Oct 30

State of Emergency Declared as Protests Erupt in Burkina Faso

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Burkina Faso’s president has declared a state of emergency and dissolved the government in the country in the face of violent protests demanding his resignation. As the country is Africa’s fourth-largest gold producer, miners with gold projects in the region are no doubt watching the news unfold.

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Aug 12

Sandstorm Gold Teams with Franco-Nevada to Provide True Gold with $120 Million gold Stream

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Sandstorm Gold Ltd. (NYSEMKT: SAND, TSX:SSL) announced a partnership with Franco-Nevada Corporation that will see both companies entering into a US$120 million gold stream agreement with True Gold Mining Inc. (TSXV: TGM) with respect to its Karma Project in Burkina Faso, West Africa.

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May 01

African Politics Change, But Not Its Geology

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No, things might not be so secure. But short-life gold mining may be profitable…

DUNCAN HUGHES has been head of research for RFC Ambrian Ltd. in Perth, Australia, since 2010. A geologist, he has more than 15 years of experience in the resources industry and managed the discovery and development of the Prospero, Tapinos and Alec Mairs ore bodies for Jubilee Mines/Xstrata.
Now, with gold prices hovering around $1300 an ounce, there’s not much room for error, says Duncan Hughe. In this interview with The Gold Report, Hughes counsels that investors should seek high-grade, low-cost projects with exploration upside in stable jurisdictions…
The Gold Report: After hitting $1380 an ounce in March, gold fell below $1300 and has hovered around there since then. Do you expect the price to change much either way in the next few months?
Duncan Hughes: That’s not easy to predict. I think $1300 per ounce seems a sensible assumption for 2014. If it were to fall much below that, most of the sector would be operating at a loss.
TGR: Assuming a gold price of $1300 per ounce, what are the qualities that will distinguish the junior gold companies that become successful?
DH: In the recent past, companies paid too much attention to the size of resources and potential scales of production. The focus now is profitable production scenarios. Low-cost producers and undervalued developers that look likely to become low-cost producers are the key for investors.
One way to achieve stronger profit margins is through higher-grade ore bodies. Grade has always been king but is now even more so. Low-cost producers are not only most likely to survive this difficult market; those making profits may also pay dividends. Given that share-price appreciation is more challenging than previously, dividends have become more attractive.
TGR: To what extent should investors restrict themselves to companies with management teams with winning track records?
DH: If I were an investor, I’d look for management with a track record. If management doesn’t have that track record – not only finding mines but bringing them to production – then the asset is the overriding factor. If the asset is strong enough, I’d want board members with a nice mix of technical skills – a geologist, an engineer, perhaps even a metallurgist – complemented by members with financial skills and access to equity and debt finance.
TGR: Which type of company is most likely to be taken out?
DH: Because funding is much harder to secure than it once was, the main focus will be developers with strong projects that require significant initial capital expenditures.
TGR: How should investors balance potential reward and risk in West Africa, specifically with regard to the various gold-producing jurisdictions?
DH: Several years ago, gold companies in West Africa traded at a premium because of the excellent exploration opportunities engendered by the geology. Since then markets have changed, and investors have become risk averse. In Africa, we have seen the Arab Spring, a push for nationalization and the coup in Mali. These events remind investors that the African political landscape is not as secure as some other parts of the world.
But the geology of the Birimian Greenstone Belt hasn’t changed. A number of countries, such as Côte d’Ivoire, Liberia and Burkina Faso, have vast fortunes in land that is still relatively underexplored. Ghana has a track record of political stability and stable gold production. Next door, in Côte d’Ivoire, which lacks this stability, there is the same geology but many fewer mines. Guinea is working through a new mining code, and I would say that it is still a risky place to consider.
Burkina Faso, on the other hand, is a great place. It has got seven gold mines coming into production there.
TGR: Liberia was considered a failed state for decades. How great has its recovery been?
DH: I see real opportunity there. It’s like Burkina Faso, at an earlier stage of development, obviously. I visited after the 2011 election, which was peaceful. Ellen Johnson Sirleaf, who won the Nobel Peace Prize that year, was re-elected.
I met the minister of mining and came away with the feeling that the Liberian government is very supportive of mining. Before the political strife began in 1980, Liberia was a significant iron ore producer and retains that infrastructure.
TGR: What’s the size of the resource at New Liberty?
DH: It is 924,000 ounces (Koz) at 3.4 grams per ton (g/t) and a quite high strip ratio. According to the definitive feasibility study, the mine is expected to produce 119 Koz annually for the first six years of production at $900 per ounce. This should be a profitable operation.
TGR: That’s a short mine life. How much exploration potential do you see?
DH: A lot. Not necessarily at New Liberty itself. In that part of the world, that’s probably a bit too far to truck to New Liberty, but what’s exciting about Ndablama is that it is shaping up to be another standalone gold operation. New Liberty is the present, but Ndablama is probably the future.
TGR: We recently did an interview with analyst Richard Karn and he pointed out that 200 of the 700 ASX-listed mining and resource companies are effectively moribund.
DH: You could make a similar judgment about the TSX Venture Exchange.
TGR: Certainly. Karn argued that the culling of these “zombie” companies would be a positive step. Do you agree?
DH: Yes. Many companies on the Australian Stock Exchange, the TSX Venture Exchange and London’s AIM exchange are not going to make it, and that consolidation will be a good thing. As I mentioned earlier, investors in the recent past just looked at the size of a resource and said, “Wow. There’s 2 Moz there, and this stock looks cheap.” But they weren’t looking at the quality of those ounces. I think investors have since wised up. Too late, however, for many companies.
TGR: Some 12 months ago, when it seemed that gold might fall to $1000 per ounce, financing pretty much dried up. Now that gold seems to have stabilized around $1300 per ounce, has the funding picture improved?
DH: I don’t think it has improved that much yet. You said that the gold price seems to have settled, but let’s face it, this stability has only existed for a very short time. I think major financiers and the equity markets need to be persuaded that there is a floor of perhaps $1200-1,300 per ounce. When this occurs, funding will improve.
TGR: Duncan, thank you for your time and your insights.
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Apr 22

