***MINING INDABA: Metals prices keep mood alive in Cape Town

Soaring prices and rising demand for metals ensured high spirits in Cape Town last week as delegates gathered for the 2011 Investing in African Mining Indaba

Soaring prices and rising demand for metals ensured high spirits in Cape Town last week as delegates gathered for the 2011 Investing in African Mining Indaba.

The mining sector is in rude health and the event bore little recognition to last year, delegates agreed, with one describing the atmosphere as having switched to “euphoric” from “depressing.”

Major mining groups and banks were equally bullish and the outlook for copper was championed unanimously, with Standard Bank forecasting a deficit of 385,000 tonnes this year, rising to 561,000 tonnes in 2012.

“I am extremely optimistic about the future of our industry. In this room we all know mining is the lifeblood of the 21st century,” Anglo American ceo Cynthia Carroll said in her presentation.

In an interview with MB, Barclays Capital predicted a bumper results season for mining companies, as cost inflation lags commodity prices.

Within days the proof had emerged, with Rio Tinto reporting record earnings of $14 billion for the previous twelve months, a jump of 112% upon 2009’s figures, and Xstrata posting pre-tax profits of $7.7 billion for 2010, up 78% on the previous year.

In a period of such strong commodity prices, the role of hedging was inevitably examined, with delegates frequently remarking on the benefits of choosing not to hedge.

“It’s not that hedging is bad, it’s just that I think mining companies are really, really bad at doing it,” former Blackrock fund manager Graham Birch said as he kicked off proceedings with his presentation Reminiscences of a Commodities Bull.

In recent years, the Blackrock gold & general fund outperformed the FTSE Gold Mining Index by “simply avoiding hedged gold miners”, according to Birch.

“We’d rather not hedge, we’d like our customers to enjoy the upside,” an investor source told MB on the conference sidelines.

As the flow of foreign money into Africa continues, corporate social responsibility was another theme.

Several sessions were dedicated to discussions about safety, sustainability and the importance of mining houses taking responsibility for the communities in which they operate.

“We should be indispensable partners for our communities,” Xstrata said.

The Zambian Minister for mining and mineral development, Maxwell Mwale, outlined the country’s expectations of investors in his presentation to delegates.

Those wishing to invest in Zambia have to be seen to be reinvesting and should do so by putting money into road infrastructure as well as health and education, Mwale told MB on the conference sidelines, as he was thronged by reporters wanting to hear about Zambia’s growing output, and by miners seeking advice on getting into the country.

“I’ve always thought the opportunities [of investing in Africa] outweigh the risks,” Birch said.

“Despite having some truly fabulous mineral wealth, the development has not been plain sailing. I’m hoping the next generation of African mines will become something of a beacon.”

As delegates left Cape Town, many planned to make their way up to Johannesburg – home of the JSE, which has seen its commodity traded derivatives contracts increase 12% year-on-year in 2010 – while others continued their time in Africa with site visits and tours all over the continent.

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