “Thabametsi is phase two of our future growth, uniquely positioned to South Africa and also further afield.” Waterberg expansion. We think it is serve the needs of the global pigment Exxaro’s eight managed coal mines the right thing to enter into and press and zircon market, he says. produce over 40Mtpa of power station, ahead with developing the mine. We will Its operations include South Africa’s steam and coking coal, as well as char soon announce our independent power KZN Sands and Namakwa Sands and and related products for the local producer partner for that project. We the previous Tiwest mineral sands ferroalloys industry. The company is the largest supplier of power station coal to South Africa’s national power utility, Eskom. Waterberg is very important. Medupi will A robust pipeline of greenfield and expansion projects mean this is an consume in excess of 14Mtpa of coal which gives us exciting time, says Venter. the latitude to, out of that complex, produce higher “We believe coal will be around a long time. You will see we have just value coal products and even go downstream” entered into a clean coal Joint Venture with Australian-listed Linc Energy. It will be a game changer not only for will start by producing 600 megawatts operations in western Australia, with Exxaro but the whole coal industry of power and push it into the grid and it three pigment plants situated in the and we believe we can be the leaders is exciting because we know there is an U.S., Europe and Australia. in sub-Saharan Africa with that. We energy issue in South Africa and there is The company employs approximately are pushing forward with it and are a growing market for coal reductants, 3‚500 workers in 16 locations worldwide. excited by it. which is largely used in high energy“In the first half of 2012 that intensive industries like ferrochrome business did very well,” Venter and steel making, so by facilitating more says. “It had a 24 percent increase The Arnot coal mine power generating capacity in South in revenue. But the pigment prices supplies coal to the Africa we are benefitting both Exxaro came off in the second half which nearby Eskom power station and the country. meant that our integrated business “In coal we will look at diversifying didn’t do as well as expected – it more from a geographical footprint, was a historically poor year for the cross border, by pushing harder pigment segment during the second on the Moranbah South mine in half of 2012. We were disappointed Australia, a JV with Anglo Coal, and with the results. We thought it could new geographical areas. have been better but that’s the supply “Downstream opportunities for and demand situation with some Waterberg include a char plant, coke destocking happening in the second and electricity generation. half of the year, continuing into 2013.” When complete, the R10,2 billion GMEP expansion will supply the Medupi power station (under construction) with 14,6Mtpa of coal

Continued

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E X X AR O

He anticipates the global market for pigment to strengthen in the second half of this year and feels that markets are beginning to reflect increasing demand. This demand increase will predominantly happen in Asia. “In the first half of this year we’ve seen some destocking. In the second half of we’ll see a pickup which should lead to a better performance from the Tronox business. That is a great business for the future: I’m talking the long and medium term not now in the short term.” Exxaro has a 44.6 percent equity share in Tronox. “We haven’t made the call yet as to when to make a bid to control it,” Venter says. “We will weigh it up against other opportunities we have in our pipeline at the time to make that decision. Looking at the way the world is going, there are good fundamentals for that business. The pigment production in Asia is picking up, specifically in China and you have to position yourself favourably towards the Asian market if you want a sustainable business. We are looking deeply at that,

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It will be a game changer not only for Exxaro but the whole coal industry and we believe we can be the leaders in sub-Saharan Africa with that”

Continued

Aerial view of the central processing plant at KZN Sands

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E X X AR O

this year and we should then be in a position to produce the first iron ore before the end of this calendar year. It is positive for us. The RoC is a good place to do business in as well. It is of course a new territory for us but the support we get from government is just amazing. That project is going quite well.” Exxaro acquired the project as part of its multi-million dollar takeover of African Iron in an effort to diversify from coal. It plans to spend up to $320 million in the initial ramp up of the mine, this being Phase 1. Venter says Exxaro is investing in upgrading a railway line leading to the deep-water port at Pointe Noire to transport two million tonnes of cargo per year and will manage the line jointly with the government. “We call Mayoko our Waterberg of iron ore. It has massive potential. We have done a lot of work on The Leeuwpan mine, one of characterising that ore in the market Exxaro’s eight coal mines, is a and in which parts of the world it will key supplier to the domestic and be used. We are very positive about export markets the quality of products we can produce and are certain we will be able to place it in the market fairly easily. “Two million tonnes per annum is “In terms of our portfolio we have deciding on the right time. We need small but the positive is the quality, secured an entry into the iron ore to balance and rigorously rank our plus it is the first ore you mine,” Venter space – through the project we projects and focus on those that adds. “It needs a minimal amount of acquired in the RoC, the Mayoko iron deliver value. “We’re focused on optimising what ore project. It is a strategic fit and we washing to produce the final product. You can export it easily. We can position are already busy with construction we have and making sure we are set ourselves well on the cost curve with and developing it in a phased way. and ready for action going forward.” Mayoko. Phase two is ten million tonnes Phase one will see us prioritise our per annum, up to 17 million tonnes per 2014 target of the two million ton Mining iron ore in the Congo: annum. It will be even better for us. a year in the initial phase, while Exxaro’s Mayoko opportunity developing access to critical rail and “We will be producing by end of this year and we are excited. Encouragingly port infrastructure, and then going Exxaro is also energised by its Mayoko the government in the Congo has up to between 10 and 17Mtpa, and iron-ore project in the Republic announced they will develop the new that is a subject of a feasibility study of Congo. port at Port Indienne. We need that currently underway. Venter says it will be developed in “There are about 400-500 people onsite export port for the bigger tonnages. It is phases to produce and export ten good news for us. We have secured our already and we are now busy finalising million tons of iron ore a year by 2017. position in that. We are involved with the mining convention and setting up He says Exxaro is prioritising its 2014 the government to develop a multi-user agreements with the government of target of “two-million-ton-a-year in the iron ore export hub. We will make sure the Republic of the Congo. We hope initial phase”, while developing access that all goes ahead no later than August we have sufficient interest in that.” to critical rail and port infrastructure. Continued

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ALL WE HAVE TO OFFER IS CONSISTENCY, QUALITY AND KNOW-HOW Blast Analysis Africa (BAA) have been suppliers to Exxaro of the widest range of blast monitoring and control technology available for over ten years. BAA specialist skills and knowledge of Vibration and Air Blast Monitoring and Control, Controlling and Directing Explosive Charges, Fragmentation Analysis, Blast Monitoring, Instrumentation, Consulting and Training has been developed from it's experience in the international mining industry over the last 25 years. BAA are proud of its association with Exxaro and are confident of its consistency, quality and range in all products, support and practical knowledge of its offering.

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E X X AR O

Exxaro has also been linked with a bid for Equatorial Resources, which has a project adjacent to Mayoko, but that’s unlikely says Venter. “We will not, in the short term, look at any new iron ore acquisitions. We are focused on optimising what we have at Mayoko and will focus on making it a success. “We believe the fundamentals of iron ore are positive in the medium to long term and we are drawing on in house experience and expertise in mining bulk commodities to unlock this potential.” On the alloy side of the business, he has confidence in Alloystream, a proprietary technology development in cooperation with Assmang to produce high-carbon ferromanganese. “We know, of course, that the local ferro-manganese alloy industry is going through a difficult time, but believe that this new technology will assist to make ferro-manganese even more competitive and robust going forward.” The development of innovative technologies like this has been a key part of Exxaro’s strategy of identifying growth opportunities and adding value. “We are commercialising a new smelting process with a manganese partner using coal fines,” Venter explains. “It’s the first new manganese smelting process innovation in the industry in nearly 80 years. It has taken many years of testing but the benefits are worth the wait. They include a 1-step smelting process, life of mine extensions and energy savings of up to half the costs of a traditional smelter, with co-generation.”

Aerial view of Pointe Noire

Part of the site for the Mayoko iron ore mine in the RoC. Phase 1 will see production of 2Mtpa by 2014

Exxaro has been working on a programme to make blue sky innovation part of the group’s DNA. “We’ve defined exactly what innovation means and we have a number of breakthrough innovations about to become commercial realities. We believe they’ll contribute significantly to the group’s future goals.”

Diversifying outside the mining industry: Cennergi

Exxaro’s diversification strategy has extended outside the mining industry to the field of cleaner energy and it recently completed a R7 billion funding programme for two wind farms in the country’s Eastern Cape province with Tata Power of India, the company’s 50:50 JV partner in Cennergi. Cennergi has received finance from Standard Bank, Nedbank Capital and the International Finance Corporation for the wind projects.

Exxaro said it will fund the remaining R1.8 billion equity portion with Tata Power. “In an attempt to meet rising power demand, the government (Eskom) plans to add 3,725 megawatts of capacity from renewable sources by 2016 through a programme of five tenders,” Venter says. “Cennergi’s two projects, which will produce 229MW, were awarded in the second round, where more than a third of the allocation went to wind power.” The 95MW Tsitsikamma Community wind farm near Clarkson in the Eastern Cape is expected to achieve commercial operation from its 31 turbines in 2016. Continued

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“All of us were worried about Marikana,” Venter continues. “That should never have happened – let me make that point. It was a lack of communication and totally unacceptable. Yes, since then we have had our own strike, but it was quickly resolved and it comes down to the way you treat your people and taking them with you – not leaving them behind. You need to uplift them. In South Africa there are specific challenges but we must ensure that everyone benefits from the minerals we mine, not just shareholders. The Amakhala Emoyeni wind farm, also located in the Amongst other things, we put lots into education Eastern Cape, near Bedford, would produce 134MW and educating our from 56 turbines. people and invest a lot “As a coal producer, and intensive energy user, we in the communities close play a significant role in the energy environment in to the mines, through South Africa. Cennergi, which was launched in April employment. We want 2012, is a major achievement in our energy strategy, through which we want to contribute towards energy to empower local people security and a cleaner environment in Southern Africa.” and businesses and have them benefit from the Sustainable Mining local procurement and enterprise development. Of course sustainability has played a part in Exxaro’s That is how we will be past and present success. That will continue. doing it in the Congo “Mining can and should benefit economies,” says too. In Mayoko we have Venter. “If you look at the factors that have rocked already employed locals investor confidence in both the mining industry during our construction and South Africa generally I think it is interesting. phase. We will conduct In my view, operational efficiency and long-term artisan training which sustainability in mining companies is absolutely is what we are doing in essential in terms of making the most out of the Waterberg too, where we mineral deposits in the ground and the ability to have a major contribute to the economy. Also the export of South training centre. African minerals and downstream beneficiated “At Exxaro we have products is valuable in that it brings much-needed the Exxaro Tomorrow foreign exchange reserves into the country.” Programme where we The South African mining industry has seen a have painted a picture substantial upheaval in the past year including the of how mining could tragic events at Marikana to a draft amendment of the look in 2050. In terms of Mineral and Petroleum Resources Development Act.

sustainability, we won’t create mines, we will create resources hubs. Waste will be retreated and the communities around the mines will be sustainable. We see a mine as an organism.” Zero waste, zero effluent, washto-zero and sustainable engineering would be among the ideals targeted. “You have probably also read about our 2020 aspirations. Just to put it in context, when we formulated – i.e., to become a $20 billion company by market capitalisation by 2020 – it sounded good but remember it is a vision and at that point our market cap was about $9.8 billion and now the share prices are right down. So we are not fixated on the absolute numbers. Rather, we are pushing forward with our portfolio to get to at least a number that is double the market cap we see now.”

