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Africa|Business|Core Consultants|Exploration|Gold|Industrial|Logistics|Mining|Projects|Resources|Operations
africa|business|core-consultants|exploration|gold|industrial|logistics|mining|projects|resources|operations

Investing in West Africa a veritable gold mine – consultant

LONG LIVE GOLD West African gold mines have a high average life of mine remaining

Photo by Bloomberg

ALL THAT GLITTERS West Africa has become the investment hub for gold projects

Photo by Bloomberg

8th November 2019

By: Theresa Bhowan-Rajah

journalist

     

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With West Africa boasting some of the highest grades of gold deposits globally, averaging about 1.8 g/t, it has become the investment hub for gold projects over the past seven years.

International commodities consultants Core Consultants MD Lara Smith states that 74% of all exploration projects in West Africa are focused on gold, which demonstrates the importance of the gold industry, as well as its investment potential.

“With a compound yearly growth rate of 2.9% in production from 2012 to 2016, investment in gold in West Africa is attracting notable investors. This is in addition to the increase in exploration for all precious metals,” Smith states.

She adds that, while exploration activity is notable, Africa competes with Asian, Brazilian and Canadian mining jurisdictions for investment. “Investors with more of a political risk appetite and with a legacy of mining in Africa will, however, continue to operate in the West Africa region.”

These investment opportunities present numerous benefits to investors.

One of the most notable benefits of investing in gold mining in West Africa is the high remaining life of operating mines. “These mines have an average of 16 years remaining, with mines in Mali boasting an average of 19 remaining years. However, with assumed continued expenditure on exploration and a 65% conversion of resources to reserves, the average mine life in West African operations could increase to about 22 years.”

Additionally, West African countries host high-producing gold reserves. The top-ranking countries in terms of geology are Ghana, with 717-million tonnes; Burkina Faso, with 363-million tonnes; Mali, with 259-million tonnes; Guinea, with 171-million tonnes and Côte d’Ivoire, with 107-million tonnes.

Smith adds that, “according to leading index provider Standard & Poor’s global ratings, the average success rate regarding drill holes has increased significantly. It is currently above 15%, which is considered high for exploration results”.

Some additional benefits for investors are that mining costs have been declining since 2012, there is stability in terms of mining licence duration and a common framework has been established for operating in West Africa. These factors provide some transparency for investors.

Effective legislative environments have also proven to attract and retain foreign investment.

“There has been a harmonisation of regulatory frameworks across 15 West African States that provide guidelines as a basis for drafting regulations to do business in West Africa.

“The mining code provides some stability, with common fiscal incentives. These incentives include write-offs of exploration and development costs, tax holidays in some jurisdictions and stability clauses against tax hikes, as well as rent-seeking and fixed government free carry of 10%, except in Guinea, where it is 15%,” Smith notes.

Drawbacks

While there are numerous benefits in West African gold investment, there are drawbacks that can affect investor interest.

Smith notes that there are higher-risk countries from a geopolitical risk perspective, as noted by global risk consultancy Control Risk. “Its latest report gives Ghana a low risk score.

“Meanwhile, West Africa ranks in the seventy-sixth percentile globally with regard to high cash costs. This is relatively high and could dissuade potential investors.”

Further, one of the greatest drawbacks is the reputational risks of the gold produced in West Africa. The established black market for gold in the region and the prevalence of illegal mining create a major impediment to securing investment and also establishes the need for better logistics.

“The West African gold market has the highest incidence of artisanal mining. About 50 t, or half of the industrial mining output, was mined illegally by artisanal and small-scale miners in 2017. This equates to about $2-billion of gold leaving the region illegally,” Smith notes.

She cites the closure of the Obuasi mine, in Ghana, as an example. “This mine had an excellent grade of 3.4 g/t. However, the mine was closed in 2016, owing to an encroachment of illegal miners. It took more than a year to remove them from the site.”

Despite the gold mining industry in West Africa facing challenges, there is a chance of success in the industry for investors that are involved in good projects and have a high risk tolerance.

Edited by Nadine James
Features Deputy Editor

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