This is a dangerous land. Just across the border are the Sahara wastes where Islamist terrorists and separatist rebels roam free. Inside the country are gangs of bandits and the occasional violent riot by drunken soldiers.
Yet it’s also a land where Canadian miners are eagerly investing hundreds of millions of dollars. The gold belt of northern Burkina Faso, like other regions of West Africa, has emerged as a new favourite haunt for Canadian mining companies, despite a vast array of security risks.
Less than four years after its arrival, Toronto-based Iamgold Corp. has become the biggest private employer in Burkina Faso with 2,200 employees. It plans to invest a further $600-million over the next three years to expand its mine and double its processing capacity.
Like many other Canadian investors, the company sees its future in West Africa’s fast-growing mining sector, rather than in the older mines of South Africa, even though the South African industry is still bigger.
“We’re very confident in the mine, the country and the region,” said Stephen Letwin, president of Iamgold. “There’s a migration out of South Africa and towards West Africa, even though it’s more virgin territory.”
While the grade of the gold in West Africa is not as high as in South Africa, there are other big advantages here: Government relations are better, labour conflicts are fewer, taxes and royalties are often lower, and costs are more predictable.
Mr. Letwin estimates that his company is earning a 15- or 16-per-cent rate of return at its Essakane mine, where it produced about 340,000 ounces of gold last year. It already has plans to expand its mining operations into new areas of its 1,200-square-kilometre concession.
Six major gold mines are now operating in Burkina Faso, with hundreds of other companies in exploration here. The country’s gold production rose by 32 per cent last year. The country is now the third-biggest site of new exploration in Africa, and is projected to become Africa’s fourth-biggest gold producer soon.
Two of its neighbours, Ghana and Mali, are the also among the top producers on the continent, with only South Africa ahead of them. Mining production in South Africa, meanwhile, is falling steeply, with a 13-per-cent decline last year alone, and new investors are looking to West Africa instead.
“We believe that Africa, especially West Africa, is a key engine of potential supply growth for the gold-mining industry, and that the exploration commitment to the region is likely to increase over the medium and long term,” said a recent report by RBC Dominion Securities.
Until recently, there was virtually no industrial development in the northern half of Burkina Faso, despite its gold wealth. It seemed a remote and inhospitable place. The landscape is harsh and semi-arid, on the edge of the Sahara, with gigantic dust storms sometimes blowing through.
Local people discovered gold at Essakane in 1985, and small-scale miners poured in, digging their own pits to extract the gold by hand. This sparked the interest of bigger investors, who learned that the site had a quarter of Burkina Faso’s gold reserves.
A junior Canadian mining company, Orezone Resources Inc., acquired an interest in the site, and Iamgold purchased the asset for $139-million in 2008 as part of its strategy of building mines in several West African nations.
“When I came here in 2008, there was nothing,” says Gilles Hetu, director of health, safety and sustainable development at the mine. He describes how the company had to train more than 1,000 local people in construction skills to get the mine built.
The company also spent about $25-million to move 13,000 people away from the site, building more than 2,000 houses for them. Production began in 2010, and the mine is today generating about $240-million in cash flow after taxes and royalties.
Yet the security threats in the region are significant. Not far from the Essakane mine are the borders of Mali and Niger, two fragile countries where Islamic extremists have kidnapped dozens of foreigners in recent years.
The extremists are so close to Burkina Faso, and the borders so porous, that the Canadian embassy has warned against any land travel to the northern tip of the country, where the Iamgold mine is located. Its executives instead fly into a tiny airstrip on the mine site. “Security continues to be challenging,” Mr. Letwin admits.
Meanwhile, a separatist mutiny in northern Mali has left half the country in the hands of the rebels and Islamists, fuelled by weapons from Libya. And a military coup in Mali’s capital has further exposed the fragility of the region.
Canadian mining companies, including Iamgold, said the coup did not interrupt their operations in Mali, but it is certain to increase the perception of political risk in the region.
Criminality is also a concern. In one incident last year, an Iamgold bus was ambushed by bandits on the northern highway in Burkina Faso, and some of its employees – including a Canadian – were robbed at gunpoint. Even today, there is a 6 p.m. curfew at the mine, prohibiting employees from venturing beyond the mine’s perimeter fence after sunset.
Burkina Faso has a reputation for political stability, with the same authoritarian government in power since 1987. But there could be cracks in that stability. Last year, Iamgold employees had to scramble for safety when drunken soldiers began firing randomly on the street outside their homes during a military uprising in the capital, Ouagadougou.
On the economic front, there have been rumblings of tax increases aimed at mining companies, which have required sensitive negotiations with the government. And the high rate of unemployment is another potential trigger for instability. Last month, about 100 people blocked a road near the Essakane mine for several days to demand more job creation.
“As the largest commercial operation in the area, it was natural that Iamgold would be targeted,” said Bob Tait, a spokesman for the company.
He insists that the military coup and separatist rebellion in Mali have not damaged the company’s view of the long-term growth prospects in West Africa. “We remain very optimistic.”