Resources tax?

Mining is a significant provider of jobs, makes a huge direct contribution to GDP - around eight percent - and South Africa’s wellbeing depends on the industry’s success. But it is at a crossroads. Although the Government has clearly stated that nationalisation is off the table, a number of regulatory uncertainties remain. Taxation of mining companies is currently at the forefront of the debate as to whether the state derives sufficient economic benefit. Tax is government’s participation in resource development and tax revenue is re-invested for the development of the greater society. It is how the rest of the country benefits. The current message is loud and clear – government intends to increase its share of tax collection from mining companies. The big question is how does government intend to do so? A carbon tax and/or resources rent tax is one possibility. “We are concerned about the level of tax (as a whole) being proposed Continued

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E X X AR O

and in particular we are engaging with government to find an equitable share of the benefits of mining. In the end I think common sense will prevail,” says Venter. “We create a lot of jobs and bring in much-needed foreign exchange and you don’t want to comprise that. We want people from outside to view South Africa as a viable investment. “I refer back to the talk of nationalisation which in the end was a non-event. I think this will go the same way. There are healthy discussions going on – and to be had – between the Chamber or Mines, government and the Department of Mineral Resources in terms of the resource tax. The outcome will be such that we will still be a competitive mining industry in this country going forward.”

A job well done?

Exxaro’s future mine programme kicked off in 2012 and it has put in place a commodity strategy for 2020, 2030 and 2050 horizons. A lot of work has gone into identifying innovative opportunities and development initiatives which Exxaro could pursue in the future. “The focus has been about sustainability and, we believe, it will give us a competitive advantage in the future with regard to our environmental performance, technology use, and employee development opportunities,” says Venter, who is optimistic about a bright future. “There is so much potential,” he adds, “so much more value to be gained. If we focus and we really invest in the right areas there is no limit to what we can achieve. We can help South Africa realise its potential and help the economy grow – and we can make a positive social contribution. Mining has a big role. The quality of resources in the ground is strong enough. I think we need to be positive.

“Yes it is challenging,” he continues. “The regulatory environment is changing all the time and presents certain challenges for us. It can take time for approvals and that is a frustration. Slowly but surely reality is dawning and people realise we need to put our act together in South Africa and make the country positioned for the future in the African continent. “In a nutshell, if you look at it from an operational perspective, at Exxaro we have improved the quality of our assets and we still made a profit in 2012 despite the challenges, and paid a dividend to our shareholders. We will continue to pay a dividend. It is going satisfactorily, all things considered, and this year will be a bit better so we’ve made solid progress on our strategy. “Besides continuing to strive for operation excellence, we will continue to invest in our people because people make it happen!” Exxaro’s brand promise is “Powering Possibility”. Everything it does and delivers “today will allow others to realise their vision tomorrow”. To learn more visit www.exxaro.com.

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UIC Control & Automation UIC, established in 1974, is a South African company based in Durban on the KZN East Coast and offer professional services in the Instrumentation and Electrical fields. UIC specialise in project management, procurement, design, engineering, construction and commissioning of Instrument and Electrical Projects These services may be offered as a total “Turn-Key” package or as selected components UIC has experience in all the major industries including Petroleum, Chemical, Food and Beverages, Mining, Manufacturing, Pulp/Paper and Sugar. We are leaders in our field and have a “results” based track record of which we are extremely proud. Tel +27 (31) 468 2561 Email johnb@uic.co.za

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K u d u m a ne

M a ng a nese

a new breed of

Reso u r ces

black

Africa Outlook takes a look at the opening up of South Africaâ&#x20AC;&#x2122;s Kalahari manganese fields and Kudumane Manganese Resourcesâ&#x20AC;&#x2122; R1.5 billion manganese mine. By Ian Armitage Project manager Debbie Clark

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anganese is a strategic resource for South Africa and the Northern Cape holds approximately 80 percent of the world’s commercial manganese ore reserves. It is used in, amongst other things, the manufacture of stainless steel – indeed, it is an essential component. According to the experts, South Africa’s Kalahari manganese fields are capable of giving manganese ore to the world for next 100 years or so, and this puts the Kudumane Manganese mine in an advantageous position.

The mine was commissioned at the end of 2012 and has produced about 80,000106,000 tonnes of saleable product to-date” The mine was commissioned at the end of 2012 and has produced about 80,000-106,000 tonnes of saleable product to-date. It is located about five kilometres from Hotazel and about 60 kilometres from Kuruman. Kudumane is a Japanese-backed joint venture between empowerment firms Dirleton Minerals and Energy and the Northern Cape Manganese Company. Each of the empowerment partners owns equal shares in each other and Hong Kong-based Asian Minerals Limited (AML), which has expertise in marketing and sales of manganese ore, owns a 49 percent stake in each of the two companies. It is a project we are excited about. So too is Sechaba Letaba, CEO of Kudumane Manganese Resources (KMR). “Manganese has regularly been described as one of South Africa’s Continued

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K u d u m a ne

M a ng a nese

saddest mining stories because the country is home to the largest known manganese deposits in the world but infrastructural constraints have meant we only supply about a third of global demand; we want to contribute to changing that,” he says, before explaining that a “change in legislation” opened up the Kalahari manganese fields (KMF) – previously controlled by mining duopoly Assmang and Samancor – to exploitation and led to “the establishment of several new manganese mining projects.” Essentially, from that, Kudumane was born and it is forecast to reach production of 1.5-million tons a year before the end of this year.

Reso u r ces

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K u d u m a ne

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It will ramp up to two-million tons a year, then 2.5 million tons and eventually three-million tons as mining moves underground. The mine will employ over 300 people in what is one of South Africa’s poorest regions (John Taolo Gaetsewe) and the main components of the project are an open pit and underground mine, with further underground mining in the future, a crushing and screening plant, mine residue disposal storage and facilities, and various support infrastructure. Kudumane will use rail and road transport to send ore to Port Elizabeth for the export market and will ultimately use the Coega port. It also wants to build a sintering plant to improve the value of the manganese it is selling. “We have 1km by 1km diameter pit, which is quite big. We can get a lot from this. This phase – York – will run

Reso u r ces

extract the volumes that we require. “At this time, we are busy completing our rail siding and we are continuing with A lot of the new guys our load out station; later on, maybe do not necessarily have the three years time, we will actually build our main processing plant.” infrastructure ready and SA can expect a bright manganese this will give them time future if “certain challenges can be to qualify for Transnet’s overcome so that full export potential rail allocation. From there is realised.” One of the challenges is that the ports I think the volumes will networks, which are used to transport increase as we strive for ore to export destinations or smelters for three-million tons a year” further processing, are not able to provide the capacity required by the industry. A large portion of the country’s for 10 years,” says Letaba. “The next manganese is exported from Port one has a life of more than 100 years. Elizabeth. The rail infrastructure is That is called Telele. That will be a little congested, owing to a lack of capacity bit deeper – 1,000 metres deep – and and an increasing number of entrants we will access that through a decline into the sector. shaft in the fifth year of our operation. “A lot of people now have mining We will start developing underground towards Telele and prepare it so we can rights,” says Letaba, who once

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worked as the senior general manager at Assmang’s manganese mine near Kuruman in the Northern Cape. “For South Africa it is very comforting to see that Transnet is going to include new entrants in the rail allocation process of MECA 2.” The process, which Transnet has postponed to September 2013, will give the new entrants time to get the “necessary infrastructure in place”. “A lot of the new guys do not necessarily have the infrastructure ready and this will give them time to qualify for Transnet’s rail allocation. From there I think the volumes will increase as we strive for three-million tons a year. That is our goal. As much as it might sound ambitious, open pit mining does offer some advantages over traditional deep shaft mining on both cost and extraction rates.” Letaba is driven to succeed: “The success of this project is my success and its death is my death.” Manganese demand is expected to grow by about seven percent over the next five years, with strong demand from emerging economies. To learn more about the mine visit www.kmr.co.za.

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f os k o r

Driving operational

Driv-

e x c elle n c e

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Africa Outlook profiles South African phosphates firm Foskor, one of the world’s largest producers of phosphate and phosphoric acid. Writer Ian Armitage Project manager Debbie Clark

hosphates firm Foskor needs little introduction. The South African phosphate mining and processing group, whose majority shareholder is the Industrial Development Corporation, famously gave its name to foskorite and it is the only vertically integrated phosphate producer in the country. The Midrand-headquartered company also participates in the beneficiation of phosphate rock into phosphoric acid and phosphatebased granular fertilisers, which are sold around the world. It was set up by the IDC in a bid to make South Africa independent from phosphate imports and operates from two main locations, the Mining Division in Phalaborwa in the Northern Province (Limpopo), and the Acid Division in Richards Bay, KwaZulu-Natal. “Foskor is a proudly South African producer of phosphates and phosphoric acid with international exposure,” the company’s website says. “Foskor unlocks shareholder value through the profitable, responsible and sustainable beneficiation of phosphate rock into either phosphoric acid or phosphatebased granular fertilisers sold globally. “Foskor is the only vertically integrated phosphate producer in South Africa,” it adds. “From phosphate-bearing ores, the operations in Phalaborwa mine and process phosphate rock concentrate, which is crucial for stimulating and raising crop yields. The Richards Bay plant manufactures sulphuric acid, phosphoric acid and phosphatebased granular fertilisers (MAP and DAP) by using phosphate rock as a raw material. About 84 percent of Phalaborwa’s phosphate rock concentrate is railed to Richards Bay and the rest is sold externally. The Acid Division exports phosphoric acid to India, Japan, Bangladesh,

the Netherlands, Mexico and Dubai. Phosphoric acid has agricultural, industrial, medical and retail applications. Products made from phosphoric acid include catalysts, rust proofing materials, chemical reagents, latex, dental cements, tooth whiteners, toothpaste, disinfectants, food supplements, carbonated beverages, waxes, polishes and animal feeds, among others.” Foskor’s two mines at Phalaborwa, the North and South Pyroxenite Pits, can produce 2.9 million tons of phosphate rock at full capacity. Of the total rock output, approximately 80 percent is railed 800 kilometres to the beneficiation plant at Richards Bay.

