Burkina Faso’s political turmoil rocks gold juniors

VANCOUVER — Burkina Faso has earned its reputation as a relatively stable jurisdiction for mining companies, but social conditions in Africa can change quickly. On Oct. 31 former president Blaise Compaoré stepped down after tens of thousands of people took to the streets of the West African nation — many in the capital of Ouagadougou — in protest.

The civil unrest followed an attempt by Compaoré, who has ruled the landlocked country since he seized power in a 1987 coup, to amend Burkina Faso’s constitution in a bid to run for re-election next year. The long-standing national government had been an ally in Western operations against al Qaeda-linked groups in West Africa, and established a fairly transparent and reliable set of economic policies and laws.

Burkina Faso’s army subsequently moved into the power vacuum, with Lieutenant-Colonel Isaac Zida placed as the country’s interim president. At press time Zida had issued a statement indicating the army would cede power to civilian leaders after “broad discussions with various groups.”

Burkina Faso has updated and modernized its mineral code, which was amended in late 2010 to increase the government’s net smelter royalty return (NSR) rights. Under the current policy the NSR stands at 3% if the gold price is at US$1,000 per oz. or less; 4% if the gold price eclipses US$1,000 per oz.; and 5% if the gold price jumps above US$1,300 per oz. The government also retains a 10% non-participating carried interest on mining projects.

In 2013 the Fraser Institute ranked Burkina Faso second in Africa and twenty-seventh worldwide under its mineral potential index, which is based on whether a jurisdiction’s mineral potential under the current policy environment encourages or discourages exploration.

Despite an influx of foreign investment the nation remains one of the world’s poorest, with its gross domestic product per capita pegged at US$684 in 2013, which places it 129th out of 192 countries. Poverty and income inequality likely played a role in the violent protests, with Compaoré dominating multi-party elections since 1991.

The socio-political unrest has had a predictable impact on companies operating gold assets in Burkina Faso, with a number of juniors dealing with market fall-out from the news.

Toronto-based Roxgold (TSXV: ROG; US-OTC: ROGFF) is hoping to have its Yaramoko project 200 km southwest of Ouagadougou in development by year-end. The mine would cost US$106 million to build, and produce 99,500 oz. gold annually over a 7.4-year life. Roxgold saw its stock fall 25%, or 17¢ after the news, before closing at 52¢ per share at press time.

“Stability seems to have largely returned in Ouagadougou, with businesses opening their doors again, and negotiations currently underway to appoint a civilian-led government,” president and CEO John Dorward explained to The Northern Miner when reached by email. “While there is still work to be done, we remain confident in Burkina Faso as a jurisdiction.  Our on-site activities remain unaffected and we look forward to working with the people of Burkina Faso to bring Yaramoko into production.”

On Nov. 4 Roxgold announced that the Burkina Faso Council of Ministers approved the issuance of the Yaramoko exploitation permit subject to the receipt of an official state decree. The company also closed a $30-million bought-deal financing wherein it issued 46.2 million units at 65¢ per unit. Each unit consists of a share and one-half purchase warrant exercisable at 90¢ through early 2016.

Meanwhile, Ottawa-based Orezone Gold (TSX: ORE; US-OTC: ORZCF) reported “minor vandalism” at its advanced-stage Bomboré gold discovery, 85 km east of Ouagadougou. The company recently completed fieldwork for an upcoming feasibility study at the project, which hosts 140 million measured and indicated tonnes grading 1.01 grams gold per tonne for 4.6 million contained oz.

Orezone shares were down 24%, or 12¢ after the news, en route to a 40¢ close at press time. President and CEO Ron Little told The Northern Miner during a phone interview that the vandalism at the company’s camp was the result of a few local artisanal miners taking advantage of broader civic unrest. Orezone is negotiating a relocation plan to develop Bomboré, which has caused some tension with the illegal small-scale miners that would eventually have to move.

“Investors should not be overly concerned about major changes to the mining code and fiscal policies of the country under a new government. There has always been a good relationship between the government and the companies, with mining now a very important economic driver for the economy. Local communities also tend to favour the operations which bring higher-paying jobs and improvements to their infrastructure. The mining code has been in place since 2003, and the population and opposition parties have never made an election issue out of the structure of those laws,” Little commented.

“For those that are used to investing in Africa, this is a classic buying opportunity. You have both politics and gold price working against us at the same time, resulting in most of us being oversold. The only real threat is project delay, as a result of waiting on permits and official signatures that will have to come from the newly elected officials rather than the interim government,” he added.

Vancouver-based True Gold Mining (US-OTC: RVREF) was also hit by the events in Burkina Faso, with the company’s stock losing 28% after the news en route to a 21¢-per-share close at press time. True Gold is investing US$132 million to develop a heap-leach operation at its Karma project, 185 km northwest of Ouagadougou.

True Gold reported in late September that project construction is well underway, with US$30 million invested and site earthworks 60% complete. On Oct. 30 the company announced that “operations at Karma were uninterrupted, on-site work continues, and all employees are accounted for and safe.” True Gold had yet to respond to a request for comment at press time.

Karma is fully permitted and would reportedly provide 300 permanent local jobs during operations. The mine is slated to hit production by early 2016, and crank out 97,000 oz. gold annually over an 8.5-year life.