Roxgold Feasibility Study Suggests After-Tax IRR of 48.4% for Yaramoko Gold Project

Gold Price Comments Off on Roxgold Feasibility Study Suggests After-Tax IRR of 48.4% for Yaramoko Gold Project

Roxgold Inc. (TSXV:ROG) announced the results of its feasibility study prepared pursuant to National Instrument 43-101 for the 55 Zone on its Yaramoko exploration permit in Burkina Faso. The study suggests an initial life of mine of over seven years and envisions an underground mining scenario. Highlights from the study also include a mining plan based on 4.9 grams of gold per tonne, and an Internal rate of return of 48.4% after taxes with a payback period of 1.6 years.

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Mar 17

SEMAFO Inc. (TSX:SMF) VP Investor Relations Robert LaVallière Talks Gold in Burkina Faso

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SEMAFO Inc. (TSX:SMF) VP Investor Relations Robert LaVallière talks about the Mana Mine in Burkina Faso.

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Jan 06

Burkina Faso Mine Gets Environmental Permit

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True Gold Mining (TSXV:TGM) was up 2.5 percent in mid-day trading Monday after the company announced it has received an environmental permit for its Karma gold project in Burkina Faso.

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Oct 18

Mining Gold in the Eurozone Crisis

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How could gold mining help ease the Eurozone crisis and boost tax revenue…?

