Originally posted by eshmun
Hi
@2ic
Thanks for your opinion.
I don't know if you read my post that discussed the tribal divisions in the country (and the dominant Mossi tribe) which are the strongest driving forces IMO in these West African states. If you missed it you can read it here.
https://hotcopper.com.au/threads/an...4523717/page-19?post_id=36438173#.XEPTsxo_WhA
This is not a tribal based issue, which is generally where you can foster the most violence and instability in this part of the world. The natural culture of the people of Burkina Faso will work to resist the doctrines of the Jihadists, particularly the doctrines that lead to acts of terror.
The situation has definately worsened from a Western investment perspective. I was following quite a few companies operating in Burkina Faso in the earlier mid-part of this decade when I had shares in Orbis and Orbis were working on the Natougou and Nabanga ore depoists in the east and southeast of the country. Orbis managed to explore and develop Natougou without any incident that I recall and the company was eventually TO by SEMFCO who just finished commissioning the project (now called Bounhou) in September of last year.
You can see where Boungou and Nabanga are located on a map by searching the SEMFCO's website.
https://www.semafo.com/English/operations-and-exploration/Boungou-Development-/default.aspx
There is no doubt that the indcident that occurred in August last year which killed six people was a direct attack on a armed convoy delivering materials to Boungou. See my post below.
https://hotcopper.com.au/threads/an...4523717/page-29?post_id=36451843#.XEPaMxo_WhA
Personally I think Sanbrado is in a much securer location, being more central in Mossi tribal territory and only being able to be accessed (in and out from the east) by a major highway, but there is no such thing as an absolutely secure location in this country as some of these attacks have occurred in the capital, Ouagadougou, which is in the centre of the country. Sanbrado's location is probably more secure than the capital, which is much harder to patrol due to the numerous means of entry. Entry by road to the Sandbrado site from the east can be patrolled and escape would be practically impossible due to the distance back to the safer and totally unlawful territories to the east. This probably mitigates against an attack at this site but wouldn't rule it out completely, depending on how brazen the terrorists get and what coordinated goals they might be working against.
The attack on the mine site routes, such as the August attack on the road to Boungou, and the attacks on foreign nationals working in the country understandably has investors, particularly Canadian investors, worried as the dynamic has notably changed in the last 5 years. Also as a worker at some of these sites, like Boungou, you would be far more worried about your safety and your ingress and exit trip to the mine, if by road, would come with a little bit more of an adrenaline rush than it would have a few years ago.
As I said in my post on the Mossi below
"I don’t see that a few extremists are going to destroy a proud society that has been around for almost 700 years, their goals will never become aligned IMO as the Mossi will care more for their own traditions than an extreme and narrow interpretation of the Sunni religion (interpreted by a small extremist minority) that adheres to Sufism, a form of Islamic mysticism. I doubt that the average Mossi understands the first thing about Sufism and would probably want to see the Islamic extremists eradicated if they are causing trouble and creating violence in their communities. Esh"
This is probably little solace to the families of people that have died at the extremist's hands or for skittish western investors but I don't see the problem as having potential to cause the country to descend into chaos or for the extremists to be able to dismantle the gold mining industry which has taken more than a decade to grow to its current height. Esh
Nice to meet you Esh.
You've clearly done some good research, certainly more than myself, hat tip to your thoroughness. Here is an article I looked up this morning to dig a little deeper having authoritatively thrown my opinion around two sails to the wind last night.
https://www.crisisgroup.org/africa/...l-roots-jihadist-violence-burkina-fasos-north
Map below summarises better the historical areas of violence that is centred on the northern desert areas. A couple of terrorist attacks in the capital is to be expected but realistically this is not an anti government rebellion despite what the article intimates.
Certainly there is a lot more to the situation drilling down further into ethnic, social, religious and geographical inter-relationships. I think we clearly agree that despite nuanced details the main points of support for WAF as an investment include:
- The location of Sanbrado is central to the Majority Mossi tribal lands and well separated from the troubled border regions
- Burkina Faso has a relatively stable democracy which is rare enough in Africa and supported by the west
- Logistical routes for Sanbrado should be well free of terrorist disruption, as should acces to/from the capital
- Local security should be relatively easy and supported by locals against long range terrorism
- The government is supported by the vast majority of the people to avert falling into radical Islamic control or conflict
- Western support of the government's fight to prevent to spread of radical Islam likely reduces sovereign risk from nationalisation
- The country risk and operating expense has increased slightly to account for terrorism risk real or perceived
WAF like all African resource companies always had a country risk discount and in my opinion that risk has not raised significantly given the serendipitous location of their deposit. If one is not comfortable with some African sovereign risk then why the heck would you invest in WAF? I really cannot see that many long term investors turning tail at a reminder of this fact, although in the short term sentiment and buying vs selling pressure is everything.
Here is my personal view of African sovereign risk and how it is best mitigated for gold miners. First make sure that all risks are low (by African standards), manageable and not likely to be fatal. For example, if Sanbrado was in the northern border region given the Islamic jihadist troubles that would be an uninvestable. Second, spread investments geographically around different countries and preferably not in countries next door to each other where they might end up in a war together. Diversifying investments geographically reduces the portfolios internal sovereign risk while preserving the extra cheap value riskier locations price at.
WAF looks a high chance of participating in M&A activity simply because the sum of the parts is worth so much more than small one project companies themselves. Isolated, each company is relatively illiquid to large investment funds, carries an all-or-nothing single country/project risk, struggles raise reasonably priced development finance, must carry the cost of the entire length and breadth of positions required to run a gold company etc. Not terribly attractive.
Put together a number of African gold projects into one company, whether or not that company has non-African projects, and the company reaches a large enough market cap and liquidity to become investable for large funds. The liquidity, financial strength, diversified sovereign/project risk across a numerous African countries , financing and operational scale economies of scale, increases profitability of what is already very profitable and under-valued single names. The assimilated gold projects quickly have their PE and other metrics raised and risk/liquidity discount dropped adding much value for all holders.
This is the compelling reason I think WAF will be picked off by one of the larger and more aggressive goldies looking to expand global market cap, size and scale into a possible gold boom. The very big boys will probably not be interested and neither will those who command a low sovereign risk premium (eg Northern Star) but there are many that are. If not soon then juniors will get together in a "merger of equals" will build scale and reduce the heavy discount single African miners suffer. The only reason for WAF to merge with another Burkina Faso miner would be for very close operational synergies, otherwise I would be looking to Ghana miners etc to diversify risk between countries. In short, I see WAF is being unfairly discounted by knee jerk reaction to country risk against the compelling value for M&A activity given it's fully funded and highly profitable project.
Sorry to digress, this has not been paid promotion haha. An interesting situation and investment to digest if not sad for those caught up in the mindless violence.
Cheers
(20min delay)
