Burkina Faso uprising: what are the risks for gold miners?

“Parliament has been set on fire,” read Mishka vom Dorp’s note.

In Burkina Faso, protesters wanting to prevent President Blaise Compaoré from serving another term had stormed the Parliament and set it ablaze.

I was unfamiliar with the political landscape in Bukina Faso before the news broke out. I learned that Compaoré had seized power in 1987 and retained it for 27 years. How should we feel about the news?

For miners and exploration companies, stability is perhaps the single most important consideration to doing business in any country. Investors hate uncertainty – even if that means sticking with the devil they know over the one they don’t know. We’ve seen new leaders come in and eviscerate the prospects for mining in their countries – like Rafael Correa in Ecuador or Cristina Kirchner in Argentina. We’ve discussed here that countries often can’t leave good enough alone. Mineral deposits are juicy targets for taxation because they cannot be moved to another country.

“The mining industry and investors prefer stability to almost anything else that the government can provide – that means they’d mostly have preferred for Compaoré to remain in power for another term,” said Neil Adshead, one of our head economic geologists.

Many companies operating in Burkina Faso saw their share prices drop on the news of the unrest. From Monday October 27 to Friday October 31, Roxgold Inc. fell from C$0.69 to C$0.51, a 26% drop.1 Orezone Gold Corp. fell 28% in the same timeframe and kept going lower.2 Orbis Gold Ltd. fell 23%.3 SEMAFO Inc. fell 28%.4 True Gold Mining Inc. also fell 28%.5 We have conducted in-country due diligence on several of these companies, in particular Roxgold, Orezone, and Orbis, we well as Golden Rim Resources Ltd.

“Burkina Faso is one of the better countries in West Africa for mining. My view is that it will come through with a resolution to the political issue,” Neil continued. “It’s not a long-standing tribal or religious dispute.”

“I am hanging in,” commented Andy Jackson, our other in-house economic geologist who is frequently our ‘boots on the ground’. Just last month he cancelled a trip to West Africa days before departure because of the Ebola epidemic.

“The regional economic organization for West Africa, ECOWAS, has a good record of intervening in member states when problems erupt, as they did in Mali earlier this year. Their intervention carries a lot of weight (more so than the African Union), and ECOWAS has threatened to apply sanctions against Burkina Faso if the military, who have stepped into the power vacuum, don’t hand over power to a civilian government within two weeks. I suspect that the military will be reluctant to let go of power, but will eventually do so, although it will probably take longer than two weeks.

“Expect some jostling for position in the power vacuum, but I can believe companies operating out in the bush will hardly be affected at all,” he added.

That’s exactly what we’ve heard from several of our contacts at mining and exploration firms operating in Burkina Faso. They have an interest in painting a rosy picture for investors of course, but as Andy says, their views are plausible.

Pascal Marquís of Orezone offered the following update, shortly after the uprising:

What will happen next is still murky but pointing towards a transition regime, leading to presidential elections. There are negotiations under way between opposition political leaders, traditional authorities, a popular retired General and the top brass of the Army regarding the transition regime. The events of the last few days took place mostly in cities. This morning it was business as usual in Mogtédo (nearest town to Bomboré).

We advised our employees in Ouagadougou last week to stay home rather than report to work in case of public demonstrations. We advised our employees and consultants yesterday to stop all filed activities and to stay at the Bomboré camp when the situation deteriorated in Ouagadougou. Our local management decided to resume our field activities today, but we’re monitoring the situation closely.

Craig Mackay of Golden Rim also writes in that they have so far felt no impact.

There has been no impact on our operations with the recent unrest. Our office in Ouagadougou remains open and the exploration at Korongou has not been affected.

Steve Todoruk, an exploration geologist with Sprott Global, says he takes comfort in the country’s long-standing approval of mining and exploration on its soil.

Burkina Faso has been friendly towards mining over the last ten years. The country has been one of the top countries worldwide for new exploration and mining. The mining industry provides well-paying jobs and tax revenue. I doubt their next leader will upset this growth engine.

Steve believes that companies operating in the country could see even lower share prices due to tax-loss selling over the coming weeks (you can reach Steve at 1.800.477.7853 or at [email protected] for a review of your junior mining portfolio).

Assuming Burkina Faso leaves its current favorable mining rules in place, then the next few weeks could provide a unique opportunity for certain stocks of companies operating in this country.

By Henry Bonner 

1,2,3,4,5 Bloomberg online

1 http://www.bloomberg.com/quote/ROG:CN
2 http://www.bloomberg.com/quote/ORE:CN
3 http://www.bloomberg.com/quote/OBS:AU
4 http://www.bloomberg.com/quote/SMF:CN
5 http://www.bloomberg.com/quote/RVREF:US