THIBAUT LEPOUTTRE is the editor of the Caesars Report, a newsletter and mining portal based in Belgium that covers several junior mining companies with a special focus on precious metals and base metals.
Holding strong views on Eurozone mining, Lepouttre has a Bachelor of Law degree and two economics masters degrees that have forged his analytical approach to the mining sector. Considered a number cruncher, Lepouttre focuses on the valuations of companies and is consistently on the lookout for the next undervalued mining company.
Here he tells The Gold Report why gold mining investors simply can’t wish upon a star and hope the drill bits will deliver something. They need to focus on miners that have what it takes to get through the down times…
The Gold Report: German finance minister Wolfgang Schäuble said last month, “The Eurozone is clearly on the mend both structurally and cyclically.” How do we square this statement with the record high unemployment, economic contraction and soaring debt of the southern Europe Eurozone members?
Thibaut Lepouttre: We must look at this statement in the light of the German elections in September. Schäuble belongs to the same political party as Angela Merkel, and he was giving us a pep talk to help his chancellor get re-elected. Based on what I see here in Europe, I don’t have the impression that things are getting much better, and I think many more structural reforms will be necessary before that happens. The high yield on sovereign debt and the undercapitalized banks have been dealt with on an if-needed basis, without tackling the underlying, chronic problems.
TGR: In Spain, for example, there is 27% unemployment. What kind of political pressure does this put on the Eurozone? Do you think that Spain, Greece and Italy can be kept in the Eurozone?
Thibaut Lepouttre: I don’t think the Eurozone will split up because for most of its countries the advantages of staying in the Eurozone outweigh the negatives. If any country were to leave the Eurozone and depreciate its new currency, it would be beneficial in the short term but harmful in the longer term because it would be tougher getting its debt financed on the international markets. And having depreciated once, most investors won’t trust it again, fearing further deprecations. Now, because of the single currency, Greece can easily find an investor in, for instance, Germany or Belgium, while it would mainly be limited to domestic investors if it were to get out of the Eurozone.
That said, I think the European Union is largely responsible for the crisis in southern Europe. Not only did it allow dubious countries to join, it also supported dubious spending. In a specific area in Spain, there are four parallel roads and two railroads in an area just three kilometers wide. Lots of Spaniards bought second houses or apartments, and thanks to the availability of cheap mortgages, people could actually pay them over 40, 50 or even 70 years. The last example would take three generations to pay off. It is painfully clear now that there was an urgent need for a banking regulator that could have scrutinized the lending of money to people who couldn’t afford it.
TGR: Could natural resources help regenerate the European economy?
Thibaut Lepouttre: No question. Italy has oil and gas. Greece has gold. Cyprus has gold, copper and even gas. Spain has gold, copper and silver, and Portugal has tungsten, gold and copper. In Spain, it would make sense to recentralize the mining permitting process because every decision now is made by a local government. This way, mining could be encouraged on a national level and several thousand or even tens of thousands of jobs could be created.
If this recentralization were to occur, it might then be possible for Spain to institute a 5% gross production royalty on gold mining so it would receive gold that’s being mined in the country as bullion for its vault. This could strengthen the balance sheets of its national banks. By contributing increased labor and tax flows and increased gold holdings on the balance sheets of the national banks, mining could be a huge boost to Spain and to any other country in southern Europe that would take such measures. To clarify, this potential 5% royalty is my personal thought and not an official law.
TGR: Aren’t large-scale environmental protests against mining in Europe a serious problem?
Thibaut Lepouttre: There are always protesters. I agree that every modern mine should be as environmentally friendly as possible, but in the end governments need to balance potential environmental problems against job creation and increased tax revenues.
TGR: You predicted in May that gold would trade between $1250-1500 per ounce. You have been proven correct. Where does gold go from here?
Thibaut Lepouttre: We’ve had very strong resistance at $1410 per ounce, and when gold tried to break through just a few weeks ago, it dropped right back to the $1300 per ounce level. I believe that gold will continue to trade sideways from here: between, let’s say, $1200-1410 per ounce. I’m not sure what kind of major economic catalyst could result in a push strong enough to break through this resistance.
TGR: The Federal Reserve has backed off from tapering quantitative easing. Will this raise the price of gold over the long term?
Thibaut Lepouttre: We’ve seen QE over the past three years, including the past two years when gold fell in price. The continuous printing of money by the US will definitely be beneficial to the price of gold, but the problem is that this new money will cause inflation only when the velocity of money rises again. In a normal economic cycle, this happens between 24 and 36 months, but now the velocity of money is much lower than normal. I think we’ll see inflation rising 48-60 months after the printing started, that is, within two years from now. And that will indeed benefit the price of gold.