Foskor is a proudly South African producer of phosphates and phosphoric acid with international exposure” The Acid Division has capacity to produce 690,000 tons of phosphoric acid, 2.2 million tons of sulphuric acid and 350,000 tons of granular fertilisers. The remainder of the phosphate rock is sold in the local and export markets, while the bulk of the phosphoric acid produced is exported. According to Alfred Pitse, CEO and President, the firm is focused on driving “operational excellence”. “To achieve operational excellence, cost management will be implemented alongside efficiency improvements while optimising the existing capacities. The future growth of the company is dependent on getting the existing operations right,” he says in its 2012 financial report. Continued

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f os k o r

TRANSNET FREIGHT RAIL We are people centred, performance driven and customer focused Transnet Freight Rail is the largest operating division of Transnet SOC Ltd. It is a world-class freight transport company, transporting bulk, break-bulk and containerised freight on approximately 20 500 route km of railway. The company is proud of its reputation for technological leadership beyond Africa as well as within Africa, where it is active in some 17 countries. The aim is to significantly improve operational efficiency and customer service delivery with the help of the following six business units; Agriculture and Bulk liquids Coal Container and Automotive Iron Ore and Manganese Steel and Cement

In November 2012, KZN’s Zululand Observer reported that the chemicals group planned to build a “huge new rock storage facility” and install three bulk chemical storage tanks as part of a R200 million expansion of its Richards Bay plant. According to the report, the new facilities would “allow” Foskor to “broaden its phosphate product offerings in order to tap new markets”. The expansion would see the building of a 12,000m² phosphate rock storage plant as well as a 700m³ bulk storage tank for defluorinated phosphoric and three smaller tanks for the storage of merchant grade phosphoric acid. It would produce 1,100m³ per annum of lowerfluoride phosphates for use in animal feed, the report added, quoting SRK Consulting Senior Environmental Scientist, Wouter Jordaan, who is overseeing the permitting of the new facilities, including a new Atmospheric Emissions Licence (AEL). The project is expected to create 134 permanent jobs and 75 temporary jobs during construction and is expected to generate revenue of R260 million for the company once operational, Jordaan said. To learn more visit www.foskor.co.za.

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Beneficiation s u c c e s s: t he

pride

Africa Outlook profiles Namibian diamond beneficiation company NDTC and talks to Head of Sales and Marketing Brent Eiseb. Writer Ian Armitage Project manager Debbie Clark

Na mibia

hile most State-owned enterprises can only dream of profitability, the Namibia Diamond Trading Company (NDTC) has contributed more than N$450 million in dividends alone to the national coffers in the past five years. The diamond beneficiation company is a partnership between renowned world diamond producers De Beers and the Namibian Government and the medium to long term future of the industry is â&#x20AC;&#x153;positiveâ&#x20AC;? despite the challenges of the past year. Continued

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“All in all, the 2012 calendar year was a cautionary, volatile and challenging year for the industry and NDTC mainly due to uncertainty caused by exchange rate volatility, the problems in the eurozone, slowing demand in China and India, and a general lack of liquidity in international markets. There was also a reduced demand for new rough from NDTC Sightholders because of the amount of midstream rough and polished stocks in the pipeline. Despite this we have performed well against the beneficiation objectives and returned significant shareholder value. Considering the long-term fundamentals, we remain positive about the Namibian diamond industry,” says NDTC Head of Sales and Marketing Brent Eiseb. The firm has achieved several noteworthy milestones including the fact that all of its 95 staff are

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Our main objective is to drive local beneficiation from diamonds by growing and supporting the downstream diamond industry in Namibia, with the broad aim to ensure the maximum, long-term value from Namibian diamonds through world-class sorting, valuing and sales practices in Namibia”

now Namibian, and the signing and commencement of three-year supply agreements with 12 Namibian cutting and polishing factories in early 2012. NDTC’s primary objective is to facilitate the creation of a sustainable diamond cutting and polishing industry in Namibia. “Our main objective is to drive local beneficiation from diamonds by growing and supporting the downstream diamond industry in Namibia, with the broad aim to ensure the maximum, long-term value from Namibian diamonds through world-class sorting, valuing and sales practices in Namibia,” says Eiseb. So what about the rest of the year? “We are cautiously optimistic,” he continues, “it’s undeniable that the industry is going through challenging times with the slowdown in China and India: high midstream stock levels coupled with the significant devaluation of the Indian Rupee against the U.S. dollar impact negatively on liquidity, which we feel could have an impact on demand for rough diamonds for the rest of the year. Having said this, the U.S. is still the biggest market and seems to be performing solidly and we are seeing better results coming out of there.

And, despite the slowing growth in China and India, we see these as key growth markets. ” NDTC was established in 2007 as part of a sorting, valuing and marketing agreement between the Government of the Republic of Namibia and De Beers. Since then, the company has spearheaded the growth of the domestic diamond manufacturing industry and helped create a sustainable downstream diamond industry in the country, Eiseb says. “We do all we can to ensure the maximum, long-term value from Namibian diamonds through world class sorting, valuing and sales practices in Namibia.” NDTC’s customers are called Sightholders, selected in a rigorous process to determine their financial viability, technical capability and integrity. They are appointed for three-year periods during which they have the right to buy diamonds offered to them by NDTC. “The Sightholder selection process is a robust and comprehensive process. NDTC’s objective is to partner with the best diamanters in the world. We want to partner with companies that can add the most value to the rough diamonds that we sell and create a competitive advantage through

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Continued

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Diverse Building Technologies

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their technical ability, marketing and distribution ability. Secondly, we look at what these companies are doing in terms of beneficiation. Is that something they are committed to? What are they doing? Are they employing Namibians to cut and polish the diamonds sourced from NDTC? Are they transferring skills to Namibians? Skills the country needs to develop its economy. Added to this is the fact that NDTC has a finite amount of rough diamonds to make available for beneficiation activities and invariably this leads to increased competition for supply and the only way to ensure fair distribution of the limited availability of rough diamonds is to run a competitive selection process.” About 1,200 direct workers are employed by NDTC’s 12 Sightholders. Out of a total population of around

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that undertakes marine mining and Namibia has become the world leader in that field. However it is common knowledge that the onshore resources are dwindling. The mining two million, that is an achievement. operations have done and are doing A challenge going forward is that the extensive work to try and prolong the number of diamonds being extracted life of the onshore mine.” in Namibia is not likely to increase. Namdeb has pumped millions into “As a country if you look at major mining extension projects to Namibia’s production, there have prolong lifespan of its mine to 2020, been no new discoveries on the Eiseb adds. “They have had to come land-based diamond fields, which up with innovative ways to make the are approaching the end of their life. However, we mine diamonds offshore onshore mining operation viable. Obviously it goes without saying that as well,” says Eiseb. “We are the the future of diamond mining is Namibia only country in the world, I believe,

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is offshore however as you can imagine this is capital intensive and as such it is not something you can do overnight – one has to take a long-term view. We are confident that while we might not be able to grow significantly the volumes we are mining in the near future, what we are looking at now, i.e. the capital that is being spent along with the technology explored and developed, will prolong the life of mining operations in Namibia.” Is Eiseb happy with that NTDC has achieved? “Yes, certainly,” he says. “We have been able to create sustainable direct jobs, based on our beneficiation strategy. A bigger percentage of these jobs are held by Namibians. Going forward, we need to think about how we continue to grow and develop the industry and this we can only do by making sure we understand what the challenges are and position ourselves to address these.This is the only way Namibia can ensure the long term sustainability of the industry in Namibia.” To learn more visit www.debeersgroup.com.

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B a o b a b

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B a o b a b

h a s

for

Te t e

Ben James, Managing Director of Baobab Resources, talks about the development of the Tete pig iron project in Mozambique, one of the most exciting development stories in southern Africa. Writer Ian Armitage Project manager Debbie Clark

hat has Ben James and everyone else at Baobab Resources so excited? The iron ore resource at its flagship Tete project in Mozambique. Just how big the project could ultimately become is anybodyâ&#x20AC;&#x2122;s guess and Baobab has a plan to get it out of the ground and to market. In all, 2013 has been a pretty monumental year. Baobab is currently working on a bankable feasibility for a 37year, 1Mtpa pig iron operation at Tete. To help get the project off the ground, it has brought in Standard Chartered to look for potential partners, and a resource upgrade has seen it investigate scaling up the operation to 2Mtpa. Continued

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B a o b a b

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“The Tete Project PFS results from March showed the compelling economics of a 1Mtpa pig iron production scenario. That was followed by a resource upgrade and then we thrashed out the 2Mtpa numbers,” Ben James, Managing Director, Baobab Resources, explains. “The 2Mtpa results demonstrate the ability to significantly scale up production at Tete.” That the project can be scaled up is a huge boost. “Well, it means we have at least two economically attractive options for incoming strategic investors,” James says. “The 1Mtpa scenario modelled a 37-year mine life and the 2Mtpa modelled a 22-year mine life. In both of those cases we actually exploited less than 25 percent of our global resource base so there is plenty of scope for increased production of projected timelines out to 100 plus years.”

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Remote Drilling Services’ Boart Longyear LF90 plumping the depths of the Tenge resource block

It is a potentially massive project. “We have drilled approximately 80,000 metres and have a resource base of 725 million tons, 0.5 billion of which is concentrated in a 2.5 sq km area around the Tenge-Ruoni area,” says James. “The grade of this concentration is over 36 percent iron.” Tete was originally picked up to explore for base metals and platinum group elements. The existence of iron ore deposits came to light after an early literature review and Baobab quickly recognised the unique opportunity of having iron ore immediately adjacent to some of the world’s largest undeveloped coal deposits. There is a massive global appetite for pig iron, which Baobab is looking to service. “We’re at the bottom of the cost curve,” says James. “Why is that? It is because we enjoy a unique and strategic geographic and geological setting where we are at the confluence of all the key iron and steel making resources - iron ore, which we have got captive, coal, power and water. Our licenses join the licenses of Rio Tinto, Vale, the Ncondezi power project, and

26993SCGBM_Africa Outlk_96x160w_Inc.ai

so we are right in the centre of some of the largest undeveloped coal deposits left on the planet that are being brought into production by some of the largest mining and steel producing companies globally. It is an exciting place to be. We have unique access to port and rail, power and coal â&#x20AC;&#x201C; for our reduction process we will be able to utilise the low quality coal being produced as a wash by-product and, being commercially unviable for export, is literally considered a waste product. That makes our cost of production very low, in fact amongst the lowest globally and that is even before we take into consideration our vanadium. Our iron ore carries vanadium and we are able to separate that through the smelting process when we are producing the pig iron. We can liberate that as a vanadium slag. That would be refined into vanadium alloy which is worth a great deal and adds significantly to the overall revenue stream.â&#x20AC;?

