Tuesday, August 5, 2014
Henry Bonner Why West Africa is Primed for Gold Discoveries: Andy Jackson
“A significant portion of the global exploration budget is directed at West Africa today1, so Sprott is putting a lot of its focus on this area.” Andy Jackson, Chief Geologist at Sprott Global Resource Investments Ltd., helps our team hunt down opportunities in natural resources. Initially from Zimbabwe, he has extensive experience with exploration around the world, including Africa. What do investors need to understand about opportunities in West Africa?
“There have probably been more significant discoveries in West Africa in the last 5 or 10 years than in any other part of the world, so it’s currently a focus for me for two main reasons. First, West Africa has the right geology for gold deposits – that’s the main reason. The second reason is that it’s a relatively politically stable part of Africa.
“There are two areas of particular interest to me. The first is the so-called Kinieba Inlier, which is made up of Proterozoic Birimian rocks exposed through a ‘window’ of younger cover rocks. Birimian rocks produce most of West Africa’s gold. The Kenieba Inlier is located in Eastern Senegal and Western Mali.
“The second area of particular interest to me is the South Houndé greenstone belt in Burkina Faso. Like the Kenieba Inlier, this belt of rocks is also Birimian in age. What I particularly like about it is that it’s relatively under-explored. The reason for that is that it’s soil-covered, making exploration more difficult. There isn’t a lot of ‘outcrop,’ where you can see the rocks while mapping.
“Burkina Faso is politically stable. There was some unrest in 2011, triggered by the death of a student in custody and pay disputes in the army, but since then, there has been political stability. It has a pretty sound government compared to many other parts of Africa. The infrastructure there is reasonably good – not great, but okay. I wouldn’t want to be mining a bulk commodity such as iron ore, because it’s a landlocked region and getting the product to the coast would be a nightmare. For gold, you don’t have that problem, because you’ve only got a few bars to carry out. Put them on a truck or a plane and off you go – it’s relatively easy.
“Senegal is also reasonably stable, and there you have access to the coastline, which means you can get equipment and product in and out.
“In western and southwestern Mali, the infrastructure is again acceptable. The civil war in the northeast of the country and a period of government instability actually had little impact on exploration companies operating in the southwest of the country. Northeastern Mali is still a problem and I believe it will continue to be so for the foreseeable future. That’s where the Islamic separatists and Touareg groups operate. French troops go in there and jump on them from time to time, but they don’t stay for long. The groups quickly dissipate when pressed and then reappear after the French military leave. So it’ll be an ongoing problem. It’s really not a place you want to be. But in the southwest of the country, I feel quite safe." What do African governments usually demand from miners?
“Most countries require a free-carry of some sort for the government, say 10%, or something along those lines. It’s just the cost of doing business in these places. Their citizens are generally poor and don’t pay much in the way of taxes. Mining is one of the few sources of revenue that governments can rely on, so they tend to go after the mining industry pretty heavily.
“Most countries follow a ‘wave pattern’: first, they up taxes on mining. Then they find that international mining and exploration companies just aren’t coming in. To attract them back, they become more lenient and give better deals. People start investing again, and then the governments get greedy and increase taxes again. The whole cycle often takes around 10 to 15 years. You’ll see this throughout Africa -- South America and Southeast Asia, too.” Do Western companies tend to hire local talent, or bring in their expertise?
“Where possible, they’ll hire locals – wherever they are qualified or can be trained – because it buys a social license. It’s also a lot cheaper since they generally get paid less and they don’t have to fly personnel around the world for breaks or vacations.
“A lot of time, the expatriates that they hire are not Westerners. They can be from the country next door. For instance, Ghana has an awful lot of the skills you need – such as experienced miners, geologists, and engineers. It is harder to find the same level of talent in Burkina Faso. Burkina doesn’t have the mining history and culture that Ghana has. So often an ‘expatriate’ in Burkina Faso may be from Ghana.” Are there problems dealing with ‘illegal miners,’ the locals digging with picks and shovels but without any official permits?