TGR: Times are tough, and there’s little margin of error for successful investors. What qualities must mining companies demonstrate for investors to favor them?
Thibaut Lepouttre: I like to see a management team with a track record. The era of inexperienced managers is over. Further, a company must present to investors and potential investors a clear path and timeline toward production because now all anybody cares about is adding cash flow. In addition, the project must be financeable. I don’t think any company would now be able to find financing for a $2-3 billion low-grade copper project in Chile. Finally, in this downturn, effective transparency is more important than ever because investors always want to know what the company is doing behind the curtain.
TGR: You have spoken in the past of the importance of jurisdiction in resource investment. In this regard, what do you like about Australia?
Thibaut Lepouttre: Australia, like Canada, is a real mining country with many skilled and experienced people who are subject to very clear mining code. The jurisdictional risk is close to zero, as Australia realizes it needs its mining sector to support its entire economy. It’s a great place to work. A few years ago, Australia instituted a new levy called the Minerals Resource Rent Tax (MRRT) to garner a larger share of mining profits. There was a huge protest against this tax, and last year, the first year it was implemented, it generated only $200 million instead of the expected $3 billion. So I think Australia will abolish this tax within the next few years as the negatives outweigh the benefits.
TGR: What’s your prediction for the price of iron ore?
Thibaut Lepouttre: It’s currently trading around $135-140 per metric tonne of 62% iron content. This will drift down to maybe $110/mt because a lot of new projects are coming on-line and onstream, and even though the Chinese economy is still growing, it’s growing at a slower rate. I think we should expect a long-term price of about $100/mt.
TGR: How much does iron ore depend on the Chinese economy?
Thibaut Lepouttre: About 60-70% of Australia’s iron ore is being shipped to China.
TGR: Where do you stand on the future of the Chinese economy?
Thibaut Lepouttre: That’s a difficult question because we just can’t rely on any numbers the Chinese produce. There’s not a lot of transparency. Without trying to sound like a conspiracy theorist, it is possible China is trying to hide things from the rest of the world. I do believe its economy is still growing, but I also believe the world will have to accept single-digit growth instead of the 10-12% we’ve become used to.
TGR: What’s your assessment of the jurisdictional risk of West Africa in general?
Thibaut Lepouttre: Ghana and Burkina Faso are the most reliable countries because they know their economies are based on gold mining, and they have been making tremendous progress attracting foreign investment in mining. 
TGR: What’s your assessment of Colombia’s jurisdictional risk?
Thibaut Lepouttre: Much better than five or six years ago. I think Colombia could very well be the next Peru, whereby mining will be encouraged as long as the companies color between the lines and don’t do anything they aren’t supposed to do.
TGR: Let’s talk about Canada. Do you think that the mining industry in Canada is in decline? There are problems with both provincial and federal permitting, with relations with First Nations people, who are claiming oversight over developments, and with the TSX Venture Exchange. Recently, many British Columbia juniors seem to prefer working in Mexico, rather than in their home province. What do you think?
Thibaut Lepouttre: I believe that Canada is a top mining destination and will continue to be so. Most projects will get permitted, but maybe not with best case scenarios. Mexico is very attractive because of its gold and silver history and its much lower labor costs. But since Mexico has announced plans to increase its mining tax, I do think a lot of companies will return to Canada because this makes Mexico less attractive than before.
TGR: What do you like about tungsten?
Thibaut Lepouttre: Tungsten has some irreplaceable uses and thus scores very high on the list of governmental strategic minerals, about the third highest in the E.U. and US I’m pretty sure that the Department of Defense has a tungsten stockpile. China dominates world production; it has also been the predominant world exporter for decades, but has now started to stockpile tungsten. China has become a net importer. So it has become essential to develop tungsten projects outside China in order to guarantee continued supply to the West.
TGR: Can we expect tungsten prices to increase?
Thibaut Lepouttre: I think so. I’m perfectly comfortable with the current price: $400-410 per metric tonne. Most mining companies will make a lot of money at those prices. If China continues its new stance, I believe we will see a price increase.
TGR: Given all of the losses investors have suffered over the last couple of years, what are the factors that should keep them in the market?
Thibaut Lepouttre: It all comes down to having a decent selection procedure. I can tell you that about 25-30% of the mining companies on the TSX Venture Exchange today won’t survive this downturn. Investors need to take a look at companies with cash in the bank, real value in the ground and management that can deliver the goods. This is not the time to wish upon a star and hope that the drill bits will deliver something.
TGR: Thibaut, thank you for your time and your insights.
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