Mining Leaders: West Africa (preview)

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In association with:

politics & Economy 4 lead article: Always Something New

28 q&a

9 q&a

Pierre Coussey, Gold Fields Ghana Amadou Baba Sy, Malian Ministry of Mines 10 project focus: World Gold Council 11 q&a: M. Mouhamadou Niang, Publisher: Freestone Publishing Field Research

African Development Bank 12 project focus: Sierra Leone Mining Reform 13 q&a

29 COMPANY FOCUS: PMI Gold 30 COMPANY FOCUS: Pelangio 31 MARJET FOCUS: Retention Tensions 32 project focus: Nangodi 33 map: Ghana's Major Gold Reserves 34 ANALYSIS: The Populist Voice 36 q&:a: Mark Calderwood, Perseus Mining

Country Coordinator: Gabriella von Ille

37 Leader insight

Country Editor: Emma Tracey Project Assistant: Nana Akosua Akyaa Agyeman Headquarters Regional Editor: Mathew Youkee Production Editor: Samantha Eyler

Benjamin Aryee, Ghana Minerals Commission 14 ANALYSIS: Corporate Governance 16 COMPANY FOCUS

Staff Writers: Emma Crowley, Jesse Snyder & Steffan Adams Art Director: Miguel Camacho Torres

Douglas MacQuarrie, Asante Gold 38 project roundup 41 COMPANY FOCUS: ASAP VASA

Design Assistant: Karen Montenegro Administrative Managers: Silvia González & José Rincón International Media Coordinator: Karen Delgado Executive Directors Charlotte de Casabianca & Raluca Monac

Ghana Chamber of Mines 18 LEGISLATION OVERVIEW 20 q&a

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42 lead article: Golden Stallions 45 box: The Benefits of Contract Mining 47 q&a

Printed in Canada by the Lowe Martin Group 2013

GOLD BURKINA FASO

Ibukun Adebayo, London Stock Exchange 21 q&a: Tom Butler, IFC Mining (World Bank)

Dwayne Melrose, True Gold Mining 48 FEaTURE INTERVIEW: Steve Letwin,

GOLD GHANA 22 lead article: Almost Famous 26 FEaTURE INTERVIEW

IAMGOLD 50 SEMS EXPLORATION MAP 52 Q&a: Kevin Bullock, Volta Resources 53 Q&a: Peter Spivey, Amara Mining 54 MAP: Burkina Faso's Major Gold Reserves

Twitter.com/MiningLeaders

55 project focus: Yaramoko issuu.com/mining-leaders

Peter Anderton, AngloGold Ashanti

56 project roundup

Mining Leaders

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GOLD general 58 lead article: Restoring the Faith 62 FEaTURE INTERVIEW

mining technology & services 94 lead article: Local Flair 100 company focus: Orica

Consultancy, financial & legal services 122 lead article: Feeling the Pinch 126 Q&A

101 company focus: Afrilog 102 Leader insight Mark Bristow, Randgold Resources

Andrew Opuni-Ampong, Deloitte Ghana

64 q&a: Richard Young, Teranga Gold 66 q&a: Howard Miller, Avnel Gold 67 ANALYSIS: A Warm Welcome 68 ANALYSIS: The Mali Conflict 70 Q&a: Andrew Dinning, Sarama Resources

127 company focus: BBE Werner Bester, Cummins SA

128 company focus

105 project focus: Banlaw 106 company focus

71 Q&a

CAE Mining 130 Q&A: Peter Leon, Steven De Backer, Atlas Copco

Neil Woodyer, Endeavour Mining 72 company focus: Sovereign Mines of Africa 73 Q&a: Daniel Betts, Hummingbird Resources

131 company focus: MacCormick

108 company focus: MBC

132 Q&A: Claude Baissac, Eunomix

109 company focus: Aggreko

133 market focus: Ease of Doing Business

110 q&a

134 company focus: Clyde & Co. 135 q&a

74 project roundup

iron ore & other metals

Manus Booysen, Webber Wentzel

107 company focus: Scientific Services

Kevin Hughes, Panafrican Group 112 company focus: BIA Overseas

76 lead article: At War No More

113 company focus: Roymec Technologies

81 company focus: Nemex Resources

114 company focus: Capital Drilling

82 project focus: Tonkolili

115 BOX: Local Procurement

84 q&a

116 company focus

Marcus Courage, Africa Practice 136 leader insight: Alexander Keepin, Berwin Leighton Paisner 137 Q&A: Christopher Welch, Ocean Equities

ml recommends Anton Mauve, West African Minerals 86 FEaTURE INTERVIEW: Graeme Hossie, London Mining 88 lead issue: (Ore) Out of Africa

GBM 117 DRILLING FOCUS: Rock Bottom 118 MTS roundup

138 lead article: West Side Story

120 Q&A

140 hotels

90 project focus: Simandou South

142 Dining out

91 lead article: Africa's Latest

144 directory

92 company focus: Sama Resources

144 advertisers' index

93 company focus: Sierra Rutile

Franky Botha, AEL West Africa

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Mining Leaders

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politics & economy

4

lead article

Always

something

New I

n the nineteenth century, as European explorers pushed further into the African continent, an ancient Greek phrase re-entered the lexicon: “Out of Africa,” Aristotle had written, “there is always something new.” In the excitement of the time, when explorers to Timbuktu or the source of the Nile brought back tales of new species and remote tribes, the phrase seemed to capture the mystery and surprise of the continent. But for the ancient Greeks, the idea of “the new” had more ambiguous connotations and was often associated with a surprise of the unpleasant kind. In 2012, there were a number of nasty surprises. An Islamist uprising in Mali, a guerilla uprising in western Côte d’Ivoire, and violent antigovernment protests in Guinea all made international headlines.

Political risk is an important consideration for all international investment, but in Africa it remains particularly pressing. Despite recent flare-ups, however, the data shows an increasingly peaceful and democratic continent, one that boasts some of the strongest economic growth prospects in the world.

Mining Leaders

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lead article

The Akosombo Dam is one of Ghana's largest investments in its electricial infrastructure

Less than 20 years ago the vast majority of West African countries were ruled by autocratic governments.

Today, of the 15 countries that make up the Economic Community of West African States (ECOWAS), only Burkina Faso, Togo, Guinea Bissau, and Gambia were considered authoritarian regimes in a recent report by the Economist. Among the 11 democracies in the group, several countries—including Senegal and Ghana, often regarded as the regional bastion of plurality—have developed vibrant democratic systems. Even Guinea and Niger, which were slower to introduce major political reforms, have experienced peaceful transfer of power following recent elections.

The influx of weapons from Libya in the wake of 2011’s “Arab Spring” was a key catalyst in the Malian uprising, but that situation aside, military coups have become less common across the region. In countries that only recently emerged from civil war, such as Liberia and Sierra Leone, murder rates have dropped precipitously.

Liberia’s president, Ellen Johnson Sirleaf, reelected in 2011 for a second term, is a Nobel Peace Price winner, having been recognized for her commitment to nonviolent change and women’s rights. Civil society groups are growing, and as the region gains democratic experience, a new

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approach to elections, involving conflict­­-prevention strategies and strengthening the judiciary and secu­ rity forces, is taking hold, according to a May 2012 report by the International Peace Institute.

Lion economies Street uprisings and anti-government protests remain, but they are unlikely to cause regime change and are fre­ quently motivated by price increases on key goods such as food and

46%

of FDI to sub-Saharan africa went to West Africa in 2011 power. But with most countries in the region experiencing strong economic growth rates, these protests too will likely become less frequent. Ghana’s GDP grew at over 14% in 2011 and at over 7% the following year. The World Bank’s 2013 Africa Pulse report forecasts that annual growth in sub-Saharan Africa will exceed 5% between 2013 and 2015. Many of the economies, such as Burkina Faso, Côte

d’Ivoire, Liberia, Nigeria, and Sierra Leone, are expected to grow at over 7% during this time. As international investors seek to harness the growth potential of the continent, West Africa has become the region of choice.

According to Renaissance Capital, an emerging markets investment bank, the region received over $16 billion in FDI in 2011, 46% of the total for subSaharan Africa.

Unsurprisingly, natural resources pro­­jects are major recipients of these cash flows. Nigeria, the region’s largest country and biggest oil producer, received over $6 billion of FDI in 2012, up from $5.5 the previous year. Ghana too has seen major investments in the hydrocarbons sector as it seeks to develop the 600–million barrel Jubilee offshore oilfield. But for most countries in the region, mining remains the single biggest source of foreign exchange earnings. Gold accounts for 40% of exports from Ghana, Guinea is home to a number of world-class iron ore and bauxite projects, and in recent years landlocked Burkina Faso has seen a wave of investment that has led to eight gold mines coming online in the last five years. In poor countries with small populations, even a single mine can have a huge impact on economic fortunes. In 2012 Sierra Leone grew at nearly 18%

>5%

Anticipated average gdp growth for sub-Saharan africa from 2013–15 Where gold comes to life on the back of first production from two foreign-operated iron ore mines.

The continent has in abundance the commodities that the rest of the world, and particurlary Asia, require. At the turn of the millennium China’s trade with Africa was under $10 billion; in 2013 this figure topped $166 billion.

