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Burkina Faso: On the Cusp of A Mining Surge?

|Includes: IAMGOLD Corporation (IAG), NSU, ORZCF

When looking at the large African Mining countries, it is fair to say that Burkina Faso is still in somewhat of a fledgling state. With a history of political, military and economic turmoil, this West African nation has not always offered the optimal environment for foreign investors to develop mining and exploration assets.

However, after almost two decades of economic reform, trade liberalization and privatization, the country is now on the cusp of a mining boom, intentionally stoked by a series of mining friendly legislation and tax breaks, with the intention of bringing the poverty stricken state into an era of renewed prosperity. It is in this backdrop that a number of mining and exploration companies have decided to move and develop assets in Burkina Faso, looking to take advantage of the natural resources the country has to offer, and hoping to benefit from the surge in mining by ‘getting in early’.

Burkina Faso, also know just as Burkina, is a landlocked country located in West Africa, surrounded by six other nations including Ghana, Niger and Togo. Since seizing power in 1984, President Blaise Compaore has strived to take his nation away from its dependence on agriculture, form a developing economy and improve relations with the west, with hopes of bringing in foreign investment. In a large way this diversification came as a necessity, with prices from its primary export, cotton, falling significantly during the 1990’s, sparking a need to look elsewhere for potential growth areas and at the resources available to the country.

After a series of economic reforms and financial liberalization, it has now managed to get this process underway, and has consistently showed economic growth of around 6% for the last 15 years, also helped by increasing farm production. It has undergone a fairly widespread privatization programme, and has won the faith of foreign donors by adhering to strict policy rules set out by the International Monetary Fund (NYSE:IMF) and the World Bank (NASDAQ:WB). Most recently, it has implemented some major changes to the tax system and created a number of ‘mining friendly’ programmes with the specific aim of bringing in new mining and development companies taking advantage of its significant natural resources (namely gold and some uranium).

With this, it has begun in recent years to inaugurate its first industrial scale gold mining operations, and under pressure from local operators, plans to continue to change its policies towards the industry in coming years, with big changes expected in tax policies coming from Ouagadougou (the country’s capital). Between 2008 and 2009 for example, the number of exploration licenses awarded by the government rose by 11%, climbing from 537 to 597. The government has also stated its intention to target gold output worth $307mln per annum from 2015. To achieve this, the government has announced their intention to set up a ‘mining development fund’ next year, with Groupement des Professionnels Miniers (GPMB) behind the move. Both the government and mining companies themselves are expected to contribute to the fund, although specific details have yet to be released. Further to this, they intend an inauguration of a higher education institute for mining engineers and other executives in order to keep up with the boom in the industry.

There are still some risks in the area however, that can not be overlooked by potential foreign investors. The country was recently ranked among the world’s worst places to do business form the World Bank, for example, suffering from prohibitive energy costs and relative remoteness. Having said that, it has been noted that the mining sector is outperforming other labour intensive industries so far in winning new investment. There are also some questions surrounding the political future, after several riots have broken out in the past year as well as a gun battle between police and army recruits.

Since President Compaore came to power in a coup d’état in the 1980’s, he has kept a tight grip on power, most recently ‘winning’ an 80% majority in the 2005 Presidential polls. With stability being a key factor to any foreign investment, the potential for political turmoil, if and when President Compaore no longer holds power, brings about many unknown factors for those companies looking to establish themselves for the long term.

All these developments and potential problems for the sector bring about the question; what companies have begun to take advantage of the new backdrop for mining and exploration and how have they fared so far? To date, prospects for those mining and exploration companies who have been operating in Burkina Faso have been fairly good, both financially and in the quality and levels of mineralization offered by their exploration properties and permits. If we take two examples of small but strong mining and exploration firms working in the area;

Firstly, Goldrush Resources Ltd (TSX: GOD) hails its flagship Kindo Group project (consisting of two permits; Kongoussi 1 and Tikare) in the Ronguen Gold Zone, as a beacon of potential. In 2008 they announced an initial resource estimate for the Ronguen Deposit of 5.9 million tonnes at a quality of 1.31 grams per tonne, leading to a total inferred gold resource estimate of 249 thousand ounces. Assay results confirm gold mineralization in economic grades over the entire 1.5km section of rock sampling conducted in their initial exploration, which spanned east to west over a previous artisanal mining site.

As a second example, Cluff Gold (AIM: CLF, TSX: CFG) saw its frist gold pour in from its Kalsaka project in Burkina Faso in October 2008, with a planned annualized production of 60 thousand ounces and significant potential to build upon this. Resources at the project measure 12.1 million tonnes at grade 1.6 grams of gold per tonne, equating to an inferred 640 thousand ounces of gold, with an additional 3.3 million tonnes at grade 1.5 grams per tonne, inferring a further 160 thousand ounces of gold. In 2009 it undertook a reoptimisation process utilizing a gold price of $850/oz to account for the rapid gains in gold prices, and also suggests that there are further benefits as the ore bodies are amenable to open pit and heap leach processing methods, reducing costs and allowing production at a faster pace.

These are just two examples of firms which are already fairly established in the country, and the potential gold resources are already clear. Although the country does have some potential risk for foreign investors, the mining friendly backdrop, ongoing legislation changes, the new mining fund and a series of tax breaks, all bring about a lot of potential for mining and exploration firms to develop in the country.

For some the risks may still outweigh the rewards, but for those companies that are in a stable and well placed position to take advantage of all the breaks Burkina Faso has to offer, there is no doubt a chance to ‘get in on the ground floor’ for what may become another of Africa’s large mining nations.


Other mining companies active in Burkina Faso

Volta Resources (TSX: VTR) is the result of a merger of two experienced West African explorers, Birim Goldfields Inc. and Goldcrest Resources Ltd. This newly enriched and expanded company will maximize its mandate to become the leader in identification, acquisition and exploration of gold-rich properties in West Africa. Volta Resources already has a portfolio of 20 properties in Ghana and Burkina Faso.

is a Canada-based mining and exploration company which has seven operating gold mines and a niobium mine, a diamond royalty, and exploration and development projects located throughout Africa and the Americas. The Company’s advanced exploration and development projects include the Essakane Project in Burkina Faso, the Westwood Project in Canada and the Quimsacocha Project in Ecuador

Orezone Gold (TSX:ORE) is engaged in the investigation, acquisition, exploration and development of mineral properties primarily in Burkina Faso and Niger, West Africa.

Avion Gold (TSX:AVR)
is a gold producer, and exploration and development company focused on the acquisitions in West Africa.

High River Gold (TSX:HRG
) is a Canada-based gold mining company with mines and exploration projects in Burkina Faso and Russia.

River Resources (TSX:RVS)
is focused solely on gold exploration and development in Burkina Faso. The company's lead project is the Karma Gold Project which hosts approximately 1.1 million ounces of gold in the indicated and inferred categories.

Disclosure: no positions