Potential impact on commodities and miners in West and Central Africa
Given recent commentary from world health bodies regarding the risk andlikelihood of exponential growth in Ebola cases, we believe the effect of the
outbreak on global commodity balances as well as the individual operations of
mining companies must be considered seriously. We aim to provide some
facts and raise awareness of the potential risks since West Africa, the region
impacted currently, is a major producer of commodities across the energy,
metals and agricultural sectors.
Assessing the risk to miners, commodities and trade flows
In this note we explore the potential risks to mining companies and overall commodity markets from a further deepening of the Ebola crisis in West Africa. We assess the risks to mines and commodities from a worsening of the crisis in countries where the disease has already occurred – Guinea, Liberia, Sierra Leone – plus the risk of a spread of the disease across borders into Mali, Cote d'Ivoire and Senegal, and further afield into Ghana, Burkina Faso, Mauritania, Niger, Chad and Cameroon. We also set out the extent of mined output of major commodities in the DRC and Zambia.
An exponential rise in Ebola cases now predicted
The World Health Organization (WHO) and Imperial College London last week announced that unless measures were taken to control Ebola in W. Africa then cases of the outbreak will continue to rise exponentially. Since the outbreak was first identified in Guinea at end 2013, the number of cases today is more than double the entire incidence of the disease in previous outbreaks since 1976. The WHO predicts the number of cases is in danger of rising from just under 6,000 currently to more than 20,000 by early next month.
Most “at risk” commodities are cocoa and gold
So far the impact on global commodity markets has been relatively contained. This most likely reflects the fact that Liberia, Sierra Leone and Guinea combined represent less than 2% of global production/exports of cocoa, coffee, cotton, rubber and palm oil. However, a more widespread outbreak to other countries in the region would hold significant implications for cocoa production since West Africa accounts for over 70% of world production. Meanwhile Ghana (#10 gold producer globally) and Mali (#15) account for 5.1% of global gold output and 2.5% of world exports of iron ore come from Sierra Leone, Mauritania and Liberia combined. DRC (#6 copper producer globally) and Zambia (#7) supplied 9.4% of the world’s copper in 2013.
Gold miners most exposed; some iron ore exposure, plus aluminium and oil
14 of the miners under our global coverage have current operations or projects in the 16 countries we survey in this note. The majority of operations are gold mines. There are also numerous iron ore projects. Oil, copper/cobalt and aluminium would also be at risk in the wider region. There has been no direct impact on assets to date. With 100% of NPV and production from 4 of the 16 countries, Randgold is the most exposed to any escalation of the outbreak. Nordgold and Anglogold are also exposed, with 57% and 53% of NPV from W.Africa respectively. Arcelor Mittal’s Yekepa’s iron ore mine in Liberia contributes c. 6.5% of group iron ore and represents c. 5% of group value. Of the UK listed majors, BHP Billiton and Anglo American have no exposure.