TSX-V:TGM truegoldmining.com

Trickle down?

Peace and economic growth have confounded the doomsayers who, at the turn of the century, predicted that Africa would remain a basketcase. However, despite an improving economic outlook, parts of the continent remain desperately poor.

According to IMF figures, eight ECOWAS countries—including Mali, Burkina Faso, and Guinea—have a GDP per capita under $650, placing them among the world’s 20 poorest countries. Unsurprisingly, the question dominating much of the political discussion in West Africa, is, “Where does the money go?” Investments in infrastructure and educational and health facilities have been made, but still too much money is skimmed off the top by politicians. In April 2013, an agent of BSG Resources was arrested, accused of burning documents that reported how the firm had acquired the massive Simandou iron ore project in Guinea following the payment

of millions of dollars of bribes to government officials.

Following the election of long-term opposition leader Alpha Condé in 2010, the Guinean government has taken a new stance towards mining.

In the wake of the Simandou scandal, Mines Minister Mohamed Lamine Fofana told international media that the government was taking “an extremely tough stance on corruption,” with fines or revoking of licenses should any company be caught paying bribes. Guinea was also at the forefront of a wave of “resource nationalism” that has seen West African gov­ ernments propose higher royalty rates, windfall taxes and increased state participation in mining projects. The country’s September 2011 mining code introduced a freecarried stake of 15% in companies mining for iron ore and bauxite, with the option to increase the stake to

35% on a fully paid basis. In April 2013 the code was amended to reduce government holdings for projects that process their ore in-country rather than export their raw product.

A growing trend Proposals to redistribute mining rev­­e­ nues have not been limited to Guinea.

In Ghana, mining firms saw their corporate tax payment rise from 25% to 35% in 2012 and a 10% windfall tax on mining projects was announced in the government’s 2013 budget statement. Across Ghana’s northern border, Burkina Faso’s government is considering a 20% tax on the sale of mining titles in an effort to prevent the “flipping” of properties. Even less-established mining countries like Liberia and Côte d’Ivoire have announced reviews of their legislation. Nigeria, so long focused on hydrocarbons revenues, remains Mining Leaders

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lead article

<$650 GDP per capita in Mali, burkina faso & guinea

Some investors worry about greater resource nationalism in Ghana, where in 2012 corporation tax increased from 25% to 35%

largely unexplored by mining companies and mineral production accounts for just 0.3% of GDP. Fewer than 1% of the country’s 7,000 licenses are being worked, according to Sunday Ekosin, president of the Progressive Miners Association of Nigeria. In Mining Leaders’ survey of over 50 mining and service firms, Nigeria ranked as one of the least attractive investment destinations. However, pres­ sure from illegal gold mining, whose value the government pegs at around $50 billion per year, appears to have forced the government into action. In January 2013 it introduced a plan for the mining sector that aims to boost the industry’s share of GDP to 3% by 2015. Other countries that could soon receive a larger proportion of mining investment include Sierra Leone, where consultancy firm Adam Smith International has advised the government in redrawing a pro-investment mining framework, and Senegal, where Macky Sall, a geological engineer by profession, was elected president in March 2012.

region. Ghana’s election was a closerun affair that led the main opposition party to challenge the results­ —in which president John Mahama was reelected—in the Supreme Court. As of May 2013, reports suggested that an overturning of the election result remained unlikely. In Burkina Faso, Blaise Compaoré, president since 1987, may face stiff public opposition in his attempts to rewrite the constitution in order to run for a fifth term. Popular protest like that which occurred in Côte d’Ivoire remains a distinct possibility in West Africa, but the region’s growing democratic experience, slowly strengthening insti­ tutions, and rising educated middle class should prove strong enough to withstand violent uprisings.

Other economic challenges remain. The Eurozone crisis has dented invest­ment and tourism from one of the region’s key trading partners. A slowdown in Chinese demand for raw materials would also hurt exports of iron ore and industrial materials. The Sahara desert’s encroachment on agricultural regions in the Sahel in nations such as Burkina Faso and Senegal could lead to increased agricultural imports and a spike in food prices. Investment in infrastructure and agriculture will be crucial if the region is to ensure that the poorest sectors of society benefit.

The outlook may seem uncertain and unexpected setbacks are bound to occur, but West Africa has never been better prepared to face these challenges.

Incoming FDI by African Region (US$Bn)

Eastern

Central

Northern

Southern

Western

Several West African nations held elections in 2012. The election of the All People’s Congress party with a strong majority in Sierra Leone and the reelection of Sirleaf ’s Unity Party in Liberia bode well for the continuation of the peace process in both countries. Sall’s election in Senegal is likely to herald greater fiscal responsibility and the suppression of separatist movements in the Casamance

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Source: Economist, March 2, 2013

q&a

Trouble &

Triumph

Amadou Baba Sy Minister of Mines Malian Ministry of Mines

As the continent’s third-largest gold producer, Mali has a well-established mining industry. But its recent conflict has shaken investor confidence. Amadou Baba Sy, the country’s Minister of Mines, says investors have no need to fear and that production has been unaffected. New proposals to the mining code will further strengthen the country’s position and diversification will lead to future exploitation of base metals.

How were miners affected by the recent conflict? What is your message to investors worried about further political instability?

Mali has peace and tolerance at its foundation. To safeguard the country’s investments, the state has established an Interministerial Commission composed of the Ministries of Defense, the Interior, and Foreign Affairs. We now have a president in place, a national unity government, and a parliament. Security around the country’s mines—an important source of wealth for Mali—has been assured and operators now have no problems with the safety of their assets. The vast majority of Mali’s mines lie in the unaffected south of the country, though two exploration permits have been granted in the region around Timbuktu. After the occupation, these license-holders activated the article related to force majeure to put their work on hold. Mali is a secure investment destination and investors should expect much cooperation and help from the government. The crisis was severe but it was also exaggerated internationally. Investors should remain aware of our attractive fiscal codes and remember we welcome mining investment.

create 1,000 direct and indirect jobs. It will allow us to extract gold contained in other minerals such as silver and platinum and to offer a product which meets international best standards. We also plan to build links with the local jewellery industry.

The government wants the mining sector to diversify into bauxite, iron ore, and uranium. What infrastructure is needed to accomplish this?

Sahara Mining, an Indian company, began iron production in February 2013 near Bamako, in Koulikoro in the south. Uranium can also be found in the southwest near Faléa. The Canadian firm Rockgate Capital is working on the Faléa project, which has measured and indicated resources of 29.58Mlb of uranium, 27.94Moz of silver, and 74.22Mlb of copper. But I agree that diversification can only take place if we commit to infrastructural development. Mali’s landlocked position impedes its growth. We need railways to Conakry and Dakar; development plans are already on the table.

How does the ministry plan to improve working conditions for miners?

I have visited mines all over Mali and clearly fewer accidents are occurring than before, though conditions are still not good enough. We need companies to work with the state. Four tons of artisanally mined gold are exported per year, so we need to work toward implementing a stronger legal and regulatory framework for artisanal miners. The long-term objective is to facilitate the progression from artisanal mining to small-scale formal mining.

How does the state plan to increase mining’s contribution to the economy?

Construction of the Kankou Moussa refinery began in March 2013. This is a huge source of employment—the refinery will

The Malian mining code was redrafted in 2012. What were the main amendments?

The reform focused on diversification and community development. In the past, development was incoherent and disjointed. We envision greater integration in the future: schools, healthcare, potable water, electricity, which will apply to all mining companies, with the support of territorial jurisdictions.

The new mining code also provides for the creation of a fund to finance research, training, and promotion of mining activities.

We also aim to build a national reserve of gold because future generations won’t be able to benefit from the mining boom when reserves deplete. Amendments to environmental legislation will reinforce the preservation of diverse ecosystems in both the exploration and exploitation phases.

What are your production targets for the coming two years?

We are the third-largest gold producer in Africa and we have big expectations for the coming years in terms of growth. We hope to reach 55 tons by 2014 and new projects coming online, such as those of Gold Fields and Papillion Resources, will aid the process.

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Project focus

World Gold Council Year founded 1987 Company Type

Market development organization

No. of members

23 member companies

World Gold Council Around the world gold is bought, sold, and thought of in myriad ways that reflect cultural, historical, and economic attachment to the precious metal. In China gold can be bought per gram in vending machines, in India it represents an investment in the future economic security of a family, and in the West gold jewelry often marks the beginning of lifelong commitment. Scientists prize it for use in medicine and technology, and to governments and investors every­where gold functions as a long-term store of value. These multiple uses and its high level of portability and liquidity make gold a popular asset—but also make it the perfect commodity for illicit trade.

The misuse of natural resources to fuel conflict over the last 15 years—from diamonds in Sierra Leone to timber in Cambodia—has led policymakers to brainstorm new ways to guarantee secure commodities chains. To con­ tribute to the discussion, the World Gold Council published the ConflictFree Gold Standard in October 2012.

Though only a very small amount of gold is linked to unlawful or armed conflict, all members of the gold supply chain must take appropriate action to stamp it out completely.

