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Crisis-hit South African mines seen drawing bargain hunters

CAPE TOWN--While African mining firms continue to enjoy the fruits of the commodities super-cycle, weaknesses in South Africa's crisis-hit sector is attracting the attention of bargain hunting investors.

After a century of extraction, Africa is still the place to be for mining firms, according to Mark Bristow, CEO of Randgold — which operates mines in Mali, the Democratic Republic of Congo and Ivory Coast.

The reason, he said, are big deposits and a hearty embrace for investors.

“Why does Africa still attract buyers? The answer is, if you want to find multi-million ounce gold deposits, Africa is a very good place to look,” he said.

“People in Africa want to work hard. They want it more than ever before and they want to play a role in the emerging world.”

Bristow says Rangold's remote Kibali gold mine in the northeast DR Congo is an example of how even the most tricky investments can bear fruit.

“Kibali was very challenging due largely to the lack of infrastructure, but since we started drilling, a number of satellite industries, including agriculture, have developed,” he says.

Across the continent, mining firms tell a similar story, except in South Africa.

Sick Man of Africa

At a recent mining industry shin-dig in Cape Town, disillusionment with the host nation contrasted strongly with enthusiasm about the rest of Africa.

By cruel twist, the meeting took place just when three of the world's top platinum mines in South Africa's North West province were hit by strikes that pummeled operations.

Amid waves of strikes and painfully high operating costs — some linked to geology — South Africa is increasingly seen as the sick man of the continent.

“Nigeria represents the future, South Africa the past,” U.S. economist David Hale said.

Nigeria's oil-dominated economy is projected to be almost 50 percent larger than South Africa by 2020, he said. “It will be a significant change with profound implications.”

But South Africa's weakness is also drawing the attention of the money men, and some are predicting 2014 could be a year of mega-mergers.

“(The) strain on a number of mining assets enhances the likelihood that we'll see plenty of corporate activity in 2014,” said Peter van Kerckhoven, head of resources and mining at Nedbank Capital.

He said a number of listed South African mining companies have projects that they are trying to get off the ground, but which are being hampered by a lack of access to global equity.

“The recognition that these types of assets would be better utilized in the hands of others will almost certainly drive increased asset disposal and acquisition activity across the sector in 2014,” he said.

But for Randgold's Bristow, the South African government will have to do its part.

“There's a shortage of capital in the world today. Countries need to make investors feel welcome and they need to understand that investors want to earn returns on their money.”

“If I want to meet a cabinet minister or senior political leader in any African country outside of South Africa, all I do is pick up the phone,” he said.

“In South Africa it takes months to arrange a meeting — that's assuming you will get one.”

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