West Africa is the continent’s gold mining hub

Excessive shaft-sinking costs and regulation in SA has driven investors to the next best gold mining region.

Western Africa has surpassed Southern Africa as the continent’s gold-mining hub. Numerous new gold-mining projects are being developed in West Africa, particularly in Ghana, Burkina Faso, Mali, Mauritania, Liberia and Sierra Leone.

“West Africa is now really the hub of African gold mining,” says Brian Ziswa, lead gold analyst at global research and consulting firm Wood Mackenzie.

Between 2006 and 2015, 18 new mines have been commissioned in West Africa, versus four in South Africa, some of which have since been shut down, such as Sibanye’s Burnstone mine.

“Total production from West Africa – that is, Burkina Faso, Ghana, Guinea, Ivory Coast, Mali, Senegal and Sierra Leone – overtook South Africa’s gold production in 2011,” says Ziswa. “This was when the region produced 195 tonnes of gold compared to 187 tonnes for South Africa. All of the West African countries except Mali have recorded significant growth in production driven by investments in new mines.”

 

West African gold producers over the last ten-year (tonnes)

Country 2006 2015 % Change
South Africa 275.1 144.5 -47.5%
Ghana 69.8 90.8 30.1%
Mali 50.0 43.5 -13.0%
Burkina Faso 1.6 35.8 2140.1%
Ivory Coast 1.3 25.9 1859.3%
Guinea 16.4 20.5 25.1%
Senegal 0.6 5.7 844.8%
Sierra Leone 0.1
Total 414.9 367.0 -11.5%

Source: Wood Mackenzie

Wickus Botha, Africa mining and metals leader at EY, says that while there aren’t necessarily more deposits in West Africa compared with South Africa, the region is currently a slightly better environment to operate in.

For already-established operations he says the risks are a lot more manageable in South Africa, whereas the level of uncertainty and costs involved make starting a new project riskier and more expensive.

“In South Africa, once you’re past the capital investment hurdle, the risks are much more manageable,” says Botha.

But it’s very different for new capital because investors require a higher return for perceived uncertainty. And this is likely to be part of the reason why there is little investment in new projects in South Africa.

Cadiz Corporate Solutions’ mining analyst Peter Major agrees, saying that the growing interest in West Africa and other African countries is largely due to the difficulty in starting new projects here.

“We’re on the phone everyday with investors calling us looking for mining projects, and their main criteria is that the projects mustn’t be in South Africa,” says Major, adding that not one gold mine shaft has been sunk here over the past ten years and that companies are simply extracting whatever is left at the existing mines.

West Africa is cheaper, but has its own faults

The key issue is that the cost of sinking shafts to access the deeper lying Witwatersrand deposits is significantly higher here than in West Africa, where most of the mineralization is sub-vertical, meaning companies can mine ore from the surface and it’s materially cheaper. But it is difficult to operate there after the operation has already been set up, due to intermittent policy fluctuations. Botha says there is an oscillation between pro-investment and very draconian tax policies, primarily because mining revenues make up a substantial part of those economies and governments use legislation to shore up the fiscus when commodity prices drop.

“Companies that set up operations in Africa have made peace with the fact that regulations oscillate and are complex. So what’s more important for them in that case, is driving down the cost of production,” says Botha, adding that although the start-up costs are high, gold mining production in West Africa is not as labour intensive and “organized labour is not as big a deal as it is here.”

Another issue for West Africa, and Africa in general, is energy security. So companies are generating their own power. EY’s business risks facing mining and metals sectors 2015 2016 report states that the current self-supply model adopted by mining and metals companies has reduced power uncertainty and price fluctuations.

However, this has also been costly for companies and has not benefitted the local community. For instance, since 2000, mines in Africa spent around $15.3 billion on electricity and operating costs to install 1 590 megawatts of generating capacity, none of which has made it into a national grid – EY report

The challenges facing South Africa such as deep expensive mines, high power costs, low-productivity and under-investment are mostly unique to the country, according to Ziswa. But in West Africa, he says the biggest challenge is security, or lack thereof of, due to civil unrest – especially in certain parts of Mali. He says Burkina Faso is relatively stable given it last held elections in 2015. However Ghana is due to hold elections this year with a probability that the incumbent government could be toppled and implications for future mining policy are unclear.

West African projects due to come on stream from 2016 to 2021

Project Country Company
Kiaka Burkina Faso B2Gold Corporation (Canada)
Houndé Burkina Faso Endeavour Mining Corporation (Canada)
Natougou Burkina Faso Semafo Inc. (Canada)
Yaoure Cote d’Ivoire Amara Mining (UK)
Sissingué Cote d’Ivoire Perseus Mining (Australia)

Source: Wood Mackenzie

Ziswa says the potential returns are greater in Western Africa, where large areas have not been systematically exploited. Given the highly prospective nature of the West African gold belt, he expects to see continued growth in West Africa.

Looking into the future, he says there is a significant amount of projects which are being advanced in West Africa especially Burkina Faso, which has Nordgold’s Bouly project, Endeavour Mining Corp’s Houndé operation, True Gold Mining’s Karma mine and the Yaramoko project by Roxgold Incorporated.

“These projects being developed in West Africa have the potential to add 80 tonnes of gold per year by 2020. In South Africa, the only significant project being evaluated is the (Witwatersrand Consolidated Gold Resources De Bron-Merriespruit, project).”

Most of the production growth is being driven by mid-tier producers, but some of the major producers such as Newmont, Goldfields, AngloGold Ashanti, Newcrest and Randgold Resources are already active in West Africa, although their production is not expected to increase by much, says Ziswa.

In terms of resource endowment, South Africa still holds the largest gold resource on the earth, but most of it is locked down at great depths within the Witwatersrand, and that is why investors are looking for cheaper alternatives.

But companies such as Goldfields, which is pioneering mechanized mining at South Deep, have the potential to significantly boost the country`s gold production. Nevertheless, Ziswa expects West African gold production to continue growing, forecasting 230 tonne annual production, exceeding South Africa’s 160 tonnes, by 2021.

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