Terry Heyman Director Responsible Gold World Gold Council

The product of two years’ dialogue between academics, researchers, deve­ lopment agen­cies, and civil society, the Standard aims to elaborate international procedures for responsible gold min­ ing. It requires miners to follow specific instructions to demonstrate there are no links between their gold production and conflict groups or events, regardless of whether conflict has occurred in the area. The Standard also encourages social investment and offers guidance to miners on how to operate in conflict-ridden areas.

Spot Price of Gold in US$ Since 1970 $2,000 $1,800

2013

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Terry Heymann, Director of Res­ ponsible Gold at the World Gold Council, cites the DRC, where over four million people are estimated to have died in the last 15 years, as an example of a conflict-affected area under review. The DRC produced 16 tons of gold in 2010—and yet the opening of Banro’s Twangiza mine in 2011 marked the first corporate mine in the country. Over 70% of global gold production originates in non-OECD countries and some 10% to 15% comes from small-scale sources, which often prove harder to regulate and therefore offer criminal networks more opportunity for illicit production and trade.

By implementing the Standard, the World Gold Council aims not just to lessen the amount of illegitimate gold in international markets, but also to promote the metal’s positive effects for some of the world’s poorest countries—through roy­­­alties, employ­ ment, and infrastructure.

As the Conflict-Free Gold Standard sets out demanding criteria, there is no set date by which gold explorers and miners must publically declare their conformance. However, by early 2014, the World Gold Council expects the first public disclosures of conformance to begin appearing in the company reports of all industry members and affiliates.

q&a

A Developing

Continent

M. Mouhamadou Niang Division Manager, Industries and Services African Development Bank

The African Development Bank (AfDB) was established in 1964 with a mandate to reduce poverty and promote economic and social development in Africa. In the last 10 years the bank has begun to expand its private-sector investment. Mouhamadou Niang leads the Industries and Services division, which oversees the bank’s investment in the mining industry, an area of increasing importance to West African economies.

Industry, mining and quarrying made up 7.1% of your loans and grants in 2011. What is the bank’s strategy towards this sector?

Mining investment is very important to the Bank and we have a large number of investments across the continent. Our investment strategy is focused on transforming industry and local economy rather than on extraction and direct shipping. We support mining companies that want to bring some form of industrialization to local countries. We adapt our various financial products to the particular stages of mine development, including quasi-equity instruments and senior loans; we are also the largest limited partner in private equity funds in Africa. One of these, the New Africa Mining Fund, is an equity fund that invests in mining projects at the exploration stage and focuses on the upstream stages of the mining investment cycle. Our presence during this stage means we can positively influence the investment to have an increased industry and social interaction.

What is the importance of West Africa in AfDB’s mining investment porfolio?

We have projects across the region. Examples of our investments include developing facilities for the concentration and pelletization of iron ore and encouraging phosphates producction for local consumption in the fertilizer industry. Guinea, one of our major investment countries in West Africa, has been through some turmoil in recent years. We have switched from an investment role to an advisory role, to help develop the framework for the new mining code, and have also been assisting in the review of the mining concessions, in ortder to make them more balanced and sustainable.

What is your outlook on Guinea’s development?

Several development institutions, including AFBD, World Bank, and UNDP, are now looking at Guinea’s mining concessions to come up with agreements that are equitable and beneficial for all stakeholders including investors, local communities, and government. This is a first and very important step. A second, equally important stage is to promote increased local

transformation of mineral resources. Finally, Guinea must diversify away from natural resources, and increase investments in human resources and agriculture.

A recent AfDB report proposes increasing royalty rates above the current modal rate of 3%. Could this deter investment?

Every mine has its own peculiarities but one thing is clear: Africa needs to benefit more from its natural resources. To date, mining has been more of a curse than a blessing. In March 2013, the African Mining Vision business plan was approved by the Council of Ministers of the African Union. The plan aims to better facilitate governmental negotiation and technical skills but conversely to also be credible and have a positive relationship with mining companies. Most of the mining companies are supportive of the move because they understand the only way to have sustainable investment is to have equity in the sharing of benefits. Aside from increases in royalties, the structures of distribution and their uses, particularly between central and local government, must be looked at. Initiatives such as the Extractive Industries Transparency Initiative, which encourages reporting of payments made by mining companies to government, complement efforts to see more resources go to local and central governments.

The African Development Bank is undergoing decentral­ ization and is setting up country offices. What will be the impact of this change?

The AfDB is at the heart of development finance in Africa, investing around $10 billion every year in areas such as agribusiness, infrastructure, health and education, and private sector development. For any financial institution, especially one with a mandate like ours, it is crucially important to be aware of the realities on the ground, close to our stakeholders, so that we can meet the economic development challenges in a timely manner, both in advisory and lending products. Our decentralization program is ambitious, aiming to open offices in all of our member countries to support these goals.

Mining Leaders

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Project focus

Adam Smith International Project Duration Objective

2008–13 Advise on restructuring Sierra Leone’s mining legislation and establishing National Minerals Agency

Sierra Leone Mining Reform While many other West African nations were opening up to inter­ national investment in the 1990s, the coastal state of Sierra Leone was mired in a civil war that only ended in 2002 after UN intervention. In the years that followed, the government turned to independent consulting firm Adam Smith International (ASI) to help it reformulate its mining code in order to attract foreign investment and ensure sustainable and equitable growth of the industry.

“There’s a growing demand from developing countries for advice on reforming and implementing extractive industry governance,” says Gareth O’Hagan, head of profession for the extractive industries for ASI. “Some countries choose to work with private consultants rather than international institutions and through establishing a detailed contract can demand a high level of performance and work rate through well-defined terms of reference.”

Having started work in the country in 2008, ASI finally signed off on its Sierra Leone contract in March 2013, following the establishment of the country’s National Minerals Agency, one of ASI’s key recommendations.

ASI’s five-year involvement with Sierra Leone can be attributed to its focus on guiding the implementation of the reforms it proposes. “We

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“Legislation is less than half the battle: implementation is often the area where things fall down, especially in countries with low government capacity. So we’re not just about advisory—we like to get things done.”

prefer not to just hand over a white paper to a government,” says O'Hagan. “Legislation is less than half the battle: implementation is often the area where things fall down, especially in countries with low government capacity. So we’re not just about advisory—we like to get things done.” Between 2008 and 2010 ASI advised the Sierra Leonean government on legal and institutional reform, developing a new model for the minerals sector, supporting the negotiation of large mining concessions, and helping formulate a new strategy for the artisanal mining subsector. The process culminated in the drafting of the 2009 Mines & Minerals Act. Following the Act’s passing into law, ASI advised the drafting of further regulations aimed at bringing international best practices to the areas of environmental protection,

community development schemes, and health and safety regulations.

The establishment of the National Minerals Agency, a semi-autonomous state regulator, was a crucial piece of the governance puzzle that can now gradually be solved. “This was a huge step,” says O'Hagan. “Having a professional regulator responsible for awarding titles and implementing regulations—rather than a govern­ ment ministry—is a major benefit for private-sector investors.” In addition to defining the mandate of the Agency, ASI also helped source technical and administrative support and developed a robust financialmanagement process. Efficiency and transparency in the collection and distribution of mining revenues will become an increasingly important focus for Sierra Leone’s government.

By 2015 mining is estimated to bring in nearly $200 million in annual revenue, almost a third of the government’s total income. The potential benefits of a well-defined, transparent, and equitable mining policy are huge: “Across the seaboard of West Africa there is great potential for economic growth,” says O'Hagan.

“These are countries with small populations and huge resources.

I expect them to follow Ghana’s example and enter the ranks of lower-middle income countries.”

q&a

Mining on the

Gold Coast

Benjamin Aryee CEO Minerals Commission

Ghana has a long tradition of gold mining—the country was in fact known as the Gold Coast prior to independence. But by the early1980s a lack of investment had contributed to a severe contraction in the industry. A number of reforms, including the establishment of the Minerals Commission of Ghana in 1986, helped revive the industry. Today mining contributes 6% of Ghana’s GDP, compared to1% in the mid-1980s.

What role has the Minerals Commission played in the formal­ization of small mining operations in Ghana?

In 1989 the Commission began to regularize small-scale mining, which had before been informal and unorganized. The regularization aimed to combat illegal mining and generate sustainable employment and growth in undeveloped rural areas.

The proportion of small-scale gold mining in the sector has since risen from 2% to 28% in 2011. Small-scale mining formally includes any mining operation under 25 acres; applicants for these licenses, typically granted for an initial period of five years, must hold Ghanaian citizenship.

How has the regulatory framework for large-scale projects developed since the establishment of the Minerals Commission?

This framework has evolved since the 1980s to take account of Ghana’s vision of using its mineral resources to transform its economy within a win-win environment for all stakeholders, and has succeeded in attracting majors like AngloGold Ashanti and Newmont and mid-tier international and local miners.

Three types of large-scale licenses exist: reconnaissance and prospecting licenses to cover the entire exploration process, and a mining lease. The process starts with a cadastral search, after which an application may be submitted if the area of interest is unencumbered. Buffer zones are required between restricted areas like water bodies and areas where operations are allowed.

An application goes through a mandatory 21-day publication in the district where the project is to take place. A favorable response is considered along with a technical and financial capacity criteria in recommending that the minister of mines issue a reconnaissance or prospecting license. In the case of a mining lease, where the mineral of interest has been identified in commercially exploitable quantities, after exploration, a feasibility study will be submitted to the Minerals Commission, which can recommend that the lease be granted. The holder may then justify and be granted approval by the government to retain a proportion of revenue generated in foreign currency for procurement of mining equipment and the servicing of loans procured externally.

