Mine the gap or miss out

It should be a match made in heaven. Developing Africa's vast mineral resources meeting needs of the resource-hungry economies of China and the rest of Asia.

But if there is one message to take away from this week's Mining Indaba conference in Cape Town, it's that there remains a large gap between hopes and reality, and that in much of sub-Saharan Africa mining investment remains challenging, if not in the "too-hard" basket.

In many cases it appears that the various stakeholders in mining simply talk past each other, with mining companies pleading for regulatory certainty, preferably on favourable terms, and government leaders pushing their agenda that the industry must benefit all.

The main problem is that many African countries have incompatible goals when it comes to developing their natural resources. They want mining companies to invest billions to provide jobs and tax revenues, but they also insist that the same companies meet high hurdles relating to empowering various groups in the host country.

South Africa is a case in point. The mining charter calls for companies to have a minimum of 26% ownership by black investors.

In practice it means that any company considering investing in South Africa will effectively be forced to contribute 100% of the capital for only 74% of the profits.

Obviously, this adds to the cost of doing business and may just be enough to deter mining investment, especially when companies have the option of taking their money to other jurisdictions with less onerous terms.

Some company representatives at the conference fear that the South African black empowerment rule is likely only the beginning, and that the percentage that must be held by black investors may rise to something closer to 50% in coming years.

The Fraser Institute survey of investor appeal tells the story, with the 2015 rankings placing South Africa 66th out of 109 jurisdictions, Zambia 68th and Zimbabwe 98th.

It's not all bad news, with Botswana ranking 39th and Ghana 31st. But the point is that African countries have to compete with Australia and Canada, which boast the top two jurisdictions - Western Australia state and Saskatchewan province.

While those are developed countries, other developing nations such as Chile, in 11th spot, and Brazil, in 56th place, offer stiff competition for mining dollars.

The risk for African nations is that if they don't sort out their regulatory frameworks they will continue to miss out.

Without improvement, it's likely the only projects that will be developed will be either the absolute best, as they will be justifiable because of their superior economics, or the ones where dodgy deals can be secured through corruption or by mining without care for the environment.