What does a mining investor look like? Is it a powerful, cigar-chomping businessman in a power suit sitting in a corner office in New York? Or is it more likely to be an ordinary working or retired person; somebody not that different from you and me?

The surprising answer was revealed at the annual 4-day Investing in Africa Mining Indaba that took place in Cape Town, South Africa – and it came from a world-famous Zambian mining executive.

“I think it’s important to remember that [the money of mining investment] comes from the savings, pensions and insurance policies of ordinary people like you and me,” said Norman Mbazima, deputy-Chairman of Anglo American South Africa and arguably the most respected Zambian working in the global mining industry today. “There may be some intermediaries like fund managers, banks and other financial institutions, but these only serve to aggregate the money and to channel it.”

Mbazima was referring to the billions of dollars of accumulated savings of workers, employees and retired people all over the world. These savings need to grow in capital value for their owners’ retirement, hence the strong focus on a good rate of return.

Money is a coward – it flees at the speed of light if it senses danger

Security of investment
The world’s pool of investment capital is jealously guarded by the world’s financial institutions – particularly banks and investment houses – and is granted to mining companies only under very strict conditions. It is not easy money; in fact, it is some of the hardest money to obtain because mining is capital-intensive, high-risk, and has payback periods measured in decades.

At the slightest sign of trouble, that money will up and leave as quickly as it arrived. “Money is a coward,” said Tom Albanese, former CEO of global mining company Vedanta, in a reference to how fragile global mining investment capital is. “It flees at the speed of light as soon it thinks it is in danger.”

An indication of this “cowardice” is the fact that many countries in Africa are considered too risky for investment. Michael Barton, portfolio manager at Orion Resource Partners, one of the world’s largest investors in the global mining sector, told the audience: “We have a limited remit to invest in high-risk jurisdictions. Sadly, at the moment, most African countries would fall off our investment scope entirely, or at least be in the high-risk bracket.”

South Africa a lesson for Zambia?
Ironically, given that it is the location for the annual Mining Indaba, it was South Africa that emerged as one of the continent’s highest-risk mining countries. The main reason was the state of the country’s mining policy – described in words ranging from “chaotic” and “unstable,” to “damaging” and “unworkable”.

Sheila Khama, a practice manager at the World Bank, said a country’s regulatory environment needs to be designed in such a way as to be conducive to mining investment. “We take the view that mineral endowment is not a panacea. Governments have to make sure the country’s risk profile is contained, so that investors have the confidence to put their money there.”

Khama’s point was underscored the very next day during a presentation to Japanese investors by a senior official from South Africa. Instead of selling the country’s investment attractiveness, the presentation made much of the country’s rich mineral endowment, as if that were enough. Further, investors were told in no uncertain terms that they can’t just come to mine minerals; they have to shoulder the additional cost of beneficiating them too.

This prescriptive approach contrasted markedly with the investor-friendly presentation by Botswana, which focused on the country’s low tax rates, its high ranking in the Fraser Institute’s annual mining attractiveness survey, and the fact that mining losses can be carried over into future years. “Investors don’t invest for charity; they need a return on their investment,” the Botswana representative told his audience.

Zambia Mines Minister, Christopher Yaluma, was also mindful of investor concerns during his various presentations, seeking to allay concerns about power and reassuring his audience that mining investments are protected by law, and that investors can “sleep easy at night”.

Stability, stability, stability
But if there was one investor concern that dominated the conference this year, it was the importance of a stable, consistent mining policy. It allows investors to stick to their long-term game plan, which runs over decades and is subject to many risks; changing policy halfway through the investment cycle of a project raises these risks, throws projections out and affects both revenues and profitability.

Mark Bristow, CEO of the African mining company RandGold, captured this nicely with one of the more memorable soundbites of the conference: “I’ve never been to a soccer World Cup where, halfway through the game, somebody changes the rules. It doesn’t make for fair play.”

Norman Mbazima concluded his observations about the nature of investment capital by urging mining countries to see things through different eyes. “Put yourself in the shoes of the boards taking these multi-decade investment decisions. It’s tough. Unless investors can see that all of us have confidence in our economy, our democracy and our institutions, they will take their money elsewhere.”

And elsewhere will always be a place where ordinary people feel that their savings will be safe.

See also: In the lion’s den