Ghana has made some adjustments to the fiscal code for its mining industry. Which of these changes harbor the greatest impact for the future of mining in Ghana?

Fiscal imposts must support Ghana's economic advancement while reflecting the conditions of the global economy. As gold prices have increased, both the government and many Ghanaians have expected to receive a higher contribution from mining profits. The state, hoping to provide a more efficient tax system for the sector with equitable conditions for all stakeholders, has recently made some changes to the fiscal regime, including a royalty rate pegged at 5% from a previous range of 3%–6%, and capital allowances at a fixed rate of 20% across a five-year period, compared to the previous initial rate of 80% in the year of investment, followed by 50% on a declining-balance basis.

Additionally, under the Minerals and Mining Act 2006 (Act 703), any company that invested $500 million or more was entitled to negotiate certain fiscal terms through a stability or development agreement with the state. Discussions are underway with the only two companies with such agreements, AngloGold Ashanti and Newmont, to make their agreements more equitable under current circumstances and to ensure a level playing field for all mining companies in Ghana.

What initiatives will the Minerals Commission advocate over the coming five years?

We want to push local content in the industry. More locally owned consultancy and mining-services firms now operate than in the 1980s—but we want to push this further. Mining companies must submit annual procurement plans to the Minerals Commission for assessment of local-content provisions. The Commission will develop a list of products and services available locally; company that chooses not to procure the local products and services will lose its concessionary status and have to pay full duty on imports.

Mining could contribute 25% to Ghana’s GDP, if we concentrate on value-added products and local input. We hope to build capacity so that even when Ghana stops mining, it will remain a mining support and services center for the entire region.

Mining Leaders

13

analysis

Corporate Governance

by Melvin Glapion Managing Director Kroll Advisory Solutions

that it is sourced from only a handful of countries. The table below shows the resources mined in selected West African countries.

score of 35 in 2012 (with 0 as highly corrupt and 100 as very clean), compared to an average of 66 in Western Europe and 73 in the United States.

Spurred by the potential of unexploited reserves, West Africa continues to attract international capital flows.

Yet the lack of transparency in national politics, as well as poor corporate governance at the industry level, accentuates the risks undertaken by organizations investing in Africa’s extractive industries.

Equally evident, and with their own set of nuances, are the corporate governance issues within the extractive industries, which exist irrespective of jurisdiction.

The labor-intensive nature of the mining sector intensifies the need for clear and stringent regulation. Corporate governance frameworks are needed not only to build and protect shareholder value, but to develop a dialogue with local communities, improve working conditions, and address health and safety issues.

As investors around the world look beyond their customary borders for investment prospects, a significant proportion of capital flow is Africabound. Rich in resources, the continent offers abundant opportunities. West Africa produces between 1% and 9% of global production of key commodities, which may not seem substantial in absolute terms but is significant given

Transparency issues faced by African governments, institutional bodies, and companies are well documented.

Countries in West Africa are perceived to be highly corrupt; Transparency International’s Corruption Perception Index granted West Africa an average

Primary Resources Mined by Key West African Countries Manganese

Lead

Gold

Iron ore

Cement

Coal

Gold

Iron ore

Uranium

Phosphate Rock

Bauxite

Cement

Bauxite

Copper

Coal

Cement

Manganese

Gold

Bauxite

Phosphate Rock

Ghana

Nigeria

Guinea

Mauritania

Niger

Senegal

Côte d'lvoire

Mali

Sierra Leone

Togo

NB: The above table is indicative of the main resources produced by key producing countries. It is therefore not an exhaustive list of all the resources produced by each country, and acknowledges that other West African countries also produce these resources, but in smaller quantities. Source: Kroll Analysis; The World Bank, “Increasing Local Procurement By the Mining Industry in West Africa” (January 2012)

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Corporate Governance Share of Deals in Sub-Saharan Africa (Aug 2011/Jul 2012) Natural Resources, utilities

Consumer, healthcare, financial services, business services

Defense, manufacturing & construction

Agriculture

Global FCPA penalties (since 1977)

• Complement this with human intelligence, a necessity given the paucity of information in the public domain in West Africa • Develop a relationship chart to map connections to political and industry stakeholders • Understand the quid pro quo arrangements apparent in the industry

Source: Kroll Analysis: Private Equity International, 2012 and FCPA map.com

US regulators see this sector as worthy of scrutiny. Analysis of the fines imposed by the US Department of Justice and the Securities and Exchange Commission for FCPA infringements show that since 1977, 50% of FCPA penalties relate to infringements in the natural resources sector—a key sector for West Africa.

Lack of transparency in national politics or poor corporate governance in industry is worrying; the meeting of the two in West Africa’s mining sector creates a myriad of possible pitfalls for foreign investors.

Key issues arise from the nexus between government and commerce, issues that are evident in the mining sector in West Africa. The sector tends to be of national interest and hence is governmentregulated. It is also highly lucrative, which, in conjunction with a lack of transparency, gives rise to potential corruption-related issues.

Additional concerns relate to ownership and directorship relationships, particularly with respect to undisclosed beneficial owners and politically exposed persons.

The matter of undisclosed beneficial owners is not new; conflicted individuals have been known to hold stakes in target companies through opaque corporate structures in offshore jurisdictions, backed by frontmen. However, it is not just prudent to understand who the beneficial owners of the target company are; beneficial owners of key suppliers also need to be explored. Transactions with suppliers may facilitate inflated or unfounded transfer of funds to politically exposed individuals. Suppliers may be

related parties to the target’s board of directors, executive management team, or its shareholders. The consequence is that, in the absence of corporate governance and transparency, there are greater opportunities for instances of corruption and fraud to occur.

Investors cannot rely on government and institutional initiatives to improve transparency and corporate governance, but need to be proactive about due diligence; critically, the nature and speed of the investment cycle should not prevent sufficient due diligence.

To varying degrees and with different tools, investors and companies can address the transparency and corporate governance void. In order to help identify red flags, mitigate risks, and make informed decisions, investors must adopt a more investigative approach to due diligence.

We see investors rushing into deals, particularly for mid-sized targets, believing the investment is essential to maintain competitive advantage in the region. Despite the speed of the investment cycle, investors must undertake appropriate due diligence to avoid problems becoming apparent post-investment.

The ability to conduct due diligence will vary according to the stage of the deal and access to management information.

Prior to gaining access, investors should: • Use information in the public domain to establish a profile of the company and its management team

Once investors have access to management information, they can build on the work already conducted, and some of the additional areas investors should consider include: • Interrogating the company books and records (keeping in mind there may be a separate set); • Paying particular attention to payments to suppliers, charitable contributions, and consulting relationships • Identifying beneficial owners of the key suppliers Undertaking the above will not guarantee that a company will be immune from corruption and fraud.

Nevertheless, by carrying out these steps an investor will have the knowledge required to devise and implement a set of procedures aimed at combatting operational and financial risk. In the worst-case scenario, they should be able to minimize the fallout if a regulator initiates an investigation.

Kroll is the global leader in helping clients mitigate and respond to risk. We provide a comprehensive range of services to give clients the information they need to make confident decisions in high-risk situations.

We have extensive field experience in some of Africa’s most difficult operating environments including Sudan, Demo­ cratic Republic of Congo (DRC), Algeria, and Angola. Our dedicated Africa team provides local and international clients with a full range of investigative and duediligence solutions.

krolladvisory.com Mining Leaders

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company focus

Ghana Chamber of Mines Year founded

1928

Location

Accra

No. of members

72

ghana Chamber of Mines Although Ghana’s mining history stretches back many centuries, it wasn’t until the late 1920s that the industry found a common voice through the foundation of the Ghana Chamber of Mines. The importance of mining to the colonial economy was underscored by the Chamber’s representation at Parliament.

1957 heralded the Cham­ber’s successful transition to a postcolonial institution.

Today, the body seeks to protect its members’ interests by facilitating communication with the industry’s primary stakeholders.

Membership is categorized into pro­ducing miners, including Gold Fields, Newmont Mining, AngloGold Ashanti, and Ghana Manganese; miners with projects in preproduction; mining contractors and suppliers; and affiliate members such as universities. The Chamber’s CEO Toni Aubynn says that that the main criterion for membership is “a willingness to be part of a team which subscribes to the idea of sustainable mining.” Members are obliged to follow the Chamber’s code of ethics— honesty, corporate social responsibility, and environmental responsibility.

Aubynn judges Ghana’s geology, human resources, legal and political stability, and relative infrastructural advantage as primary reasons for the huge mining investment now entering the country. But he also notes that perceived geopolitical risk might deter potential new investors.

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Government and industry must align their objectives—we want to make mining meaningful.

Toni Aubynn CEO Ghana Chamber of Mines

“Some investors suffer from a historical hang-up—they look at Ghana’s past and its neighbors. But Ghana is stable, understands the value of mining, and respects international agreements.”