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Core management, drilling at Monte Tenge

Continued

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B a o b a b

Reso u r ces

Brazil is the world’s largest pig-iron producer and its cost of production is $380/mt to $390/mt pig iron (FOB). Baobab’s estimated cost of production FOB at its Tete property will be around $225/mt, presenting a fantastic opportunity to compete globally in the pig iron and arguably the scrap iron space. “Tete has the potential to be not just world class, but world first and at first quartile production costs,” James says. “Looking further ahead, there is real potential here to unlock additional value by taking the project to the next stage downstream and establish a fully vertically integrated operation generating finished steel products onsite. We are

Geotechnical logging, Tenge Camp

Project geologist Pillani Mangezi with drill core containing massive iron mineralisation, Massamba Camp

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Even in these god awful markets this is an exciting time for us”

Baobab’s Chairman, Jeremy Dowler, reviews TGDH005’s 144m mineralised intercept grading 42 percent Fe with Exploration Manager Iain Plews

sitting in a part of southern Africa that is going through an incredible and fundamental growth across all sectors, in particular oil and gas. There is big steel demand now and there will be in the future. Future hydro electric schemes in Mozambique, for instance, will be requiring a lot of construction steel as will the upgraded and expanded power transmission lines. Then we look regionally and we can see thermal power plants coming up in Botswana. And in South Africa the two

largest producers – Mittal and Evraz – are having difficulty competing with imported steel prices so there is yet another market for us to substitute. “If we were to take this through to steel, we would certainly be unlocking the true wealth of the project. “But to do all of this of course we need a strategic partner and that is a key part of the process going forward.” And this is precisely why Standard Chartered has been brought in. As part of the mandate, the bank’s corporate finance division will assess a range of strategic corporate opportunities and financing alternatives. The project would be of “significant strategic value” to a steel major who wished to construct a vertically integrated steel facility on site, James says. “Standard Chartered will play a big part in the development,” he explains. “Why them? Well, they have a substantial footprint in Asian markets and a successful track record on other projects so it made sense for us to work with them on Tete. “We had a lot of proposals on the table and it was a difficult decision to make because the banks and consultancies all have different areas of expertise and strengths. The Asia footprint swung it. The universe of potential partners in Asia is very large and that was one of our reasons. Another is that they have been following the Baobab story since before we drilled a single hole. They understand the project and have followed the story for a long time. It was a logical progression for them to

come in as our advisors.” The future, unsurprisingly, is bright. “Even in these god awful markets this is an exciting time for us,” says James. “We are in a position where we are interviewing potential strategic partners to figure out what the best way forward is for the project. This is still a bulk commodity project so logistics can’t be underestimated either and we are working with the government and private sector to resolve power, port and rail access. Another important avenue is our environmental and community responsibilities and how we must develop a stakeholder engagement plan and so on. There is a lot more going on now than there ever has been. It is a really exciting place to be.” To learn more visit www.baobabresources.com.

Employee Ricardo Chauchane holding Baobab’s first billet of Pig Iron derived from the smelting of Tenge iron ore with locally derived thermal coal

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B a nnon

L i m i t e d

Strike it

Brandon Munro, Managing Director of African Mining Capital, Joint Venture partner of Bannon Limited, tells Africa Outlook more about this emerging mineral resources exploration company with ambitious plans for the future. Writer Susan Miller Project manager Debbie Clark

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Africa’s/Zambia’s legendary Copper ut in the far north Belt. of Namibia near the “Cobalt – a signature feature of country’s border with Angola is an outcrop of the Central African Copper Belt - had rock that glistens green never been found alongside copper when the sun catches it. This outcrop in Namibia. This was a deficiency in contains copper, with the green lustre the argument that Namibia’s Kaoko Copper Belt is a direct analogue for the caused by the mineral malachite Zambian or DRC Copper Belt. Bannon’s embedded in the rock and part of discovery of cobalt in the DOF has its wonder is that it has never been put that argument beyond doubt,” noticed before. Munro says. “If – and it is still a big if – To Brandon Munro, Managing the theory is verified by an economic Director of African Mining Capital, Joint discovery, the news will electrify the Venture partner of Bannon Ltd, an emerging mineral resources exploration Namibian mining and geological worlds and Bannon will be sitting pretty as its company which holds the licence for licence covers about 85 percent of the the area containing the outcrop and northern Kaoko Copper Belt.” its surrounds, this discovery, named But landing the six exploration Okanihova, underlines just how exciting exploratory work in northern Namibia is. licences which cover a contiguous area of 3722sq km area “We are in a in northern Namibia genuinely virgin was not merely lucky. exploration territory We are in a The company targeted and that always excites genuinely the area because geologists because of its geological if something so big virgin exploration team’s interest in the and green can go territory and that academic work linking unnoticed, then really always excites the area with the anything could be massive potential of possible,” he says. geologists because Zambia or the DRC. This is the Kaoko if something so big So it is fitting Project in northern and green can go that it was Bannon Namibia, Bannon’s Chief Geologist, Dr Joint Venture with unnoticed, then Rainer Ellmies who African Mining Capital, really anything formally identified a company founded by could be possible” the copper outcrop at Munro and his team. Okanihova after hiking Apart from the at least 10km into the Okanihova find, mountainous terrain accompanied by Bannon has also been quietly creating local Himba tribespeople. big news in the geological world This ground exploration came in Namibia with another target, its after the team identified a number of “Dolomite Ore Formation” or simply interesting geological targets in their DOF. While Munro knows intensive geophysical work. Then it became verification has to take place before a case of pushing deeper into the the company can ‘shout the news unexplored area. from the rooftops’, the DOF and its Ellmies texted Munro some 1000km accompanying geological data indicate away- at least half the area has some that Bannon might have discovered form of mobile coverage with the evidence finally linking Namibia’s northern Kaoko Copper Belt to Central other half relying on satellite phones Continued

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B a nnon

L i m i t e d

Diamond drill hole at Chirumbu - The only outcrop in the Opuwo lineament

- and told him he could ‘put a bottle of champagne in the fridge’ before filming the awe-inspiring green copper outcrop. Verification will take a long time but for starters Bannon has engaged local villagers to build a track to the site and will be bringing in contractors with a specialised, small diamond rig to start drilling and get a feel for how far mineralisation extends below the surface and to confirm how consistent it is through the rock. “We will also be carrying out more extensive regional work to see if there is repetition of the feature because if there is a chance that it’s not the only big, green hill in the area, it would be fantastic news for us and everyone in the region,” says Munro. So far the company has carried out an aerial hyper spectral survey, which identifies the mineral composition of the rock or sand through the unique light spectrums each emits, over its whole licence area. They added this information to that garnered by aerial magnetic and radiometric surveys carried out over the whole country by the Namibian government. Bannon recently completed an even more detailed airborne survey of about 10 percent of its licence area and currently they have identified three different mineralisation styles from work done on the ground and want to learn if they can see them in the airborne geophysics. If they do show up in the geophysical analysis, Bannon can use further airborne geophysics to quickly identify other similar mineralisation over this huge area. And they need to drill the Okanihova outcrop before they can start “calling it an ore body or a deposit”.

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While they are hoping to see this start by the end of August it depends on the availability of rigs so Bannon has informed the Stock Market (the company’s listed on the Australian Stock Exchange) that the drilling will commence in the September Quarter. Of its two other identified areas so far, Bannon is pleased with its progress in Otuziru, where its recent drilling has a zinc/lead/silver deposit and resembles other regional targets. Munro feels the company will see Otuziru type targets repeated in the region

So far the company has carried out an aerial hyper spectral survey, which identifies the mineral composition of the rock or sand through the unique light spectrums each emits, over its whole licence area”

many times. “Similar to the Mississippi Valley which is a zinc-led province in the States where you just have a whole series of repeated, small ore bodies,” he says. On the other hand, drilling at Chirumbu, “a little hill that sticks out above sandy valleys in the remarkable Opuwo Lineament”, wasn’t successful as a target but the company has learnt a “huge amount about the geology of the area” and confirmed that there is a big hydrothermal system, which “can be a prerequisite for copper or gold deposits”. So with the aid of recent geophysics, Bannon will analyse targets close to the Chirumbu hill. For a “small” company, making two greenfields discoveries in two years and being “well on its way to a third” at Okanihova is phenomenal. And Munro is delighted with the commodity diversification within their licence area. Ironically it’s the region’s troubled history that has allowed these kinds of discoveries in such a developed country. As Munro says, “you would imagine you have to be in faraway jungles,” to make such greenfields discoveries. However, Namibia’s far north remained relatively underexplored because of the conflict on the Namibian/Angolan border that meant for 20 to 30 years no-one could explore there. Ironically, the South African Defence Force, which used the area as a launching pad, built extensive tracks, airstrips and infrastructure there. Post independence, further investments were made in the road network and power. So it offers “an extremely unusual combination of unexplored area plus good infrastructure.” Not only that but there is a hydropower station within 100km and one of Namibia’s only two permanent rivers within 20km of Bannon’s licensed area. Bannon’s luck or foresight didn’t end there – both Anglo Base Metals and Rio Tinto (RTZ as they were known) were in the area shortly after Namibian

Exploring Africa

We believe that we have had some awesome success but the level of verification required before you can start celebrating means we are about six months away from being able to call ourselves a huge success to the outside world”

Independence but both withdrew thanks to internal company decisions. Munro says that’s because the biggest companies have got “too big to make discoveries” and the current economic food chain means that they will feed off medium sized companies who “eat small fish like us”. However Bannon Ltd, he says, has the resources to develop the licence area themselves – depending on what exactly they have found. While that would raise growth issues for Bannon‘s small pool of undiluted and dedicated’ talent, Munro’s not facing an upsizing dilemma yet. “We believe that we have had some awesome success but the level of verification required before you can start celebrating means we are about six months away from being able to call ourselves a huge success to the outside world,” he says.

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E r i csson

s u b - s a h a r a n

a f r i c a

Image ©Ericsson

Setting sights on

connectivity continues to improve at pace and mobile banking takes off. Communication, remember, is a universal need. This, alongside evolving user demands and rapid developments in technology, is driving continued growth in the global telecommunications industry. Writer Ian Armitage Ericsson has struggled in recent years as customers have held back on Project manager James Mitchell investing in mobile phone networks. Globally, the telecoms industry has ricsson, the world’s biggest maker of mobile been facing rough trading conditions, but Africa seems to be growing from phone equipment, is strength to strength. In a recent playing a key role in interview, Fredrik Jejdling, the new Africa’s development. head of Ericsson in Sub-Saharan Africa, The continent’s telecommunications acknowledged Africa’s allure and said market continues to appeal, with data was going to be a huge part of coverage and affordable devices Africa’s mobile story. “I have worked in becoming less of an issue. The the Indian market as the regional head market is full of potential; African for the past three years and I have operators continue to intensify their learnt that mobility is a prerequisite efforts to monetise 3G and other for inclusive growth. Mobile data and data networks and LTE offerings are broadband will be far reaching voice becoming mainstream, while rural

Globally, the telecoms industry has been facing rough trading conditions, but Africa seems to be growing from strength to strength.

