Nexus Gold - Burkina Faso - An Undervalued Area PlayBurkina Faso - An Undervalued Area Play
Friday July 22, 2016
Burkina Faso - which means “land of honest people” - is a 105,900 square mile sized landlocked country in West Africa with a very stormy recent history. In late October, 2014 then President Blaise Compaore decided to amend the constitution so that he may extend his already lengthy 27-year rule. After the people began to riot over this dictatorial decision, Compaore decided to resign. Michael Kafondo proceeded to lead the country through a transitional period before a planned 2015 presidential election. After a failed coup attempt in September 2015, there was a general election held on November 29, 2015 with M.C. Kabore receiving 53.5% of the vote against 29.7% for the second place candidate, Zephirin Diabre.
While this political upheaval was taking place, the vicious miner bear market, which began in 2011, was into the final throes of it’s capitulation phase as the sector was making what I believe has become a solid six-month bottom. Since political order has now been restored, there has been much activity in the M&A space along with the announcement of another large gold mine start up.
1. In February, 2015 mid-cap producer Semafo (SMF.TO) took over Australian explorer Orbis Gold in a A$.713 all share deal.
2. In March, 2016 mid-cap producer Endeavor (EDV.TO) buys out developer True Gold in an all share deal at C$.057.
3. In June, 2016 mid-cap producer Teranga (TGZ.TO) enters into an Implementation Agreement to acquire Australian explorer Gryphon Minerals for C$0.169. This all share deal has yet to close.
4. In April, 2016 Endeavor (EDV.TO) announces the start-up construction of the C$328 million capex Hounde gold mine which will initially produce 235,000 for 10 years.
Modern mineral exploration started just 15 years ago and has made Burkina Faso one of the fastest rising gold producing countries in the world. They are currently the fifth largest African gold producer and in 2014, The Fraser Institute placed Burkina Faso fourth in sub-Saharan Africa for mineral potential and sixth for mining investment. Since 2007, nine gold mines have been fully permitted and put into production while more than 20% of Burkina’s GDP comes from the mining industry of this tiny mineral rich nation. The country also has a low 20% corporate tax rate for mining companies and the government is entitled to a 10% free carried interest and a very competitive 3-5% sliding royalty on gold production.
I believe Burkina Faso will continue to attract major mining companies and M&A in the region should continue as this new precious metal bull cycle heats up again. Major miners need to replace rapidly depreciating ounces and Burkina Faso, with its vast amount of untapped exploration gold belts, has the potential to be a major player in the global mining industry as this new bull market matures.
By David Erfle Contributor to Kitco News