A greater concern for investors is the pressure exacted by communities, who many miners believe regard the role of their companies as that of a surrogate government. The Chamber lobbies government and works with

communities to outline the risks involved in mining and the correlative need for proportional reward: “When you look in on the industry from the outside, all that you think is gold is produced and sold,” says Aubynn. “Some stakeholders see the growing price of gold but don’t consider the growing costs. It comes from a lack of understanding that we are trying to improve.”

The Chamber also intends to promote the diversification of Ghana’s mineral resources, to encourage less focus on gold and more commercial exploitation of bauxite, manganese, diamonds, and other industrial minerals such as marble, granite, salt, graphite, and limestone. Production of these minerals can be readily integrated into the domestic economy. The Chamber will also hone its efforts to strengthen its membership and to advocate for the sector on issues such as the development of local content requirements, education, and mining publicity.

Membership Categorization

Membership class

Description

Represented

Mining companies in commercial production for at least one year

Pre-production

Mining companies about to go into commercial production

Contract Mining

Companies providing contract mining services

Exploration

Prospecting/exploration mining companies

Affiliate

Mining and minerals-related service providers, also known as Services Industries

Best Luxury Hotel: West Africa

Labadi Beach Hotel

legislation OVERVIEW LOCAL CONTENT LEGISLATION LIBERIA

“The employment of foreign unskilled labour is prohibited and a preference has to be given to Liberian citizens as regards skilled/technical/administrative/financial/ managerial positions.”

Minerals and Mining 2006 Liberia

GHANA

“Each holder of a mining lease shall submit to the Commission a detailed programme for the recruitment and training of Ghanaian personnel as prescribed…..designed towards the eventual replacement of expatriate personnel by Ghanaian personnel.”

Minerals and Mining Act 2006, Preference for local products and employment of Ghanaians 105

GUINEA

“After a period of five (5) years from the exploitation commencement date, the General Manager of the company shall be a Guinean who has the requisite competences to occupy such a position.”

Guinea 2011 Mining Code 2.4 Local Procurement, Article 107 - (2/2)

MALI

“The holders of mining titles and their subcontractors shall give preference to Malian personnel provided they have the same qualifications [as expatriates].”

1999 Mining Code Mali, Article 126

SIERRA LEONE

“Government restricts use of expatriate workers. A mineral right holder shall not import unskilled labour for the carrying out of any of its operations undertaken under the mineral right.”

The Mines and Minerals Act, 2009. 164. Employment and training of Sierra Leone citizens

DRC

“Mining operators are allowed to hire a maximum of 2 per cent of foreign employees for management staff and a maximum of 4.5 per cent for other positions, but derogations may be granted.”

Mining Code enacted by Law No. 007/2002 of 11 July 2002

BURKINA FASO

More detailed obligations requiring preference to be given to local businesses, ensuring equal conditions as to quality, price, and delivery terms. Mining companies must implement training for local managers to effect the gradual replacement of expatriate personnel.

Proposed Amendment to Mining Code (Law no. 0312003/AN dated 8 May 2003)

WORLD BANK EASE OF DOING BUSINESS 2013 RANKING: ENFORCEMENT OF CONTRACTS AND PAYMENT OF TAXES Cameroon

DRC

Côte d'Ivoire

Ghana

92

185

18

Enforcing Contracts

Paying Taxes

Guinea

Liberia

Mali

Mauritania

Sierra Leone

Source: World Bank Ease of Doing Business Report 2012.

1

Burkina Faso

legislation OVERVIEW In an attempt to gather legislative information on West Africa, it is important to bear in mind the diversity of mining codes and mining traditions across the region.

Mining Leaders has compiled a selection of what it deems the most important aspects of mining fiscal and legislative policy according to available sources and with the caveat that many of these countries are undergoing a transition in regard to their mining policy. Burkina Faso is an example: we have included a proposed amendment to its mining code in relation to local content legislation. Despite a lack of crossregional common legislation over the length of mining and

exploration licenses, it is useful to note that the average time granted for an exploration license in West Africa is 2.5 years, and the average time granted for a mining license is 26 years.

The Policy Potential Index from the Fraser Institute’s Annual Mining Survey is a good source of information for judging the strength of regional mining policies and we have included here the scores of four of the main West African mining economies—Ghana, Mali, Guinea, and Burkina Faso—in this Index since 2008. Finally, mining taxation across the seven main mining economies has also been included as a quick reference point for important fiscal considerations.

PUBLIC POLICY POTENTIAL INDEX: ATTRACTIVENESS OF MINING POLICIES

100

Countries score from 1 to 100: 1 is the lowest score possible and 100 the highest

80 Ghana 60

40

20

Guinea Mali Burkina Faso

2008/9

2009/10

2010/11 2011/12 2012/13 Source: Fraser Institute Annual Survey of Mining Companies 2012/13

ENACTMENT YEAR OF LATEST MINING/ MINERAL CODE/ LEGISLATION

ROYALTY RATE (%) FOR GOLD

FREE CARRIED INTEREST (MINIMUM) FOR THE GOVERNMENT (%)

CORPORATE INCOME TAX (PROFIT TAX)

2003 (new mining set to be implemented by end 2013)

3%

12.5%

30%

2006 (amended 2010)

5%

10%

33%

Guinea

2012

5%

15%

35%

Côte d'Ivoire

1995

3%

10%

35%

Liberia

2000

3%

n/a

35%

Mali

2012

3%–6% (Depending on date 2012 of mine opening)

10%

25%

Sierra Leone

2009

5%

Negotiable

30%

COUNTRIES

Burkina Faso*

Ghana**

*3% is the minimum rate. Actual royalty rates are indexed to gold prices; they increase to 4% for gold prices between USD 1,000/oz and USD 1300/oz, and 5% for prices above USD 1300/oz.

# Not specified in the mining code but the corporate tax code.

**The original 2006 act specified a royalty range of 3% to 6%, but an amendment changed the rate to fixed level at 5%

Mining Leaders

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Source: African Development Bank Group

FISCAL REGIMES OF MINING CODES/MINERAL ACTS IN SELECT AFRICA COUNTRIES

q&a

London

Ibukun Adebayo Head of Primary Markets for South Asia, Middle East & Africa London Stock Exchange

Calling

As Head of Primary Markets for South Asia, Middle East, and Africa at London Stock Exchange, Ibukun Adebayo leads a niched team that works with companies, regulators, and international advisors to bring business to London. By building a reputation for strong post-IPO performance and sustained valuation, LSE has managed to attract a third of all global mining fundraisings since 2000. Adebayo hopes to see that trend continue in 2013.

What are the benefits of listing on LSE as opposed to other international exchanges such as Toronto or Australia?

As an international financial center with high standards of regulation and corporate governance, London offers access to deep pools of institutional capital in both the primary and secondary markets. The largest investors in London’s markets, including BlackRock Investment Management, Legal & General Investment Management, and the Qatar Investment Authority, account for nearly a third of money raised here. This capital is extremely focused and provides stability against the backdrop of changing investment trends that is intrinsic to sustaining the most accurate valuation for a firm in the long term. The worst thing for a company is to come in on day one with a fantastic IPO and then watch its value erode over the next 12 months. LSE has the best post-IPO secondary market performance. As of April 2012, we had 226 mining companies listed with a total market capitalization of $722 billion (compared to 819 listed on the ASX valued at $386 billion and 1675 on the TMX at $535 billion). An Africa-specific advantage is the shared time zone. This trading-time capability means London has an advantage in encouraging Asian or Middle Eastern investors with a growing interest in natural resource stories in Africa. These attributes and benefits make London an ideal gateway for African investment.

LSE works closely with several local exchanges in emerging markets. What is the importance of these relationships?

We believe strongly in close collaboration to reduce costs for investors, and we have a team dedicated to building relationships with global exchanges. These relationships are usually technologydriven as LSE has a cutting-edge, scalable trading technology system developed by MillenniumIT. We have licensed this technology to a number of exchanges in East Africa, such as Kenya, Uganda, and Tanzania. But there has been less development in West Africa, although there are a number of negotiations ongoing.

For instance we are working in Nigeria to help them codify new laws for the listing of natural resource companies, which will facilitate more dual listings. Working with local exchanges gives us

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the chance to understand the background of companies and the regulatory environment in which they operate so we can initiate a smooth transition if and when they come to London.

Why do you think AIM (LSE’s Alternative Investment Market) is more a traditional exchange for African raisings than the TSX or the ASX? It has a great deal to do with history. LSE saw its first listing of a mining company as early as 1888, with the IPO of the Chilean company Antofagasta PLC. Through colonialism, Africa has many historical ties with the UK. These ties have led to the investor base in London having a much more acute understanding of the risks involved in an African investment—and this understanding of the risk leads to a greater ability to price a deal. And that’s all the investor needs. With regards to African listings, LSE offers a sense of comfort and know-how that is unrivaled elsewhere.

How did 2012 compare to previous years in terms of African listings and raisings?

