West African gold boom ramps up as bargain hunters continue circling

West African gold boom 2021
Barrick’s US$6.5 billion bid for Randgold is believed to have sparked the current buying spree in the West African gold space.

With gold’s climb back towards US$2,000 an ounce, gold explorers are scrambling to get projects off the ground around the world, but one region has been getting a lot of attention in recent years – Africa.

Gold reached its highest point this week since January and is hovering just under US$1,900/oz.

The metal has been in the spotlight the last few years as global volatility reined due to tense relations between China and the US, followed by a global pandemic.

The metal is known as a “safe haven” for investors during precarious economic times.

Since 2019, the gold price has skyrocketed more than 60% to breach the US$2,000/oz threshold before paring back slightly.

However, it appears to be back on its upward climb driving strong interest in gold exploration and development as companies rush to develop projects to take advantage of record prices.

With Africa richly endowed in many minerals including gold and relatively underexplored, the continent’s potential is attracting the interest of global investors, particularly those from China.

The current region in the limelight is West Africa where a gold boom is underway.

Barrick Gold and Randgold merger puts Africa back in focus

One of Africa’s largest mining service providers Capital says the West African mining industry has seen “significant” merger and acquisition activity in the last two years alone.

This was triggered when Canada’s Barrick Gold scooped up Randgold in what was described as a mega merger and the largest ever in the gold space.

The merger was consummated in early 2019, with Barrick agreeing to pay US$6.5 billion for Randgold.

At completion of the merger, the combined company was worth around US$18 billion.

Capital noted that since December last year, West Africa’s mining sector has experienced “significant” fund raising activity.

This has flowed through to an uptake in exploration as well as mergers and acquisitions in the space.

China on the hunt

The world’s soon to be largest economy is also on the hunt for gold bargains in West Africa and South America.

During 2020, China’s gold sector acquisitions tripled on 2019 levels. Almost 60% of China’s outbound merger and acquisition spending was in the gold sector last year, with miners investing $452 million on African and Middle East assets.

Propelling this is a softening of foreign investment regulations in emerging economies.

Meanwhile, countries such as Australia, Canada and US have heightened their scrutiny of Chinese investments.

An unnamed banker in Johannesburg told Reuters in March Chinese buyers were “aggressively” pursuing gold deals in Africa.

Another unnamed source told Reuters, Chinese companies were fast movers and had access to cash.

“It’s like being in an auction with someone who doesn’t really care if they pay double what it’s worth – they keep bidding,” the executive said.

This was recently played out in the bidding war for former ASX-listed Cardinal Resources, when China’s Shandong Gold Mining swooped in and outbid Russia’s Nord Gold.

The attraction for these companies was Cardinal’s West African gold assets including the Namdinia project which has 5.1 million ounces of gold in reserves.

Thwarted attempt

Another Chinese company that had attempted to shoulder into Africa is Chifeng Jilong Gold Mining which had agreed to acquire Resolute Mining’s (ASX: RSG) Bibiani project in Ghana.

However, this was thwarted after the Ghanaian Minerals Commission suddenly revoked the mining lease in March, then did an about-face a few weeks later and reinstated the licence, but with stipulations.

One of the conditions on the mining lease restoration was that the Ghanaian Government would not recognise its sale or transfer to Chifeng.

This has left Chifeng without a gold asset and still on the look out for potential acquisitions.

Chifeng told Reuters Africa and South American gold assets were more appealing because they were up to 30% cheaper than developed regions.

Additionally, the company noted deals were faster to conclude.

China’s not the only one looking for a bargain

Canadian company Endeavour Mining has been on a buying spree in Africa over the past year – doubling its portfolio of West African gold assets.

Endeavour completed its acquisition of fellow TSX-listed Teranga Gold in February this year after offering a 5.1% premium for the entity.

The main attraction for the Teranga acquisition was its West African mines – Sabodala-Massawa (Senegal) and Wahgnion (Burkina Faso).

This followed Endeavour’s purchase of another TSX-listed entity SEMAFO in July last year after announcing the deal in March – offering a 27% premium.

The appeal for Endeavour was SEMAFO’s Mana and Boungou mines in Burkina Faso.

With the acquisition of SEMAFO and Teranga, Endeavour has become a top 10 gold producer worldwide and West Africa’s largest gold producer.

For 2021, Endeavour has allocated up to US$90 million towards exploration with a focus on its new assets.

Merger and acquisition activity heats up

Last month, NYSE-listed Fortuna Silver Mines made a welcome play for TSX listed Roxgold, which valued the latter at C$1.1 billion.

Both boards have endorsed the tie-up, which would see combined market cap in excess of US$2 billion with listings on both the NYSE and TSX.

The combined entity would have annual production of 445,000oz of gold equivalent in 2021 to generate earnings before interest tax depreciation and amortisation of US$487 million.

Roxgold allure is its West African assets and team – particularly Yaramoko and Sequela, which are described as low cost, along with having reduced technical complexity.

As such, it is expected they will provide meaningful contributions while reducing the overall all in sustaining operating costs.

Roxgold’s Yaramoko mine in Burkina Faso is anticipated to produce up to 130,000oz gold this year.

Junior explorers sitting on West African gold mines

As merger and acquisition activity continues at the big end of town, there are several ASX-listed explorers rapidly advancing highly prospective gold assets in West Africa.

One of these companies is Tietto Minerals (ASX: TIE), which owns the Abujar project in Cote d’Ivoire.

The company has already firmed up 3.02Moz in gold resources and is drilling around 11,000m a month, with six diamond rigs in operation.

Tietto is generating strong news flow as drilling continues to hit high-grade gold, including a company best earlier this month of 1m at 532.5g/t gold.

Since September last year, Tietto has completed more than 230 holes and 50,000m of drilling at Abujar.

A fully funded definitive feasibility study is scheduled for delivery in the September quarter as the company positions itself to become West Africa’s next gold mine.

Another aspiring West African gold miner is Polymetals Resources which has launched a $5 million IPO to fund exploration at its Guinea gold projects.

The West African Craton in Guinea has become one of the world’s largest gold producing regions over past decades.

Polymetals has the Alahine 64sq km project and Mansala which covers 48sq km.

AngloGold Ashanti’s (ASX: AGG) owns the Siguiri gold mine about 37km from Polymetals’ assets.

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