“’Artisanal’ mining is being carried out pretty much throughout Africa. It’s a source of additional revenue for locals. During the dry season, when you can’t grow crops, and you want something to barter with, you go try to dig up some gold. It’s common and widespread. Almost all of this ‘artisanal’ mining is illegal mining. They don’t actually own any rights, but they’re tolerated there.
“Life for the miners is tough and brutal. It is a very feudal system. You have the guys grubbing around underground doing the hardest labor. They sell the gold that they collect to a local buyer, who sells on his gold to someone even higher. So it goes up the chain, often ending up very high up in government. Senior politicians often have a vested interest in the artisanals.
“Western companies who acquire mineral rights where there are illegal miners on the property usually turn a blind eye to them to begin with. They’ll work with them, simply because they aren’t going to go too deep and won’t cause much loss. It’s far better to avoid confrontation and let them get on with it during the early stages of exploration. Maybe around 1 in 500 artisanal workings will eventually become a mine. So for every mine there are 499 projects that aren’t going to meet economic thresholds. There is no point in going through a lot of trouble to kick these guys off, only to find that when you drill, there isn’t anything there that interests you. So explorers just let them be most of the time.
“If it turns out that the property is worthwhile, and it’s getting closer to construction, then the artisanal miners start to get in the way. They need to be moved off. Very seldom are there physical problems, with the artisanal workers refusing to go, or there being violence. Most of the time, they will go of their own volition. If not, the police will usually come in and tell them to move on.
“The illegal miners often have an elected representative and the Western company will meet with him to establish some ground rules. For example, the company may tell the miners to stick to a particular area, or to not dig below the water table, or forbid the use of explosives. Generally, the illegal miners follow these rules. They know that they can be legally kicked off at any time and don’t want to give the companies an excuse.
“When you first get there and see 5,000 or 10,000 artisanal miners and a whole village built up around the workings, you think ‘how is the company ever going to get rid of these guys?’ But it’s actually remarkably smooth. A lot of the time, they will leave anyway as the workings get too deep and difficult. They’ll say ‘I heard there’s been a new gold discovery a few miles away, I’m going there.’ Their belongings are mostly small huts made of straw mats or plastic sheeting on a wooden frame. They haven’t got a big vested interest in remaining.” Is it fair to call West Africa a “frontier” region for mineral exploration?
“Sure, but just like all these places: it sounds very remote, terribly exotic, and dangerous when you look at it from afar. When you get there, it’s really not like that. I very seldom feel threatened. If you talk to the right people, you’ll get things done.
“It may take a while to do things, as progress often takes place at a slowed rate. ‘Africa time’ is the phrase that a lot of expatriates use to describe the amount of time it can take to get things done – and it’s true. People there often march to the beat of their own drum. It’s not always easy to move smoothly through the steps of a plan. On the other hand, there is generally less interference from the anti-mining NGOs.
“That’s not to say Western companies operating in Africa don’t have concern for the environment. I often hear NGOs claiming that permitting is easier in Africa because standards are lower there. The truth is that they’re not. Environmental standards are virtually the same worldwide. Western mining companies know they must adhere to the same standards as they would be held to in their own home countries. Sooner or later, they’re bound to run into trouble if they try to cut corners – and rightly too. As a result, virtually all respectable exploration and mining companies adhere to Australian or Canadian environmental standards.
“The explorers in West Africa are mostly Australian or Canadian. The British are there too, since it’s been their colonial backyard for centuries and they’re comfortable operating there. For some reason, US companies seem terrified of Africa. Very few operate in the ‘Dark Continent’ and they don’t want to know anything about it.”
P.S.: Andy Jackson is hardly ever in the office – he’s usually out traveling the world, conducting due diligence at projects around the world, and interviewing management teams in person. If you want to get an understanding how to perform due diligence on mining companies, you candownload our free Natural Resource Investing Guide, written by Rick Rule.
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