We have always had a strong performance from African companies both on the IPO side and the further capital raising side with 2012 being a mixed year. In 2011, African companies raised approximately $350 million in IPOs on LSE. We had around the same level of primary fundraising for 2012. However, in 2011 we saw a significant amount of secondary capital raised

by African companies—about $3.08 billion dollars. In 2012 that figure was $907 million. In total that means about $700 million through IPO and just over $4 billion in further capital raising in the last two years. Interest in Africa is still increasing; there has been growth in allocations particularly by the London-based investment funds. This year we have seen a number of West African listings such as Sula Iron & Gold, West African Minerals Corporation, and Eland Oil & Gas. Eland, which has assets in Nigeria, was the largest oil and gas capital raising on LSE in the last three years, a fact that further demonstrates the region’s potential. It also shows London’s ability to adequately price risk on African stories in challenging jurisdictions.

q&a

financing opportunity

Tom Butler Global Head IFC Mining (World Bank)

The International Finance Corporation (IFC), an arm of the World Bank, offers advisory, investment, and assetmanagement services to encourage private-sector development in emerging countries. The IFC assists across a range of sectors, from infrastructure to telecommunications to natural resources, investing $1.3 billion in West and Central African development projects in 2012. The figure marked an 8.5% increase on the year prior.

The IFC invests in a wide range of sectors. For mining in particular, what criteria do you use to choose projects?

We invest in two project types by either raising debt or paying for equity. We only offer debt financing to mines ready to start operating or producing immediately but need financial assistance to do so. We are also a more economical debt financing option compared to commercial lenders, as we do not require political risk insurance. We also invest in early-exploration projects, normally by taking a 10%–15% share in the project or company. In either instance, we have to ensure that our investments will prove commercially viable. This means we analyze the project’s geology, mine life, and its contribution to the local and national economies.

Furthermore, it’s absolutely essential that the projects benefit the local communities; if they don’t, we simply won’t invest.

Once you choose the projects to receive investment, how do you monitor their progress and their community contribution?

When we agree to invest in a project, we require the company we partner with to agree to certain protocols: for example, they must produce an annual report on the project’s development and any outstanding issues. Within this report we expect to see information on the company’s community investments and the impact of its work. We also visit the projects at least once a year; but if circumstances require, we can visit every three or four months.

Sub-Saharan African accounts for 50% of the IFC Mining portfolio. How important is West Africa to your investment strategy?

The importance of the region to our investment portfolio continues to increase. We first invested in West Africa in 1996, working with AngloGold’s Sadiola and Yatela projects in Mali. Since then we have continued investing in Liberia, Guinea, Burkina Faso, Sierra Leone, and Côte d’Ivoire. We are analyzing other investment projects within the region, though right now we cannot disclose which ones. The region has become an increasingly attractive investment market since regional political stability began to improve after the 1990s. One only needs to look at how countries

such as Burkina Faso and Sierra Leone have gone from conflict zones, where companies would not invest, into highly attractive investment markets. Their mining industries now include several producing mines, and exploration activity—especially by Australian companies—is increasing every year.

The IFC recently signed a $1.2 million deal with Sama Resources for its Samapleu nickel-copper project in Côte d’Ivoire. What was the rationale behind this investment?

Côte d’Ivoire has just emerged from a civil war that ended 18 months ago; we want to show the country is investor-friendly.

We analyzed the Samapleu project and concluded it has fantastic potential to could become a world-class metals producer.

Furthermore, we believe it will positively contribute to both the local and national economies. If the project reaches production, its revenues will be used to invest heavily in a modern infrastructure system, which will benefit both locals and other mining companies. We are actively encouraging mining companies to share transport systems, whether they be roads, railways, or ports.

At present, sharing such costs are not very popular in the mining industry, but we are trying to change such attitudes.

What challenges does West Africa face in terms of attracting investment and developing its mining industry?

Corruption and political risk remain the key threats, with the latter compounded by the recent trend toward resource nationalism in mining markets across the globe. Poor infrastructure also poses major challenges. When you look at the region’s iron ore markets, which have the potential to develop their respective economies positively, many of them are hindered by lack of transport infrastructure. Landlocked countries such as Mali and Burkina Faso lack infrastructure investment, and without it their mining industries will not be able to develop properly. However, over the next few years, we expect these problems to be addressed as private companies and developmental institutions recognize the investment opportunities available in the region’s mining sector.

Mining Leaders

21

GOLD

ghana

22

lead article

Almost Famous O

n October 15, 2012, rising tensions in Ghana turned violent. Early in the morning Ghanaian police raided an illegal mine in the gold-rich Ashanti region, arresting 100 miners and killing a 16-year-old Chinese boy in the crossfire of a brazen gunfight. The death caused furious protests in mainland China, as well as demands for an investigation into the incident. Conflicting early reports said he died either in police custody, or later in hospital. Very little has been reported about the shootout since.

The arrests came amid years of disputes between Ghanaian officials and illegal Chinese miners, who are ubiquitously stationed along Ghana’s southern gold belts. In 2012 police arrested 210 illegal miners, most of whom were Chinese. Of the estimated 10,000 Chinese miners in Ghana, roughly 7,000 work illegally. “Illegal mining is a massive issue for the country,” says Peter Anderton, senior vice president of AngloGold Ashanti’s Ghana operations. “We have a 100,000–square kilometer lease and illegal mining certainly disturbs the land. Once we try to clean it up it becomes our problem. Who ultimately is responsible? It is a big legislative issue.”

Mining Leaders

23

lead article struggle to contain rising costs, all the while failing to increase production figures and offset depleting reserves worldwide.

Luckily for Ghana, small-scale mining is picking up the slack. Galamseys— artisanal miners who use shovels and picks to dig up minerals (not to be confused with larger-scale illegal miners)—accounted for 20% of Ghana’s production in 2012, or roughly 300,000 ounces. Galamseys are covered by Ghana’s Small-scale Gold Mining Act, implemented in 1989, and rarely skirmish with mining firms. There are roughly 1 million of them scattered around Ghana’s south.

Galamseys (artisanal miners) accounted for roughly 20% of Ghana's gold production in 2012

Unlicensed mines are costing Ghanaian coffers deeply. Illegal miners, known to use strip-mining methods to peel back wide swaths of earth before properly testing its geology, have cost the government over $612 million in damages. They use small milling machines, called Shang Fa, which can pollute rivers and streams. Moreover, the disputes show no sign of quieting. In February of 2013 another incident was reported, also in the Ashanti region, of an illegal miner who allegedly gunned down three Ghanaians with an AK-47 assault rifle.

Similar, recurring stories have absorbed much of the media attention in Ghana’s gold space. Yet the events, at least in terms of investment, have only slightly jostled an otherwise well-anchored industry. Ghana is an established success story in West Africa. In comparison to neighboring countries, it has managed the exploitation of its mineral wealth considerably well.

Ghana produced 2.8Moz of gold in 2012, making it the tenth-largest producer in the world, and second on the continent behind South Africa. Its 2012 mineral production growth of 11.25% was outperformed only by China’s (11.3%), according to US Geological Survey preliminary data. In 2011 Ghana received 27.6% of its total tax revenue

24

through gold production, and the following year its GDP grew 14% on the backs of mining firms.

Despite Ghana’s fast-growing gold sector, many companies stumbled through 2012 in fits and starts, failing to meet production targets and closing mines under pressure from workers’ unions. Ghana’s largest eight mines, which contribute the majority of Ghana’s production, declined 2.6% in 2012 from the previous year (see chart). Costs also inflated markedly.

The real cost per ounce at the eight largest mines increased 14% from 2011, up to an average $900 per ounce, well above the global average of $727.

The trend mirrors a global shift in the market, as commercial miners

This trend toward falling production calls into question the viability of commercial mining in Ghana. Many of the country’s main projects are revived mines from decades, or even centuries, past. Gold grades are dropping while costs rise sharply. Yet repeated holdups on the local level haven’t helped this outlook. Investors are left wondering whether Ghana’s struggles are due to uncontrollable forces from outside, or mismanagement from inside.

Illegal mining might be contained if the necessary legislation and enforcement were in place, critics say, while repeated spats between the Government of Ghana (GoG) and workers’ unions could be prevented. Ghana’s labor legislation is convoluted, and considered overly generous to striking workers, who Gold Production in Ghana 2012

COMPANY

Mine

Gold Belt

2011 Prod (oz)

AngloGold Ashanti

Iduapriem

Ashanti

199,000

185,000

-7

Obuasi

Ashanti

313,000

300,000

-4

Wassa

Ashanti

141,020

160,917

14

Bogoso

Ashanti

160,000

175,431

10

Gold Fields

Tarkwa

Ashanti

717,000

719,000

0

Gold Fields

Damang

Ashanti

218,000

166,000

-24

Kinross

Chirano

Sefwi

290,940

263,911

-9

Newmont

Ahafo

Sefwi

565,000*

561,000

-1

2,603,960

2,531,259

-2.63

AngloGold Ashanti Golden Star Resources Golden Star Resources

TOTALS

2012 Prod (oz)

Prod Change (%)

Source: Mining Leaders research (* Production estimate)

lead article The trend toward falling production mirrors a global shift in the market, as commercial miners struggle to contain rising costs, while failing to offset depleting reserves worldwide are often paid their regular salaries during protests. Public wages more than tripled between 2009 and 2012, ballooning to $4.4 billion, or 68.2% of the GoG’s total revenue. Meanwhile Ghana's deficit soared to 12.1% of GDP. Three teachers’ associations went on strike in 2012, as well as two medical associations and numerous other union-represented groups.

