The Sahel region of West Africa hosts many world-class mineral deposits, but it’s not for the faint-hearted. The region is home to multiple violent extremist groups. A confluence of recent developments means the situation is worsening.
The Council on Foreign Relations’ Center for Preventive Action said the region had been vulnerable to extremists since the 1960s, but current instability could be linked back to the collapse of the Libyan state in 2011. A surge of coups d’état in recent years has only made stability in the region more precarious.
Since the August 2023 death of its founder Yevgeny Prigozhin, Russia’s Wagner Group, which has had a heavy presence in the Sahel for many years, has strengthened its influence. There was uncertainty over what Prigozhin’s death would mean for the group, but if anything, it has strengthened after being absorbed by the Russian government’s Africa Corps.
The increasing Russian influence comes as Western presence and influence has weakened. Russia expanded its presence in Niger earlier this year just as US troops withdrew, while French forces left Mali in 2022 and in 2023, the Malian government dismissed MINUSMA, the UN peacekeeping force. “The continuing collapse of international counter terrorism support, as well as weakening leadership in regional efforts, has created a vacuum in which violent extremism can expand,” the Center for Preventive Action said earlier this year.
Like their North American counterparts, including Barrick Gold and B2Gold, it’s largely been business as usual for Australian miners operating in Mali and Burkina Faso. However, that doesn’t stop the market from valuing their stock at a discount. While investors in London are reasonably comfortable with West Africa, Australians could be a “bit xenophobic”, according to Perseus Mining executive chairman Jeff Quartermaine.
In 2021, the Australian market sat up and took notice after West African Resources built its Sanbrado gold mine in Burkina Faso on time and on budget at the height of the COVID-19 pandemic, when border closures and associated labour shortages and cost blowouts were ravaging Australian developers.
The feat earned West African the prestigious Digger Award at Australia’s premier mining conference, Diggers & Dealers, that same year, making it the only Africa-focused company to be recognised in nearly 30 years. West African’s success since has catapulted it into Australia’s benchmark ASX 200 index and has made investors more comfortable with Burkina Faso – despite the risks.
In a recent analyst note, Australia’s largest investment bank did not list geopolitical risk as a key risk. Macquarie describes the key risks to West African’s investment thesis as gold price volatility, variations to production, and cost assumptions and the cost and timing of its next development at Kiaka.
A slide shown by West African at its annual general meeting in May charted its share price over a three-year period against project milestones, geopolitical events and the gold price. Despite five coups d’état over that period – including two in Burkina Faso – the company’s share price has performed in line with the gold price and was trading at an all-time high in June.
Mali a concern
While the security situation in West Africa has not overly been a cause for concern for Australian investors, the opposite is true for Mali’s new mining code, announced in August 2023.
Phil Russo, managing director of ASX-listed gold developer Toubani Resources, said it was the number one question he received from investors. Russo said that while the “tension” in Mali was well away from mining operations, the changing regulation was causing angst for shareholders. There had been concerns that the ruling junta in Mali would look to nationalise Western mines, but Barrick Gold CEO Mark Bristow said in May that the company had received written assurances that this would not be the case.
The continuing collapse of international counter terrorism support, as well as weakening leadership in regional efforts, has created a vacuum in which violent extremism can expand – Center for Preventive Action
Speaking in late May, Russo said he believed the new mining code would be signed into law imminently, which would provide certainty and stability for the market. The new mining code allows for government participation in operations to rise from the current 10% to as high as 35%. Russo said the negative market reaction was overblown.
“I would invite investors to survey the surrounding Francophone countries and you’ll find that the interest level is very similar to what’s in the mining codes of the surrounding countries, so Mali is not being too aggressive or interventionalist,” he said.
Australian investors have been further spooked by the case of Leo Lithium, which has been suspended from trading on the ASX since September 2023 due to a dispute with the Malian government. The company announced in May that it would sell the remaining stake in its Goulamina lithium development to partner China’s Ganfeng Lithium.
Leo said it was a reluctant seller but the decision was made due to the “increasingly challenging sovereign and security risks in-country” as well as the “expected economic impact from the adoption of the 2023 Malian Mining Code”. However, the breakdown in Leo’s relationship with the government stems from a separate dispute with ASX-listed Firefinch, which Leo was demerged from, over the Morila Gold Mine.
Without referring directly to Leo, Russo said the resolution of the “company-specific issue” was a positive. “To say that the experience of one company is blanket for everyone – that is not the case,” he said.
Russo noted that despite recent uncertainty, Barrick, Allied Gold and B2Gold all had significant capital expenditure planned in Mali in the coming years. “I think the clouds will start to open up again for Mali in the very near future,” he said.
Education key
It is fair to say quite a lot of things occur and of course, it does attract media attention – clickbait’s alive and well – Jeff Quartermaine, Perseus Mining
In May, Perseus’s Quartermaine participated in a fireside chat at the Melbourne Mining Club. Rather than talking about the company, Quartermaine spoke of the pros and cons of working in West Africa and said afterwards that he saw it as an important tool to educate investors and the broader Australian mining community.
While Perseus’s mines are in Ghana and Côte d’Ivoire, investors don’t always make the distinction between West African jurisdictions.
“It is fair to say quite a lot of things occur [on the continent], and of course, it does attract media attention – clickbait’s alive and well,” Quartermaine said.
Both Perseus and West African recently took analysts and investors to West Africa to tour their respective operations.
Patrick Streater, metals and mining analyst at Perth-based financial services firm Argonaut, attended the trip. Argonaut already covered Perseus but initiated coverage of West African following the trip, allocating a speculative buy rating and a A$3.10 price target – more than double the company’s share price at the time of writing.
Whether real or perceived, the market continues to discount the value of West African’s portfolio due to security concerns –Patrick Streater, Argonaut
Streater described the political situation in Burkina Faso as “fluid” and said an investment in West African came with elevated sovereign risk. “Whether real or perceived, the market continues to discount the value of West African’s portfolio due to security concerns,” he said.
Mike Millikan, mining analyst at Perth-based brokerage Euroz Hartleys, was also on the trip and said the large country risk discount for Burkina Faso appeared to be overemphasised, with West African’s projects “located in the best part of the country”.
“We had a great trip, with no security concerns,” he said.