Continued

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E r i csson

s u b - s a h a r a n

a f r i c a

and Fredrik will bring his broad experience to further develop Ericsson’s offering and support to the region.” Prior to taking on the role as Head of Region India in June 2011, Jejdling held several key positions in Ericsson including Head of Engagement Practices with responsibility for customer engagements within the region India (from August 2010 untill end of May 2011). Between April 2008 and ©Ericsson July 2010, he was Head of Sales & Finance, Business revolution. The funny thing is that the same pattern Unit Global Services in emerging markets as with developed markets with He succeeded Lars regards to internet usage. Lindén, a key figure in “Between 2000-2009 ICT investments [accounted] extending Ericsson’s for 30 to 60 percent of the GDP growth in many footprint in the region. European Union countries,” he added. “Africa has “With a vast experience many possibilities for internet access and surrounding and strong business services; the mobile revolution is moving much faster acumen Lars has been in Africa than in the EU.” instrumental in the work A few key factors distinguish demand on the to extend Ericsson’s African continent: a young population; limited footprint in the region,” fixed infrastructure at less than two percent fixed Hans Vestberg added. penetration; and the potential as a lagging adopter “During the past years to embrace best practice and leapfrog mistakes of Ericsson has for instance more mature markets. taken the world’s largest multi-country managed Set for success? services deal, been part Ericsson can see the opportunity and Fredrik Jejdling of introducing LTE to has come in to share some of the experience, broader several key markets in knowledge and wisdom he gained while leading the Africa as well as signing company’s operations in India. He is looking to replicate the first multi-country his success in Sub-Saharan Africa, a region now facing m-commerce deal.” exciting development. He will be responsible extending Ericsson’s footprint in Africa where Ericsson has taken Into Ghana the world’s largest multi-country managed services deal. In April, Business Sweden, Ericsson is also aggressive in 4G / LTE deals in Africa. Ericsson and the Swedish “Under Fredrik’s leadership Ericsson has extended its Ministry for Foreign strong position as the partner of choice for operators Affairs announced a set to capture market opportunities as India continues strategic partnership for its strong mobile data development,” said Ericsson’s a two-year ICT venture in President and CEO Hans Vestberg. “Sub-Saharan Sub-Saharan Africa with Africa is now facing similar exciting developments special interest in Ghana.

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www.telinnoconsulting.com Continued

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E r i csson

s u b - s a h a r a n

The programme aims to share knowledge, increase collaboration and trade between key countries and Sweden in order to strengthen the African ICT sector, a statement said. According to the Swedish Ambassador to Ghana, Svante Kilander, Sweden is a strong partner to Africa through institutional corporations, and Swedish organisations have large presence in Africa and are seeking to use ICT as a key area of collaboration. “Sweden and Africa have strong and historical ties; we see the new modern Africa taking shape and growing. Sweden is, and will continue to be, a solid partner in African developments.” A joint report by the World Bank and the African Development

Bank recently confirmed how ICT is transforming businesses and driving entrepreneurship and economic growth in the region, while enabling access to education, healthcare, employment and information that helps ordinary citizens improve their quality of life. The Head of Ericsson Ghana, Andreas Karlsson, said, “This partnership serves as a platform for various stakeholders in the ICT Community in Ghana to meet and collaborate cross-industry to realize this growth potential in an effective and efficient way. Ericsson’s leading role in technology and service leadership throughout Africa and globally gives us the competence, knowledge and experience to drive and participate in this growth for Ghana.”

a f r i c a

Olov Hemstrom, Business Sweden’s Area Coordinator for SubSaharan Africa, added: “We are very happy to enter this partnership together with the Foreign Ministry and Ericsson; through this programme, we wish to contribute to establishing and showcasing Swedish competence and leading ICT companies to partner up with African companies to support the African growth further. We believe this will be of great benefit for both Sweden and Sub-Saharan Africa.” The future looks bright for Ericsson which recently announced that it made 1.5 billion Swedish Krona in the second quarter up 26 percent on the same period in 2012. To learn more visit www.ericsson.com. ©Ericsson

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O RA G R O UP

Cof o n t i n

dreams 80

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ent

Oragroup is expanding as demand for banking services in West and Central Africa grows. Ferdinand Kemoum Ngon, Managing Director of Emerging Capital Partners (ECP) and Deputy CEO of Oragroup, tells us more. Writer Ian Armitage Project manager Donovan Smith

he allure of Africa’s banking market is that it is potentially vast and virtually untapped. Banking penetration among the continent’s one billion inhabitants varies significantly from country to country, but swathes of the population in West Africa – Senegal and Tanzania, for instance – have virtually no access to banks. Togo-based regional commercial bank Oragroup, an ECP-backed banking group operating in West and Central Africa, is seizing this opportunity. The Oragroup operates under the brand Orabank and has in excess of US$1.5 billion million in assets under management. Oragroup was granted a license to open the first private-sector led banking unit in Benin in 1988. Since then, the bank has expanded its presence to Gabon, Chad, Mauritania and Guinea and elsewhere. Until June 2011, it was known as the Financial Bank Group. “We plan to make a giant step forward in the Francophone West Africa market,” says Ferdinand Kemoum Ngon, Managing Director of ECP and Deputy CEO of Oragroup. “Last year we brought the Togolese Development Bank for 15 million euros and we are close to completing the acquisition of another regional bank, located in the eight member countries of the Economic and Monetary Union West Africa.” Orabank has come a long way since ECP became involved, he says. “In 2009, when ECP took control of Financial Bank, we undertook a series of critical actions. We took Financial Bank from being a group of banks to a banking group, creating a flexible and decentralised holding company Oragroup. During this process, we imposed common rules of good governance, establishing single teams for consolidated accounting, directional risk analysis, human resources, communications, and internal auditing. This creation of a strong holding company was essential; at the time of acquisition, the bank had no real internal supervision. Five separate managing directors had been managing each of the country units with very little coordination. An important step was to set up a Togo-based platform of ten highly qualified professionals to supervise the entities in each of the countries. Additionally, we injected capital to make sure that the banks complied with the mandatory capital requirements of the various central banks. Then we embarked on a change of strategy away from focusing solely on medium sized Continued

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O RA G R O UP

elevons les défis

d’aujourd’hui et de demain.

enterprises, towards increased delivery to the consumer banking sector – something that Financial Bank had not targeted previously. The extensive internal changes in processes, structure and personnel, recapitalisation and refinancing were made to ensure the bank’s future expansion. We have since turned tiny banks focused on SMEs into universal banks, talking to all sorts of customers in the various markets.” To finance the upcoming acquisition (as well as additional growth the group is undertaking), Oragroup secured US$18 million of equity fundraising from investors including Development Finance Institutions BIO and PROPARCO. “The capital injection represents a major landmark, highlighting our existing investors’ confidence in our business model and in the pan-African markets in which we operate. Through

this additional investment, we will be able to undertake the next steps in our expansion plans,” says Ngon. “The $18 million goes a long way to paying for the acquisition of the next targets, and that will give us a footprint in almost all of the countries in the West Africa monetary union.” Oragroup is seeking to raise funds in the region of US$50 million through a combination of debt and equity financing. “We’ve a long-term vision and aim and are pushing growth within the business,” says Ngon. “We will soon be present in 12 countries – Mauritania, Guinea, Chad, Gabon, Benin, Togo, Niger, Ivory Coast, Senegal, Mali, Guinea-Bissau and Burkina Faso. “In terms of how we move forward where there is a relevant opportunity to acquire another bank and consolidate our market position we will do that.” Continued

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O RA G R O UP

The acquisition of Togolese Development Bank has made Orabank the second largest in Togo. “We are in the process of merging Orabank Togo and BDT and this will lead us to be the number two bank in the country,” says Ngon. Oragroup has undergone a tremendous transformation and it is almost unrecognisable from two years ago. “We have done a lot, from changing our structures and processes to reviewing our strategy. We also redefined our customers. Traditionally oriented on SMEs, we wanted to cover the widest possible range, from large companies to individual consumers, and that is what is driving the expansion really. To do that we have, for example, greatly expanded our territorial network in Togo and we are now focused on the extension of

our territorial coverage under the new brand. The group has certainly changed extensively over the past few years.” So why is Oragroup expanding? The answer is simple. “You need to take into consideration the fundamentals of the market here,” says Ngon. “First, West Africa has a growing urban population. It makes it easier for a bank to tap into that growing customer base if they have a presence in those urban areas - that is why we have made the acquisitions and set out our growth plan. The second factor is the trend in most of the West African countries whereby the banking penetration rates remain very low. This for us is an opportunity to grow, to provide more banking services to the unbanked population and to enlarge our customer base. We also see a lot of synergies, a lot of intra-Africa trade, here in West Africa and in Central Africa

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as well. What is critical is that you need to be in most of these countries to capture most of the financial flows that go from Mali to Burkina Faso, from Ivory Coast to Togo, and so on.” For the remainder of the year, the focus is on finalising the next acquisition. “That’s very important as the acquisition will give us a presence in 12 countries. We will also then focus on integrating that into the group, put in the new platform, brand it under Orabank, and put together the type of management we need to run the business over there. Critically, what we want to do is to be present in Ivory Coast and Senegal. The Ivory Coast is a leading country in West Africa in terms of growth, and Senegal certainly stands number two in terms of GDP per capita. That makes them important targets for us.” The end goal is to have a strong banking platform covering Francophone West Africa. “We want to have a strong banking platform covering most of West and Central Africa,” says Ngon. “Why

Ensemble, relevons les dé

d’aujourd’hui et de dem

good proposition for your clients. “To summarise, our secret so far has been the fact that we are very, very reactive and even proactive. We tend to say yes or no, that is our business, but we want to issue the yes or no quickly – not to waste people’s time.” With the middle classes swelling in each of West Africa fastgrowing economies, nothing less than a bright future is on the cards. “The story will get better and better as the economies grow and develop. The economies in West Africa from my standpoint have reached a crucial point where

Gaze elle e Tou uch.c co m

are we predominantly focusing on Francophone West Africa for the moment? Well for one, the fact that those countries have the same currency, the CFA franc, which is pegged to the euro. We believe there is a clear case for building a strong banking platform in those two regions.” What’s Orabank’s secret? “It is an open secret,” jokes Ngon. “The reality of the African banking market is that there continue to be a lot of inefficiencies. Our focus has therefore been on reducing these and on improving the speed of turnaround times. I will give a simple example: a typical SME in Africa will be tendering for a contract with the government or some other party and they will have a lot of issues getting the documentation ready for the tender. One of the last documents they will need is a tender bond issued by a commercial bank. By organising your bank to be ready to issue those tender bonds in the fastest possible time, yours will be a very

today they have the critical mass to really develop – if you want to build a plant, distribute your goods or whatever it is you have the necessary means to do so. That was not thecôtés, caseenvisagez 10 yearsd’aller ago.encore plus loin car notre motivatio Avec nous à vos “Africa’s success is long est de vousfinancial accompagner à chaque étape overdue. de votre vie.It is just about time the African population saw some light.” www.orabank.net Oragroup knows the market well and has worked hard Groupe Orabank Bénin - Gabon - Guinée - Mauritanie team - Tchad in - Togo to put the right: strategy and management place. Expect bright things from this ambitious banking group. Orabank, un partenaire à votre écoute Visit www.orabank.net.