Unions have also complicated mining operations. A weeklong strike at Gold Fields Ghana’s Tarkwa and Damang mines, where the company reportedly lost 14,000 ounces of production, was largely the result of an underperforming profit-share agreement between Gold Fields and its miners. The Ghana Mineworkers Union, which represented the 3,000 protesters, came under strong criticism for the decision to strike.

“These are long-standing theatrics that are not going to change and which we are able to accommodate,” says Gold Fields’ country manager Pierre Coussey. “Just as capital markets organize themselves to look at investment, labor must organize themselves to be part of investment.

This is essential.”

Most observers, however, would likely pin Ghana’s troubles on a global capital market that is growing ever more timid, rather than on local government. According to a PricewaterhouseCoopers survey of 100 junior mining companies’ CEOs, an increasing number of juniors, finding themselves less able to finance costly new drilling campaigns, are opting for acquisitions to replace dwindling mineral reserves. In 2010 37% were planning a growth strategy based on acquisitions, whereas in 2012 that figure jumped to 57%, as exploration becomes less and less viable. Respondents showed little interest in exploration spending in the coming year, with

48% planning greenfield exploration in 2012, compared to 54% in 2010.

Explorers are also using another tack to wring more ounces out of their existing deposits: lower cutoff grades. Nearly a fifth of the CEOs surveyed now plan to extract at lower grades, compared to 14% in 2010.

Even as firms look to merge and acquire in order to spread costs over more ounces of gold, little M&A activity went on in Ghana in 2012. A high-profile merger between Asanko (formerly Keegan) and PMI Resources fell through in February of 2013, after PMI shareholders voted down the proposal, and the seemingly perfect partnership hit a wall. PMI press releases said the deal had overvalued Keegan. The $700 million merger would have given the company (which was to be named Asanko) a $340 million cash base, and allowed the two adjacent projects—Obotan and Esaase—to quickly enter production and expand exploration.

7,000 estimated number of illegal chinese miners in ghana Commercial mining stands to grow steadily in coming years, however, regardless of a stagnant market.

Major mines along Ghana’s four southern gold belts are set to enter production by 2014. TSX-V–listed PMI Resources expects to start production at its Obotan project— which boasts 2.43Moz of proven and probable reserves—in 2014, eventually producing 220,000 ounces per year. Perseus Mining,

listed on both the ASX and TSX, reached commercial production at its Edikan mine early in 2012, and plans to ramp up to 400,000 ounces per year from 2014. Like most other mines in Ghana, the 4.0Moz Edikan project is an open-pit, low-grade deposit, with an average 1.4g/t at a cutoff grade of 0.8g/t. Signature Metals, which is 76%-owned by LionGold Corp., is now developing its 1.47Moz Konongo gold deposit in the Ashanti Gold Belt. The gold at Konongo, with its historical production of 1.6Moz, now lies within 16 known targets.

Ghana remains the most stable mining destination in West Africa, and has managed to keep mining companies, workers, and communities relatively content.

Yet investment-wise its reputation still lags behind its purported potential. The country has nearly completed its transition to become a leading global player, but still falls short in matters of policy and judicial enforcement.

Illegal mining remains a prevalent issue. An estimated 300 illegal miners died between 2011 and 2012, according to a local news outlet. In February 2013 Ghanaian police arrested another 120 Chinese miners accused of illegal extraction, mere months after the issue came to a boil in the Ashanti region, culminating in the death of the Chinese youth. The miners were held for a few days, and then reportedly released. Two months later, in April, 16 illegal miners died after an abandoned mine in Ghana’s central region collapsed.

Without tighter legislation, such headlines seem likely to reappear.

Ghana, as a result, could suffer deeply in a market where only reputation matters.

Mining Leaders

25

feature interview

Gold City,

Ghana Since 2004, AngloGold Ashanti has been operating in southern Ghana along the highly prospective Ashanti Gold Belt. Peter Anderton, the senior vice president of Ghana operations, has been in the region for 30 years, and has taken part in numerous foreign-operated projects. But even three decades of experience could hardly prepare the University of Western Australia engineering graduate for a seemingly unworkable task: reviving the complicated Obuasi mine.

S

ituated along an abandoned stretch of railway that cuts through the center of the Ashanti Gold Belt, the industrial community of Obuasi is as much a mine as it is a city. Over the years, the AngloGold Ashanti–owned Obuasi project has become a part of the city’s infrastructure; it can be difficult to gauge where the mine site begins and the city ends. In some places its underground shafts lead directly onto the streets. “We are now more or less trying to take the mine out of the town,” says Peter Anderton, AngloGold’s senior vice president of Ghana operations.

Its status as an urban mine makes the Obuasi project an outlier in the global

26

mining industry—and so does its size.

With 10.5Moz in proven and probable reserves, Obuasi numbers among the ten largest gold mines in the world. “Obuasi is an iconic global operation” Anderton says. As such, Obuasi presents unique challenges befitting an international mining leader like AngloGold. In order to move mine production forward, the South African mining giant has undertaken extensive infrastructure projects and arranged the relocation of significant numbers of residents. It also implemented a “surface decline” method of extraction to minimize the number of subsurface workers required at the mine, 80% of which lies underground.

In 2014 total production is forecasted to rise significantly, and will reach 700,000 ounces between 2015 and 2017, the company says. But the Obuasi mine has had its fair share of shortfalls. In 2008, four years after AngloGold Ashanti was formed—the company gained the land package through a merger with Ashanti Goldfields—a case study revealed major economic shortcomings in the mine’s operations. A company presentation said the project was “demoralized and losing money” and found no indication that the mine would ever recover. What followed was a radical shake-up, led by Anderton, one that required an immense investment plan ($132 million in 2011 alone) and

Peter Anderton

~12%

contribution of Anglogold Ashanti's West Africa Projects to total revenue

an elaborate infrastructural outline.

Eventually, the company managed to reverse Obuasi's decline and bring its cash flow before taxes (EBIT) from $5 million in 2008 to $200 million in 2012.

To expand the project further, Anderton says AngloGold will invest substantially over the next four years.

But the significance of the Obuasi mine, and AngloGold Ashanti’s ability to restore it, runs deeper than economics. In many ways, neither AngloGold nor Ghana’s mining industry would have been the same without it. When Ashanti Goldfields merged with AngloGold, it marked a transition in the Ghanaian mining sector, making it a regional leader in mineral extraction. In March 1994, AngloGold Ashanti became the first African company to list on the New York Stock Exchange, having listed in London slightly earlier in 1994 in an IPO that raised $454 million.

For AngloGold, acquiring Obuasi —in production since 1897—established the world’s third-largest gold producer as a key player in West Africa.

AngloGold’s regional portfolio makes up roughly 13% of its total revenue, yet Anderton says significant manpower has been committed to the region. Aside from Obuasi, AngloGold operates the Iduapriem mine, also in the Ashanti Belt.

Iduapriem and Obuasi together made up 11.8% of group production in 2011 and employed around 9,000 employees.

In Guinea, the company is operating Siguiri, an open-pit mine with a gold processing plant producing 30,000 tons per day and total mineral reserves of 2.31Moz. AngloGold Ashanti also owns three mines in Mali: Morila, Sadiola, and Yatela, and operates in the Democratic Republic of Congo, Guinea, Namibia, and Tanzania. In total AngloGold produced 4.33Moz in 2011, with a total capital expenditure of $1.5 billion.

Obuasi, the massive AngloGold Ashanti project, is one of the world's few urban mines

Yet while the firm continues to rack up properties and ounces, a shadow was cast over these accomplishments by its struggle to reach 2012 production targets in South Africa after a scourge of worker protests caused long-term shutdowns.

The resignation of CEO Mark Cutifani in January seemed to underscore this. Cutifani stepped down at AngloGold Ashanti to become CEO at Anglo American, the firm’s once-parent company, leaving some observers worried about the long-term stability of the region.

Anderton has a very different outlook toward Ghana, however. Despite its intensity, the upheaval in South Africa shows little sign of spreading north. “We just finalized a labor agreement for two years, and both sides are happy,” Anderton says of his workforce. Rather, the challenge in Ghana is keeping locals from expatriating.

Nevertheless, while it is endlessly difficult to hold onto workers, many return with more specialized skills. And while government promotes local procurement of services, numerous international miners depend on

services that have yet to gain international accreditation. “I came to Ghana in 1983 and at that time AngloGold Ashanti not only owned an inland transportation company, but also a shipping line. Those days are gone,” Anderton says.

Ghana, while it has one of West Africa’s more developed natural resource sectors, is still undergoing constant transformation. In early 2012 the federal government passed a new taxation law that increased taxes from 25% to 35%, and is still deliberating a 10% windfall profits tax. These changes, however, will not apply to AngloGold Ashanti until after 2019. Until then its tax rate will be capped at 30%. Considering the highly technical operations at Obuasi and Iduapriem, as well as an uncertain commodities market, the firm may have to renegotiate with policymakers in coming years to try to extend that rate.

“We will have to deal with this,” Anderton says. “It comes back to operational cost and gold price. It is a project-by-project basis—it cannot be generalized.”

