West Africa’s gold boom intensifies as bargain hunters continue to turn
With gold rising to around US $ 2,000 an ounce, gold explorers are scrambling to launch projects around the world, but one region has garnered a lot of attention in recent years: Africa.
Gold has peaked this week since January and is hovering just under US $ 1,900 / oz.
The metal has been in the spotlight in recent years as global volatility has slowed due to strained relations between China and the United States, followed by a global pandemic.
The metal is known as a “safe haven” for investors in times of economic hardship.
Since 2019, the price of gold has skyrocketed over 60% to cross the US $ 2,000 / oz threshold before declining slightly.
However, it appears to be back on its upswing, sparking great interest in gold exploration and development as companies rush to develop projects to take advantage of record prices.
With an Africa richly endowed with many minerals, including gold, and relatively under-explored, the continent’s potential is attracting interest from global investors, especially those from China.
The current region in the spotlight is West Africa where a gold boom is underway.
Barrick Gold and Randgold merger puts Africa back in the spotlight
One of Africa’s largest mining service providers, Capital, says the West African mining industry has seen “significant” M&A activity in just the past two years.
It was sparked when Canada’s Barrick Gold picked up Randgold in what has been described as a mega-merger and the largest ever in gold.
The merger was completed in early 2019, with Barrick agreeing to pay US $ 6.5 billion for Randgold.
At the end of the merger, the combined company was worth around US $ 18 billion.
Capital noted that since December of last year, the West African mining sector has seen “significant” fundraising activity.
This has resulted in involvement in exploration as well as mergers and acquisitions in the space.
China on the hunt
The world’s largest economy and soon to be the largest is also on the hunt for gold bargains in West Africa and South America.
In 2020, Chinese gold sector acquisitions tripled from 2019 levels. Almost 60% of China’s overseas M&A spending was in the gold sector last year, miners who have invested $ 452 million in assets in Africa and the Middle East.
This is propelled by a relaxation of the regulation of foreign investment in emerging economies.
Meanwhile, countries like Australia, Canada and the United States have stepped up their review of Chinese investments.
An anonymous Johannesburg banker said Reuters in March, Chinese buyers were “aggressively” seeking gold deals in Africa.
Another anonymous source said Reuters, Chinese companies are changing rapidly and have access to liquidity.
“It’s like being in an auction with someone who doesn’t really care about paying double what it’s worth – they keep bidding,” the executive said.
This recently played out in the bidding war for former cardinal resources listed on ASX, when Chinese firm Shandong Gold Mining broke in and outbid Russian firm Nord Gold.
The attraction for these companies was Cardinal’s gold assets in West Africa, including the Namdinia project which has 5.1 million ounces of gold in reserve.
Chifeng Jilong Gold Mining, which had agreed to acquire the Bibiani project from Resolute Mining (ASX: RSG) in Ghana, is another Chinese company which has tried to establish itself in Africa.
However, this was thwarted after the Ghana Minerals Commission suddenly revoked the mining lease in March, then flip-flopped a few weeks later and reinstated the permit, but with stipulations.
One of the conditions for the restoration of the mining lease was that the Ghanaian government would not recognize its sale or transfer to Chifeng.
This has left Chifeng without a gold asset and still on the lookout for potential acquisitions.
Chifeng said Reuters Gold assets from Africa and South America were more attractive because they were up to 30% cheaper than developed regions.
Additionally, the company noted that deals were faster to close.
China isn’t the only one looking for a bargain
Canadian company Endeavor Mining has embarked on a buying frenzy in Africa over the past year – doubling its portfolio of West African gold assets.
Endeavor completed its acquisition of fellow TSX-listed Teranga Gold in February this year after offering the entity a 5.1% premium.
The main attraction of the Teranga acquisition was its West African mines – Sabodala-Massawa (Senegal) and Wahgnion (Burkina Faso).
This followed Endeavor’s purchase of another TSX-listed entity, SEMAFO, in July of last year, after the deal was announced in March – offering a 27% premium.
The call for Endeavor was SEMAFO’s Mana and Boungou mines in Burkina Faso.
With the acquisition of SEMAFO and Teranga, Endeavor has become one of the top 10 gold producers in the world and the largest gold producer in West Africa.
For 2021, Endeavor has allocated up to US $ 90 million for exploration by focusing on its new assets.
M&A activity heats up
Last month, NYSE-listed Fortuna Silver Mines made a welcome play for TSX-listed Roxgold, which values the latter at C $ 1.1 billion.
Both boards approved the combination, which would result in a combined market capitalization of over US $ 2 billion with listings on both the NYSE and TSX.
The merged entity would have annual production of 445,000 ounces of gold equivalent in 2021 to generate earnings before amortization of interest taxes of US $ 487 million.
Roxgold’s appeal lies in its West African strengths and team – especially Yaramoko and Sequela, which are described as low cost, while having low technical complexity.
As such, they are expected to make significant contributions while reducing overall sustaining operating costs.
Roxgold’s Yaramoko mine in Burkina Faso is expected to produce up to 130,000 ounces of gold this year.
Junior explorers sitting on West African gold mines
As M&A activity continues in the city’s greater quarter, several ASX-listed explorers are rapidly advancing very promising gold assets in West Africa.
One of these companies is Tietto Minerals (ASX: TIE), owner of the Abujar project in Côte d’Ivoire.
The company has already consolidated 3.02 Moz of gold resources and drills approximately $ 11,000 million per month, with six diamond rigs in service.
Tietto generates strong news flow as drilling continues to hit high-grade gold, including a company that performed best earlier this month of 1m at 532.5g / t gold .
Since September of last year, Tietto has completed over 230 holes and 50,000 m of drilling at Abujar.
A definitive fully funded feasibility study is expected to be delivered in the September quarter as the company positions itself to become West Africa’s next gold mine.