ORABANK_INSTIT_HOLDING_60_80indd 1

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M l i f e

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In it

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Africa Outlook talks to Agnes Chakonta, the Managing Director of Madison Life Insurance Company Zambia. Writer Ian Armitage Project manager Eleanor Watson

gnes Chakonta, the Managing Director of Madison Life Insurance Company Zambia (MLife), has a vision, a clear goal: enhance the penetration of life insurance across the country. She says less than five percent of Zambia’s insurable public are insured, and that there is “real potential” for life insurance, which “improves the well being of the society at large.” Insurers like MLife are doing all they can to build capacity and tap into this. “Life insurance provides funding for the long term development of our country,” Chakonta says. “The market is growing all the time.” MLife has a rather interesting history. Today, it is part of the LSA Group and performing well, but it was actually the first private sector composite insurance company to enter the liberalised insurance market in Zambia. Back then it was a subsidiary of the Meridien Group and it enjoyed early successes. That was until 1995, Chakonta says, and the liquidation of Meridien International Bank Ltd (MIBL). At that time management successfully bid to take-over the company. “The Meridien Group collapsed and Madison was acquired in a management buy-out,” she says. “A new law proclaiming that no composite companies should operate in Zambia after December 2006 prompted Madison to split the existing company into two separate specialist companies earlier in 2006: Madison Life Insurance Company Zambia Limited and Madison General Insurance Company Zambia Limited. “The main object from the outset was to provide a first class client service.” Under the watch of Lawrence Sikutwa’s LSA Group, the Madison brand has become a household name. “I think we are doing well,” Chakonta says. “We are currently big in the market and it is all because in 2010 we picked up a new direction in terms Continued

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of business. We looked to become more profitable and focused on longterm products.” The shift paid off and the results are good. Last year MLife grew by 40 percent and a similar level of growth is expected this year. “That’s the target and that sort of growth would take us into market leadership.” Will it succeed? “What gives us the edge is that we are innovative and that is driving the business forward,” Chakonta says. “We always come up with new products in the market and new ways of doing business. Of course we have a wide range of products and can cater for a broad spectrum of the market and we are able to meet different needs in the market. We’ve

been able to bring in large volumes of business and new customers and because we are a customer-centric organisation we always want to hear what the customer thinks and that drives our innovation. It means we are ahead of what people’s expectations are, here in the market. That is a differentiator.” Those attributes are vital in what is a fast changing world. “In terms of the industry, there are a lot of new companies coming in. I think we are one of the biggest insurance companies in Zambia and currently there are about 26 players in the market. There are always new players coming in, in general and life insurance. Local companies are also coming in from South Africa looking to tap into Zambia’s potential as well as local players.” The increased competition has resulted in a fair amount of “undercutting” which has “impacted volumes,” says Chakonta. “I’m hoping the regulator will come in and regulate the rate – that will benefit premium,” she pleads. Of course, the reason everyone is so keen to get a strong foothold is the country’s obvious growth potential. “The potential is massive. Penetration rates are below five percent which is incredibly low and life insurance penetration maybe as low as one percent here in Zambia.” Micro-insurance is one key area. “There is a lot that can be done in that space and we are going out into the market and bidding to directly increase our penetration.” Micro-insurance is nothing new to MLife, which has long seen the opportunity to penetrate the lowincome market. “We all know – if you look at Africa – the majority of people are living in poverty implying there is tremendous potential in micro-insurance.” MLife has traditionally used the partner-agent model in this respect,

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dealing with larger microfinance institutions (MFIs) and conducting most of microfinance business through them. Under this model, legally the MFIs are the policyholders. In practice, the MFIs act as insurance agents in return for either a fee or profit share. This has enabled MLife to reach markets it wouldn’t ordinarily be able to reach by capitalising on the client base of the MFI. In turn, the arrangement legally permits the MFI to sell microinsurance to protect its loan portfolios. “That is how we have traditionally done it but we are going beyond that; we are going directly to the client we are trying to match with the product,” Chakonta says. “The low-income is where the future growth lies and where most Zambians are found.” MLife underwrites individual life insurance policies, group life insurance policies, credit life insurance policies, gratuity policies, funeral expenses insurance policies and personal as well as group pension plans. Before becoming involved in the mirco-insurance arena in 2001, the company focused on the corporate

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market and the higher end of the individual market. “I think this goes back to our innovation and ability to think differently,” says Chakonta, who is clear on one thing: life insurance improves the well being of the society at large. “People are in need of insurance. They might not even realise it is something that will help alleviate poverty. We are going out there to educate the people about how they can cover themselves, their items etc., and we are also raising life standards. For me, we are adding value.” And the market continues to grow. “What has changed in Zambia? Why is insurance more popular? Well because people are more educated and getting more and more knowledgeable about insurance. They see the benefit of insurance and know what they want. They appreciate it helps mitigate loss. “Also our economy is growing and more and more people are banked.

The potential is massive. Penetration rates are below five percent which is incredibly low and life insurance penetration maybe as low as one percent here in Zambia”

We have the financial structural development programme (FSDP) which is helping Zambians improve their financial understanding and conduct. That was never the case before and it has given us mileage and the initiative to get out there.” The secret to MLife’s success? “We have come to appreciate the value of smart partnerships and we have good working relationships with various stakeholders i.e. brokers, mobile phone companies, banks and MFIs etc. We take the initiative to know what is happening around us and look at what we can improve through dialogue with our clients. “Internally we as an organisation are clear about our vision, mission and values. These guide us in achieving our set goals from time to time. This has been the cornerstone of MLife’s success.” To learn more visit www.mlife.co.zm.

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Gavin J Bell, GM of Kuku Foods Kenya Limited, the KFC franchisee in Kenya, Uganda and Tanzania, tells us more about exciting expansion plans and how Kenyans have embraced the brand. Writer Susan Miller Project manager Eleanor Watson

oca-Cola, KFC, McDonald’s. The brands speak for themselves. So it is no wonder that crowds queued around the block at the opening of Kenya’s first KFC in Nairobi in August 2011 and that the brand is still busily rolling out in key East African countries. Gavin J Bell, GM of Kuku Foods Kenya Limited, the KFC franchisee in Kenya, Uganda and Tanzania, is excited about the response and what the brand brings with it. And he’s not just talking about those “11 herbs and spices” although he laughs because even as a Continued

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franchisee he doesn’t get to find out the secret of the recipe. “It’s locked away in a vault in Louisville, Kentucky,” Bell says. There are currently three KFC branches in Kenya and Kuku Foods intends to open another one by the end of this year as well as several more next year. It also opened its first Tanzanian branch in Dar-Es-Salaam eight weeks ago and intends to add to that with another store and there are two stores being built in Kampala, Uganda, one of which will open by the end of this year. The group chose Nairobi for its first branch because it’s a “leader in East Africa, a cosmopolitan and developed capital city,” and Bell, a Kenyan with over 25 years in the hospitality trade, felt it offered what KFC was looking for.

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He’s upbeat about “a major focus on Africa from a global perspective at the moment” and sees the two platforms for entry into Africa as Nairobi and Lagos, with Nairobi being seen as a much easier place to set up a business. “It’s very much whether the demographic suits us and whether the environment and business structure of the country can support a KFC network and equally importantly is whether the supply chain can comply with global standards and the very strict restrictions that are put in place by the franchisor to ensure consistency of the supplier and conformity of the supplier to the high brand standards or quality assurance and food safety,” Bell says. Kuku Foods had to work with major Kenyan chicken supplier Kenchic to get it to meet KFC’s stringent requirements because the Kenyan government does not allow the importation of chicken or chicken products. “And as they are market leaders in their field, that leads to other types of challenges including pricing and making sure they are globally competitive from a pricing structure.” Other Kenyan companies are now looking into the possibility of also supplying KFC while in Tanzania they are using a smaller outfit called Kuku Poa. The challenge there will be to

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see if the supplier is able to cope with a growing demand as they open new stores. I wondered if it was hard to become a franchisee of KFC but Bell points out that Kuku Foods’ shareholders include the MD, Simon Schaffer, whose family have been running KFC branches in South Africa for over 30 years.

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He thinks the response that KFC has had will also encourage other big brands into investing. “Subway is going to be opening here within the next month and I know of other franchises who are interested in the market.” What is a challenge is meeting KFC’s exacting standards. And this is what Gavin feels the business has brought to the table, so to speak, in East Africa. “I think the major thing is the total professionalism of an industry. Having been in the hospitality industry myself in this part of the world for nearly 25 years now, I have never come across such high levels of standards, such high assurable quality and such insistence that every single supplier undergoes an audit – and that audit is at the

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“There is huge emphasis on ensuring that it is a total quality product I think the major and that no food/supply element is thing is the total comprised in any way. Yum! Brands which owns KFC has what it calls the professionalism of an Yum! Star Audit – and a star level is industry. Having been in considered to be one of the highest the hospitality industry levels of audit in the world by other brands. myself in this part of the “If a supplier conforms to the world for nearly 25 Yum! Star Audit they will be able to years now, I have never supply to any global brands in terms come across such high of food safety and quality,” Bell says. And the business is “run on a strict levels of standards” corporate governance structure, which ensures everything is done properly and in terms of Government regulations and tax compliance.” What this type of attitude has highest level – it’s not compromised because ‘oh, done is “increase the expectation it’s in Kenya’ – it’s not compromised at all.” of the middle-class demographic so Put simply either one complies with the whole international standards or one is not able to supply that local companies and customer expectations are also higher” and so to KFC. the benchmark for local hospitality “We do two audits: a quality assurance audit and services – including those in and a food safety audit every year for every single tourism - has also been supplier and those are conducted by independent raised significantly. auditors who are contracted by the Yum! Brands, In the two and a half years of the proprietors of the KFC franchise. We don’t have anything to do with that and if they don’t conform to being in Kenya and certainly in two years of being in operation in Kenya, the set standards they are not allowed to supply.

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Gavin believes that KFC has given a boost to the public’s expectation of what they should be able to expect from the hospitality industry. And he’s confident that when the industry itself has seen that it has to comply with those kinds of standards “we are going to be able to comfortably compete going forward into the next ten or 15 years.” And it’s not just the brand’s influence he’s happy about. He’s more confident than ever in Kenya’s future and at being part of “one of the most exciting times in Kenya’s history”. There’s a “strong and very positive government in place” which is focused on strengthening the economy and stamping out corruption. Investment is entering the country from South Africa, the UK and U.S. and being bolstered by the “diaspora of Kenyans who are now coming back home with big investments or sending money back to Kenya from their overseas homes. “Chinese infrastructure has dramatically helped in terms of moving the country ahead too,” Bell adds. “Where we are today in terms of even just five years ago, it’s a wonderful and bright future for Kenya.”

