THE level of exploration activity being undertaken by junior miners in Africa is increasing, with Burkina Faso in particular coming more into focus as a promising gold producer.
In the past five years the West African country has transformed from a position of relative obscurity in terms of gold production to now being among the continent’s top five producers.
That growth is likely to continue. Almost 90 per cent of the 2,500 delegates surveyed at the recent Africa Down Under conference held in Perth expected African investment to increase, with Burkina Faso tipped as one country likely to undergo significant growth.
Luring companies to Burkina Faso – located between traditionally significant gold producers Ghana and Mali – is a stable government, high quality resources, familiar geography and a modernised mining code.
While UK- and Canadian-listed companies have historically dominated the scene, the presence of WA juniors is growing, with two of them preparing to bring mines on stream.
Gryphon Minerals was the first Australian company to enter the country in 2005.
Despite being what managing director Steve Parsons acknowledges was a “big call”, the risk has paid off and the company now has a resource estimated at 4.5 million ounces of gold.
It’s in the final stages of completing a bankable feasibility study on the Banfora gold project and is targeting late 2014 for its first gold pour.
In Mr Parsons’ view, Burkina Faso has become one of the better places to do business; not just in Africa, but in the world.
“Getting business done there is a lot easier than other places,” Mr Parsons WA Business News.
‘‘In Ghana it’s becoming harder and harder to get permits, whereas in Burkina it’s a six-month process.
“Even here in Australia you read cases where it takes several years to get permits, and also in the year of the resources rent tax it makes Burkina Faso a very good place to be.”
The government of Burkina Faso has realised the potential mining holds for its economy and is encouraging foreign investment, which also prompted it to over-haul the mining code in 2003.
The modernised code aims to provide: a stable tax system for the life of mine; reduced duties during mine construction; and flexible government royalty rates that adapt to changing global prices.
Burkina Faso is also renowned as a corruption-free investment destination.
KPMG corporate finance partner Greg Evans said the government’s proactive stance had improved investor confidence.
“Since the new regulations came in, and the government recognised that mining was a way to bring the country out of poverty, there’s more confidence from investors to put money in and take those exploration projects into production, knowing that the sovereign risk is substantially reduced,” Mr Evans told WA Business News.
Some of the physical similarities betwewen WA and Burkina Faso also increased the country’s attractiveness to miners from this state.
“The one thing about WA junior miners is that they understand gold and operating in land-locked countries without a lot of infrastructure, so I think that’s why we’re seeing a lot of people going there; they know how to make things happen,” Mr Evans said.
Burkina Faso also holds promise of some of the highest quality gold resources in Africa, which prompted the initial flood of Canadian and UK companies to begin exploration.
Australian interest came slightly later with Gryhon, followed not long after by Ampella Mining, which aims to achieve first production from its Batie West project in late 2014.
Managing director Paul Kitto said the fact that Burkina Faso recognised Taiwan as a country independent from China had opened the door to non-Chinese investment.
“The Chinese government went to each country except Burkina and offered to put in infrastructure in exchange for resources ... as a consequence China hasn’t taken Burkina over,” he said.
That’s meant more than 50 foreign companies – many of which are WA based – have been able to secure a presence in the Burkina Faso and have exploration projects under way.
They include Middle Island Resources, Blackthorn Resources, West African Resources, and Canyon Resources.
Another dominant player with WA links is Endeavour Mining, which began operating its Youga mine in 2008.
The company’s roots lie in Canada but it listed on the ASX in 2011 following a merger with Perth-based Adamus Resources.
The company recently announced another merger, with Canadian Avion Gold Corporation, which will add another project in Burkina Faso– the Hounde project – to its portfolio.
As a result, Endeavour’s 2012 production forecasts have increased by about 50 per cent to estimates in the range of 282,000 to 304,000oz of gold.
It has recently been focused on cutting cash costs and as a result is producing at a cost of around $US640-790/oz.
As Burkina Faso’s mining industry begins to mature as more projects like Youga are proposed, the challenge for juniors is how to secure the capital necessary to turn the proposals into reality.
Compounding the challenge already presented by a tight funding market is the obscurity of some African countries, which mining analyst Warwick Grigor said had historically lessened investor confidence.
“A lot of these companies (in Africa) are currently in the difficult position where they have to finance their projects – the fun and the excitement is gone and the stage that they’re at now is the hard-core financing part,” he said.
“Investors are beginning to see that there’s nothing to be intimidated by ... Africa is full of opportunity and good people.”
Mr Grigor believes the equity market is showing signs of opening up and shares the view of most analysts that companies with solid projects will not have trouble raising capital.
Gryphon Minerals has enough cash in the bank to get it through the current feasibility stage and to conduct some more extended drilling. Beyond that, Mr Parsons said it would have to raise about $300 million to get the project off the ground.
However he’s not concerned, as the company has the benefit of confident investors that include the World Bank, the Van Eck Fund, and Colonial Global.
“We do have a good shareholder base, and then on top of that the banks are very keen and they like Burkina Faso; so there shouldn’t be any problems,” Mr Parsons said.
Ampella Mining has also managed a capital raise; securing $47 million via a private placement and share purchase plan at an issue price only 0.38 per cent less than the company’s share price.
It boosted Ampella’s cash reserves to more than $60 million, which it plans to use as working capital for further drilling and to progress the project through the feasibility study phase.
Less-advanced explorer Golden Rim Resources, which holds four separate exploration permits, has successfully raised $4.5 million to extend its drilling program with a view of calculating a maiden reserve by the end of the year.
