A new report from Ambrian, West African Gold Sector: Growth and Merger Opportunities, highlights the increasing significance of West Africa as a gold producing region and notes how the full spectrum of listed companies operating in the area offer significant investment opportunities. Recent events may confirm this, with Cluff Gold and Crew Gold effectively under offer and the new Barrick Africa could be stalking this region. Earlier this month a big player in the region, Randgold Resources, crowned a year in which it expanded its flagship Loulo operation in Mali, progressed the development of a new mine at Tongon in the Côte d’Ivoire, advanced two major new discoveries and completed the Moto acquisition by posting a 79% year-on-year profit increase on the back of record production at Loulo.
Ambrian notes that globally, +1 Moz gold discoveries have been declining. “Gold production from West Africa has increased by 53% over the last ten years and the region is generating a number of +1 Moz gold discoveries. The region produced some 175 t of gold in 2008, which would place it seventh if rated as a single entity against the top producing countries. On this basis, we suggest the region will rank second behind China in the next few years.
“Ghana remains the dominant producer and, after a period of decline, it has risen in recent years to over 80 t/y. Production from both Mali and Guinea has doubled, to 47 t and 23 t respectively, over the last ten years, while Burkina Faso, Ivory Coast, Mauritania, Senegal, Niger, Sierra Leone and Liberia are rising fast in the gold producer league.
“Our top equities in the region come from the development of a new generation of gold resource discoveries and brownfield development projects. The particular attraction is that they have the potential to grow from a +1 Moz resource base and have attractive EV/resource ratings and prospective operating margins. They are recommended on both fundamental ratings and as acquisition targets.”
Randgold’s attributable group gold production for the year was up 14% at 488,255 oz, boosted by a strong fourth quarter performance from Loulo, where the recently completed plant expansion significantly increased throughput. Loulo’s production for the year was 351,591 oz (2008: 258,095 oz), of which 106,564 oz came in the last quarter. The Morila joint venture – successfully converted to a stockpile retreatment operation at the beginning of 2009 – produced 341, 661 oz, slightly higher than forecast due to better than planned recoveries and grade.
The prefeasibility study on the Massawa project in Senegal was completed, delivering a reserve of 1.5 Moz at a grade of 4.6 g/t and pointing to more upside. The board approved the study which demonstrated that even without the underground resources it meets the company’s investment hurdle rates. It has now moved into the feasibility phase, while the prefeasibility study on the Gounkoto project near Loulo in Mali is on track for completion in the first quarter of 2010. The initial scoping study on Gounkoto defined a robust resource at a significant grade. The new projects, combined with a resource conversion drive, have increased attributable group reserves by an estimated 60%.
In the meantime, the development of the Tongon project in Côte d’Ivoire has continued to make good progress and the new mine is on track to start production in the fourth quarter of this year. At Loulo, the Yalea underground mine is still being developed but contributed a record 57,000 t of ore in the December month. Work on Gara, the second underground mine at Loulo, is scheduled to start during the first half of 2010.
Barrick will soon launch African Barrick Gold (ABG), a new company whose equity it will seek to list in the UK Listing Authority and to admit to trading on the London Stock Exchange. ABG will hold Barrick’s African gold mines and exploration properties. African Barrick Gold will offer approximately 25% of its equity in an initial public offering (IPO) and Barrick will retain the remaining interest.
Addressing the first day in Perth yesterday of the Paydirt 2010 Australian Gold Conference, Convenor of the Conference’s West Africa, New Frontier session, Rick Yeates, said there had been a “massive turnaround” in investor sentiment to what had been more commonly known globally as the African Gold Coast. He said West Africa’s resources potential has emerged after a long hiatus among global investors as “the new Africa’ for Australian fund managers looking to increase their exposure to gold.
“The turnaround has taken 15 years and has largely been on the back of the gold industry,” Yeates said. “Who would have imagined 15 years ago that in 2010, Australian fund managers would be seeking to increase their exposure to West African gold?
“The sector has had to go to extraordinary lengths to convince the Australian market that West Africa is a great place to invest – now it is almost Flavour of The Month. Using Ghana as a launching pad, Australian juniors and mid-tier miners along with numerous service companies, have made West Africa their own.
“They have done so, not in a rape and pillage fashion, but in a highly sustainable manner – adopting Australian environmental and OH&S regulations in preference to the less onerous requirements of their host countries. Significantly, the Australians have set benchmarks in terms of their technical approach to exploration and mining, instilling these skills via extensive training of West African national technical and professional personnel – to such a success level that Ghana for one is now exporting these skills throughout the whole of the African resources sector.”