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Africa Outlook profiles Stefanutti Stocks Swaziland, a standalone subsidiary of Stefanutti Stocks, one of South Africaâ&#x20AC;&#x2122;s leading construction groups. Writer Susan Miller Project manager Stuart Shirra

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inning Derek Du Plessis, Managing Director of Stefanutti Stocks Swaziland, down for an interview is pretty hard but we eventually got to chat on a Sunday morning as he travelled to a meeting. And it’s no wonder he’s time poor as he’s also one of the senior directors in charge of Stefanutti Stocks Zambia. While Stefanutti Stocks Swaziland is a standalone subsidiary of Stefanutti Stocks South Africa it is supported by the larger company when needed. And the strong relationship only strengthens Stefanutti Stocks Swaziland as Stefanutti Stocks South Africa prides itself on “creating a support and project infrastructure in the harshest environments and the recruitment and up-skilling of local communities” and has established a presence in significant number of African countries and now the Middle East. But it was Swaziland that was its first ‘international’ destination in the late 1980s and, after Stafanutti Stocks (then S&B) completed a palace ‘to compete with anything in James Bond films’ for King Mswatti III, it opened offices in the Kingdom. Mr Du Plessis prides himself on the company’s multi-disciplinary approach and ability to complete a range of different tasks in the engineering and construction fields. Its importance is merely underlined by its impressive portfolio of projects – including involvement in the construction of the Sikhuphe International Airport which is set to replace Matsapha Airport and is due to open in August/September this year. Du Plessis says Stefanutti Stocks is responsible for a fair percentage of the project – probably about US$100 million – and built the terminal building, all the support buildings and critical buildings like the radar tower and fire station. Continued

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The Airport prospectus explains that the three-storey terminal building covers approximately 7,000m2 and it has a planned capacity to handle at least 300,000 arrivals/departures per year. It has been an exciting project to be involved with and it’s an area where the group excels. “We have been involved with most of the airports in southern Africa, and that is one of our niche capabilities,” Du Plessis says. Other big projects the company has been involved with and recently completed or which are in the process of being completed include the LUSIP main canal, an irrigation project on the Swaziland lowveld which is aimed at the “tertiary distribution of water for irrigation projects for products like sugar”. And in 2010 global cellular giant MTN launched the construction of its new MTN Swaziland headquarters at MTN Golf Park in Ezulwini, southeast of Mbane and midway between the capital and Manzini. Stefanutti Stocks Swaziland was joint-ventured with Swazi-owned Frontline Builders on the erection of the R20 million office block and technical centre. And then there’s the Public Service Pension Fund Park in capital Mbabane, a US$25 million project that the group has just finished and which incorporates a dual office block tower of five or six storeys with a parkade attached to it. What’s next? “We’ve just been appointed to do the civil works to the new American Embassy in Swaziland,” says Du Plessis. He says they are ‘honoured’ to have got the job, whereby they will be responsible for the concrete superstructure, which will also be situated in Ezulwini. “Of course,” he points out, “because of the nature of the project, the bulk

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Sikhuphe International Airport (SIA) Terminal Building (inside)

will be built by an American company and we are sub-contracting to them, supporting them.” The U.S. embassy job has “literally just started” and, as it’s a two-year contract, will be due to open in mid-2015. I wondered how the company read long-term economic prospects for countries and whether this affected their own plans. Steffanutti had come up with another sort of recipe, Du Plessis says. “We obviously chase growing economies because that is where the opportunity is. Currently Nigeria, Zambia and South Africa are the fastest growing in terms of GDP and we will chase those but we also – as a core strategy – after choosing a country like Swaziland or Zambia actually commit to it and establish ourselves in it. We don’t just raid into the countries; we actually establish

What gives us a bit of an edge is obviously being established here so we don’t incur costs bringing teams down and our relationships with the Government and various line ministries”

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ourselves and employ local people and contribute to the fiscus and we find that recipe works for us rather than targeting individual projects.” So far its established success and investment in Swaziland has paid off as it’s a very small and competitive market and so close to South Africa (it’s landlocked and 90 percent enclosed by South Africa) that many of the top South African companies bid for projects. “What gives us a bit of an edge is obviously being established here so we don’t incur costs bringing teams down and our relationships with the Government and various line ministries,” says Du Plessis. And its commitment goes beyond lip-service, and it’s part of the company’s ethos to train the local workforce. “We’ve got a very active training programme. Generally we do our

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training in South Africa, where there are various institutions that are industry recognised that we use and then we will also do on-site training. If we’ve got a big project, and we’re short of skilled drivers and operators, we’ll train them up by bringing simulators and qualified training personnel and train them there,” he says. The training works both ways as Swaziland doesn’t have a civil engineering faculty at the University of Swaziland; it pays Stefanutti Stocks Swaziland to train young engineers. “We do it all the time – we’ve got a rolling training programme; we’ve currently got eight or ten young engineers that are on part-time training – in other words they will work for the bulk of the time with us but for three or four days a month we send them off to South Africa for specific courses,” says Du Plessis. And it’s not just the company with a lot invested in the country. South African-born Du Plessis is keen to see Swaziland succeed. “It’s a pretty country with amazing people and visitors need to come and see for themselves.”

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Routing for success

DipCivils (Pty) Ltd is a Civil Engineering contractor that specialises in the construction of roads and other services throughout South Africa. Procurement Manager Raymond Carter-Johnson tells us more. Writer Ian Armitage Project manager Stuart Shirra

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ipCivils (Pty) Ltd is a Civil Engineering contractor that specialises in the construction of roads and other services throughout South Africa. It is in the unique position of being able to fulfil clients’ needs on “comprehensive basis” by offering composite solutions involving not only the construction of services exclusively, but all the road and concrete works infrastructure as well. The company was formed in 1993 and to date has successfully completed over 1000 separate

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projects. Procurement Manager Raymond Carter-Johnson says that it is “constantly in the pursuit of excellence” in the production of high quality civil engineering works. “We aim to provide superior returns to all relevant stakeholders whilst providing an employment environment conducive to transformation and the development of talent and skills,” he says. “Our core values of commitment, responsibility, respect and communication influence how we act day to day, and is not what we merely aspire to. Translating this into reality means that we are keenly

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to Dainfern in the northern suburbs of Johannesburg – was planned in 2008. “We have been actively involved with Steyn City which it is a large upmarket privately owned township development with the first phase already completed,” Carter-Johnson says. “We are currently busy with the next phases of this contract with Cedar Road upgrade still to be awarded. “We have been very successful on the road construction side of the business, with several mine access

We aim to provide superior returns to all relevant stakeholders whilst providing an employment environment conducive to transformation and the development of talent and skills”

focused on providing a quality product to our customers, and strive to exceed their expectations.” DipCivils is registered with the CIDB as a 9CE Contractor and is a member of the South African Federation of Civil Engineering Contractors. Its key strengths? “Definitely the commitment, loyalty, responsibility and respect of our employees and the fact that we are all focused on providing a quality product to our customers, and strive to exceed their expectations,” Carter-Johnson says. Its order book is full, and a renewed focus has been placed on diversifying

into new sectors in the industry. Recent contract awards include the Upgrade of National Road R24 from the N4 to Buiten Street at Rustenburg for SANRAL, valued at around R178 million. “We have several contracts we were lowest on which we are still awaiting award,” Carter-Johnson adds. DipCivils has been actively involved with Steyn City, the biggest development to hit Johannesburg in years. It is the brainchild of Douw Steyn, one of South Africa’s most flamboyant tycoons, and the development – which is situated next

projects with some of the leading mining houses in Sub-Saharan Africa as well as the award of the R24 upgrade project in Rustenburg,” he adds. “In terms of improvements, we are always focused on quality and strive to deliver a quality product to our clients. We are in the process of becoming ISO accredited.” Life though isn’t without its challenges. “The market has seen several contractors file for business rescue, which has put the market on edge. Tighter financial controls by creditors are also making the local market a very interesting and challenging place to be. One of the reasons for this trend seems to be a trend of debtors extending Continued

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DipCivils is able to fulfil clients’ needs on a comprehensive basis

payments beyond their due dates which has definitely placed strain on the cash flows of these businesses. This being said, we have been really aggressive in our approach to obtain new work and we have noticed an increase in government tenders around the 8CE level. There has also been good investment by the private sector within Gauteng which we are pleased to say we have secured good contracts which has helped up maintain our order book whilst many companies have been less fortunate. “Some of our success definitely lies with ensuring that our debtors pay on time so as to alleviate some of the stresses this imposes on our cash flow. This is critical to allow us to move into new markets.” All things considered, there are plenty of opportunities and a bright future is on the cards. “With the focus on

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Some of our success definitely lies with ensuring that our debtors pay on time so as to alleviate some of the stresses this imposes on our cash flow. This is critical to allow us to move into new markets”

expanding into new sectors, we are very upbeat about the prospects that are on the horizon,” Carter-Johnson says. “We are looking forward to a great 2014; with a full order book we have been allowed the luxury of aggressively pursuing new markets within the civils sector.” DipCivils is aggressively looking to grow and strengthen its business model, much to the delight of its shareholders. It is currently targeting turnover in excess of R650 million per annum and Carter-Johnson feels that should be achieved “within a year”. “We would like to stay focussed on our mining sector client base whilst increasing our exposure to selected government contracts. We have for most part focused our energy on work within the borders of Gauteng. We have recently branched out to the Northern Cape, North West, Limpopo, KwaZulu-

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Natal and Mpumalanga. This has given us the confidence to adopt a “National” approach to our business model where this was never an option before. “We have formed very strong relationships with our client base, along with loyalty, dedication and commitment from our workforce which has certainly been a contributing factor to our success over the years.” Diversification into the structural market has gone very well and has provided an alternative revenue stream, while mitigating risk. “The business is continually evolving which involves continuous diversification,” CarterJohnson says. With the acquisition by the PEU Group of a majority stake in the business, DipCivils is now

black controlled. It is a level 4 BEE contributor and is working on moving up to level 3. “We are committed to the philosophy and ideas of transformation. The transformation plan of the company is regarded as a fundamental driver of change, growth and sustainability. Accordingly, black economic empowerment is an integral part of the overall growth strategy of DipCivils and it is incumbent on the company to comply with the targets as specified in the construction charter. “We have a rigorous enterprise

development and mentorship programme which had been lacking in this past and we feel that this along with our preferential procurement policy in tact we will be able to reach out goal. “Black ownership has been an important contributing factor to the overall success of the company. We transferred ownership to the PEU group, originally 58 percent back in 2007; their contributions have helped in key areas such as systems and processes, corporate governance and strategic input in terms of business growth.” Carter-Johnson is optimistic of seeing an increase in government spend, with a focus “on planning allocation of work from government on infrastructure developments.” To learn more visit www.dipcivils.com.

Carter-Johnson is upbeat about future prospects

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Facilities management is the cornerstone of operations of Drake & Scull, a Tsebo Outsourcing Group company with aspirations to conquer Africa. CEO John Wentzel tells us more about the challenges facing the FM industry. Writer Ian Armitage Project manager Stuart Shirra rake & Scull is one of the leading facilities management providers in Southern Africa and there are few that know more about the industry than its CEO Dr John Wentzel. He believes that the challenges facing the industry are huge and has identified areas such as energy management, environment sustainability, technology and complexity as amongst those that FM providers must tackle. “You have to ensure you are equipped for the future; make the most of the opportunities,” he says. The first challenge? “I think in South Africa the challenges are not dissimilar to what we have seen internationally: globally clients are under financial pressure and companies in the FM industry are being asked to do more for less,” Wentzel says. That is a constant. It will always be a challenge. “Cost pressures and the ability to do more for less. That is a big challenge,” he stresses. The ramifications are huge. “It does have a knockon effect,” Wentzel says. “If you think cost, one way of making big savings is energy management, which is one of the big challenges. There is heightened interest in energy savings and for any company it is a major value-add if you know what you are doing when it comes to energy management. You have to understand what your client does, how you can help and how you can use data to manage it properly. “Then follows environmental sustainability and we are seeing more and more green issues taking centre stage. In South Africa, we are talking about things like carbon tax and facilities managers are often controlling the clients’ environmental footprint, so they will need to be aware of the demands because there is already pressure on companies to reduce their environmental footprint, to reduce the amount of water and electricity being used and reduce Continued

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waste. There is also pressure from the consumer side on businesses to operate in with an awareness of the environment. More and more people are not choosing not to use you as a service provider if you don’t operate in a concerned way. “This will all impact on the FM industry.” Complexity is another challenge, keeping ahead of technology and changing standards. “Things are getting more and more complex and FM itself is too,” Wentzel says. “The scope of work for facilities managers has increased significantly. Pressures on FM relative to over 10 years ago is that there are more stringent controls to consider, you have to consider cost, environmental impact, legislation and new technology etc. The increasing complexity is putting pressure on FM to now balance those increasingly diverse demands. 20 years ago

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If you think cost, one way of making big savings is energy management, which is one of the big challenges. There is heightened interest in energy savings and for any company it is a major value-add if you know what you are doing when it comes to energy management.”

customers would go for the FM provider that would be able to give you the service at the lowest cost. Now you want that but you want everything else too – aspects of HR, procurement, strategy and IT on top of other capabilities.” Facilities too have become more complex. “The rate of technology advancement and the demands that it now places on FM is huge, having significantly increased,” Wentzel adds. “You just have to look at the amount of data that is being generated and the technology platforms people want to use, like iPads etc. That puts pressure on systems and data and, of course, being able to make sense of that data is key from FM because now you have all those boxes to tick. “Increasing it is about using that technology and data to add value, and how value can be optimised. It comes back to the need is to do more with

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Conceptualisation, design through to project management, installation, commissioning and handover, that is our strength!

At a global industry level the future is bright and the reason for that is the complexity and all the other challenges I mentioned”

less. More and more companies are scrutinising costs and have more questions. Cutting costs and becoming more efficient is what is generally required, across the board and this pressure of complexity and technology is likely to continue long into the future. “Data management will be one of the big challenges. It is data that gives the foundation to deal with all the other challenges. But there is an explosion of data and managing that is the tricky part. “The key for us is making sure the client understands that we get what their business is about.” Skills are another challenge. “There is a global skills shortage and in South Africa it is probably more of an issue, with an acute skills problem Continued

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– our education system has been weak and has not produced sufficient numbers of the right calibre of people and skills for us to be able to find technical skills. A big constraint that FM will have to tackle in this country is the ability to grow their business against a backdrop of a shortage in critical skills, mostly technical – electricians, artisans, plumbers: those are the skills that we are short of and the industry will feel the affect. “I think given everything I’ve said and the challenges I’ve raised, the way things are, you are going to get a split between aggregators of FM services and strategic FM,” Wentzel adds. “We choose our sectors carefully and we are careful about where we go and what we do. There are some sectors we won’t venture into. Part of dealing with complexity is defining who you are and the services you offer into

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Data management will be one of the big challenges. It is data that gives the foundation to deal with all the other challenges”

the sectors you want to be in. It will be impossible to be everything to all people in the future.” The cost of occupying a building whether owned or leased and maintaining related assets is the largest item of budgetary spend for most large organisation, after employees and salaries. Any CEO will want to know what those costs are and where savings may be made, strategically and operationally. In this challenge there are opportunities Wentzel admits. “FM has a pivotal role to play in non-core business and increasing competitiveness in the market place. Drake & Scull has the capability to offer tailored solutions to meet the demands of individual needs. “There are a lot of companies out there that want to grow but focus on core assets and bring in partners for non-core business but have a single

UPP

point of contact. They will then want recommended technologies and strategies on how to improve productivity, not just a report on how much it costs to fix X, Y or Z.” But the future is bright. “It is. At a global industry level the future is bright and the reason for that is the complexity and all the other challenges I mentioned. They mean there will be more and more companies are focusing on what their core is. That offers opportunities for specialists to come in and offer the services that are non-core and look after it on their behalf especially as the complexity and cost of providing those services go up. Globally the trend will be increasingly towards outsourcing and partnering with specialists who understand FM. “In South Africa, it is a bit more complex because of political and policy dynamic at this point. Companies are uncertain about outsourcing from a legislative point of view; unions are concerned. We will go through that phase and when we have passed through it I think we will follow the global trend.” To learn more visit www.drake-scull.co.za.

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S UR G IT E C H

The science of

Surgitech is a leading supplier of innovative speciality surgical devices throughout South Africa. Writer Ian Armitage Project manager Eddie Clinton

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stablished in 1986, Surgitech is a leading supplier of innovative speciality surgical devices throughout South Africa. It has developed a strong customer base in the private hospital segment and has a reputation within the industry as being market leaders within a number of product offerings. “We are proactive and dynamic and more than just distribution,” says Managing Director Paul Landman. “We regularly research the latest international surgical developments, enabling us to offer state-of-the-art products and we provide ongoing professional training, so that doctors and nurses can realise the full advantages of these world-class products and developments.” Surgitech shareholders include private equity giant RMB Corvest and BBBEE investment firm Shalamuka Capital. It is headquartered in Johannesburg and is represented in Cape Town, Durban, Port Elizabeth, Garden Route and Bloemfontein “The South African medical industry is quite challenging from the point of view that there are uncontrollable variables that we are faced with on a daily basis,” says Landman when asked about how the business is performing. The big challenge is access to healthcare. First-rate medical care is available but for a price. It’s estimated that only 7.5 million South Africans can afford private high-quality healthcare. The rest, nearly 42 million people or 84

percent of the population, depend on the South African public healthcare system. “Our business has two challenges: first, we are dependent on the private medical insurance companies that determine reimbursement prices,” Landman says. “Second, the state is notorious for late or even non-payment of goods delivered. Looking at those two aspects, Surgitech really does about 95 percent of its business in the private sector in the South African market. The actual state side, being a local distributor where we are self-funded, we would not be able to wait anything between 12 and 18 months up to a period of two years for payment of goods. That is why we consciously decided to focus on the private sector.” That focus is shifting, however, as the government looks to improve the way the state hospitals are run. “There is a lot of work being done to improve the administrative side,” Landman explains. “Logically, if you look at the South African market, you have about 7.5 million people that have access to private healthcare which leaves approximately 42 million which have access to the state. In terms of volume

and business potential, the state is where the majority of products would be used. However their inability or the lack of administrative urgency means local distributors like us can’t play in that space – unlike the large multinationals, we can’t carry costs waiting for payment.” Despite this, Surgtech is growing at a rate of knots and saw double-digit growth last year. That’s in part down to growing its sales force. “We’ve increased our market penetration,” Landman says. “In this market it is all about relationships and you need people on the ground for those to develop and transfer into good business. We invest a lot in our staff because the products that we deal with are predominantly quite technical and the markets we deal with are pretty niche markets. That customer base is fairly small, the largest probably being orthopaedic surgeons at about 400 in South Africa.” Surgitech stands out because it takes extraordinary efforts to ensure that its sales staff are trained and retrained in specialist fields. The result is a committed group of knowledgeable Continued

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professionals whose expertise adds immeasurable value to our product range – that is reflected in the growth the business is enjoying. The firm represents brands like CP Medical, Integra, SiliMed, A&E Medical and Aspen. “We’re in a growth phase,” Landman says. “We are looking at new agencies, acquisitions of new products and acquisitions, possibly, even of smaller local distributors who complement what we have. We are constantly on the lookout for new opportunities and growth and from our shareholders perspective that is exactly what they want to do – look at new products and new lines that will assist in the growth of the organisation.” That growth isn’t limited to the borders of SA. “We have realised that we have to look beyond South Africa. We have

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We have realised that we have to look beyond South Africa. We have done a little bit of business in Namibia for a number of years and we recently started with a distributor in Botswana”

done a little bit of business in Namibia for a number of years and we recently started with a distributor in Botswana. Africa represents an exciting opportunity because it is an area we have not really touched on. “Yes there are challenges and probably your biggest concern would be potential non-payment or skill sets but with those challenges come a big opportunity.” At home too, the proposed national health scheme offers growth potential. “The feeling is it will take a number of years for national health to actually materialise,” says Landman. “There are a number of reasons for that. The first challenge is the upgrading of the existing public facilities and you would have to get them up to standard where you can implement a national health system. But there would be an opportunity. The biggest challenge for

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the state in my opinion is that they don’t have the administrative skill set to manage the administrative side of the process. I think from a surgical point of view, using the product is not an issue. Where the problem comes in is on the administrative side once the procedure is done. I know there is quite a big drive in a number of areas where they are looking at introducing more business-like people to run these hospitals like businesses in the state in private-public partnerships. There is hope for it and mixed reaction around the national health system but there may be a way that these problems could be addressed.” Surgitech is fast approaching 30 years in business. What’s the secret to its success? “The main success factor would be around relationships and the quality of products that we distribute,” Landman says. “We have longstanding relationships with our suppliers, very healthy relationships, and I think the relationships we have with the market, and the fact we have been around for almost 30 years, has shown that we are a stable organisation that will be around for a number in the future. I think that is important for the customers that we serve – they need to see that we will be around in the next five to ten years. On top of that, I think that the leadership we have and the fact we have kept our strategy to niche unique products has played an important part too. We look for products that are stateof-the-art and we are focused on quality and the patient. Our number one priority is the patient and we want our clients to have peace of mind that the product they are using is safe and effective for the patient that they are serving. I think that is important.” To learn more visit www.surgitech.co.za.

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