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27

q&a

Time to

Pierre Coussey Country Manager Gold Fields Ghana

Reflect

Thanks to its Tarkwa gold mine, Gold Fields Ghana is the largest employer and biggest tax-paying miner in the country. The company’s new country manager, Pierre Coussey, has a strong background in political consultancy and financing and has managed to bring significant capital to previous projects. Coussey defines himself as a “company mechanic,” tasked with finding solutions to the restructuring of Gold Fields in Ghana.

Gold Fields Ghana has had a presence there since 1993. How has the country changed and developed over this time?

Gold Fields has operated as a responsible corporate citizen in Ghana for the past 20 years. Along the way the company has taken on responsibilities in encouraging best practices in mining processes, health and safety, and environmental and sustainability issues. Our flagship mine in Ghana, Tarkwa, has become one of the most impressive mines in the portfolio of Gold Fields International. At the moment Gold Fields is reassessing its status as a strategic partner for development in Ghana. We need to plan for another 20 years of operations here, by making the company fitter, leaner, more productive, and sustainable.

we believe that biggest benefit we can provide the country is through educating people. Staff who leave Gold Fields take their training into the local economy, creating a climate of excellence. We saw this same process happen in South Africa, where the entrance of Anglo American led to the development of a skilled mining workforce. Firms always need to improve facilities for the communities in the mine catchment area, but the best added-value a firm can provide is training. Before firms invest in a country, they need to know that the human resource base can sustain them. Our new corporate strategy aims to use money efficiently rather than aesthetically by linking our stakeholders with mining communities to make life easier for local people.

What are the motives for the current restructuring?

Resource nationalism is on the rise across the globe, leading companies to reassess their operations. Unlike some other gold firms in Ghana, we have no stability agreement with the government. Companies may no longer take their position in any country for granted, because fundamentally they are corporate citizens. Countries are looking to reassess the role of foreign investment in their economies with an emphasis on sustainable development. Firms like Gold Fields need to reengage with the government and restructure in order to maximize profits and pay taxes. As the years pass firms find they have a different geological supply, more expensive machinery, and rising fuel costs. They need to refocus on their best assets and resources to maximize profitability. The capital markets look at mining firms with a very clear vision; promises you make are promises you must keep. We are now reviewing our exploration strategy and certain assets may be reassessed in terms of their fit with the company profile.

Will the government’s plans to raise royalties and taxation negatively impact your firm and the industry at large?

I’m an economic nationalist: I believe in Ghana and what it can deliver. Gold Fields has a portfolio of assets and capital investments that Ghana needs. However, we have not had much dialogue with legislators. We are exposed by not having a stability agreement but we believe that by right-sizing we can adapt the company to meet the new regimes. There will be some sacrifices but regulators will come to understand that they need to give some leeway to firms if they want to stimulate growth.

What CSR activities does the company employ in Ghana?

Gold Fields has invested heavily in its human resource base and we consider it our most important asset. Obviously there are many potential CSR activities firms can engage in, but

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Regarding labor relations, Gold Fields in South Africa, as well as other companies, has had to deal with problems recently. How are labor relations for Gold Fields in Ghana?

In my view, organized labor relations here are very civil. Labor relations are an integral part of this business and must be understood and adjusted accordingly as the business evolves.

Luckily, Ghana has a climate of peace without civil strife, so we have more elbow room at the table to negotiate. Gold Fields has quite a unique nature in that our workers have exceptional incentives from production and are thus also stakeholders in the company, without being shareholders.

company focus

PMI Gold Ticker

TSX-V:PMV, ASX:PVM, FWB:PN3N.F

Projects

Asanko, Obotan, Kubi

Resource

M&I: 3.11Moz @ 2.16g/t Au Construction

Development 2013

PMI Gold

Given the unique costs and risks of brownfields projects, the decision to develop one over a greenfields project must be closely linked to three criteria: the technical ability of management; the inheritance of good community relations from the previous operator; and, finally, significant resources left to be mined.

PMI Gold, led by CEO and experienced mining engineer Collin Ellison, released its prefeasibility study resource of 3.11Moz in January 2012 on its brownfields Obotan project. The project was previously owned

by Resolute Mining, who produced a total of 750,000 ounces over five years.

Production was halted when gold prices dropped in the early 2000s. In 2006, with prices still low, Resolute sold the processing plant, completed rehabilitation, returned the licenses to the government, and PMI Gold acquired them.

PMI circumnavigated many of the risks associated with greenfields exploration

Our Obotan project is about growth, while we also enter early-stage development at Kubi. We have a clear strategy and expect to become a 400,000oz mid-tier gold producer.

Collin Ellison CEO PMI Gold

when it took ownership of exploration data, feasibility studies, and production data. “We also had a community educated in mining,” Ellison says. “Resolute did an excellent job with community relations.”

Since acquiring Obotan, PMI has built a technical team that includes two geo­ logists, a mining engineer, a lawyer, and a financier, all of whom have extensive experience in African mining. By mid2012, the team had produced a feasibility

Source: PMI Gold.

Obotan Resource Estimate Mineral resource (inclusive of mineral reserves)

Mt

Average grade (g/t Au)

Gold contained (Moz)

Measured

15.57

2.47

1.23

Indicated

29.21

2.00

1.88

Subtotal M&I

44.78

2.16

3.11

Inferred

21.91

1.99

1.40

Based on a 0.5g/t Au cutoff

study confirming the project’s economics.

It shows a $296.6 million capital cost, a 221,500-ounce average annual production for the first five years, an 11-year mine life, and estimated operating costs of $626 per ounce. Assuming a gold price of $1,600 per ounce, post-tax net present value will be $686 million—meaning a capital payback period of just two years. With these strong fundamentals, PMI raised $100 million in equity financing through an overnightmarketed offering in October 2012.

The Obotan project is just the beginning for PMI Gold. With a 580–square kilometer land holding that straddles the Asankrangwa and Ashanti Gold Belts, PMI has developed a clear growth strategy.

The Kubi project, 15 kilometers south of AngloGold Ashanti’s Obuasi mine and on strike with the 60Moz deposit, is in advanced exploration and has a known resource of 348,000 ounces that Ellison hopes to expand to over 2Moz. Greenfields exploration is now taking place at the third project, Asanko, which lies south of Obotan on the same Asankrangwa Belt.

The year 2013 looks set to be a busy one for PMI. Following permitting and final financing, construction will begin at Obotan in mid-2013, with full production targeted to start in mid 2014. Exploration will continue in the Obotan area as well as at Asanko and Kubi in order to increase the company’s gold ounces.

Mining Leaders

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company focus

Pelangio Exploration Ticker

TSX-V:PX, OTCBB:PGXPF

Projects

Manfo, Obuasi

Resource

Manfo estimate H1 2013 Resource estimate at Manfo, exploration at Obuasi

Development 2013

pelangio

In the late 1990s, as capital fled from junior mining stocks into the dot-com boom, Pelangio Exploration’s CEO and president Ingrid Hibbard recognized an opportunity to acquire a project that she knew held potential. “Sometimes the bottom of the market can offer the most opportunities,” Hibbard says. Pelangio Mines, Hibbard’s company at the time, approached Franco-Nevada with a pro­ posal to buy a property lying adjacent to Pelangio’s small piece of land at Detour Lake, Northern Ontario. The 52–square kilometer land package not only sat underexplored on the Abitibi Greenstone belt, one of the world’s most prolific belts, but also had good infrastructure and a mine that had produced 1Moz since the early 1980s. The market took time to recognize the value that was obvious to Hibbard from the beginning, but by September 2011, Detour Gold, led by Gerald Panneton, had demonstrated a 15.6Moz gold reserve on the property and Hibbard had restructured Pelangio’s 50% ownership of Detour to realize a 10,000% combined return for early shareholders.

The opportunity to acquire another prospective camp-sized land package drew Pelangio Exploration to Ghana. Since 2006, the company has acquired over 500 square kilometers of prime exploration ground, including the Manfo project, a 100–square kilometer land package just 14 kilometers south of Newmont’s 19Moz Ahafo mine. Since acquiring Manfo in

30

More 5Moz+ properties have been discovered, permitted, and brought into production in Ghana in the last 10 years than in almost any other juris­diction in the world.

Ingrid Hibbard President & CEO Pelangio

2010, Pelangio has made seven nearsurface discoveries along a nine-kilometer trend, with the most recent discovery, announced in October 2012, continuing to demonstrate mineralization similar to the granitoid-hosted, sericite-carbonatepyrite gold deposits seen at Newmont’s project. “We are beginning to see indications of higher-grade underground potential as well as bulk-tonnage, openpit deposits,” says Hibbard. Intersections on the project include 1.51g/t Au over 61 meters and 8.0g/t over 12 meters. After

completing the drill program, a maiden resource announced in May 2013 recorded 195,000 ounces Au at 1.52g/t in the indicated category and 298,000 ounces Au at 0.96g/t in the inferred category. Pelangio is also developing additional drill targets at Manfo through surface work, leading to another drill program at the property in 2013. Pelangio is also exploring the Obuasi property, a 290–square kilometer property adjacent to and on strike with AngloGold Ashanti’s Obuasi mine, the largest veinhosted gold deposit in the world, with over 60Moz between historical production and remaining resources. The company is currently undertaking soil geochemistry on a trend that demonstrates high grades, though not yet at economic intervals.

Pelangio’s management team, led by Hibbard, a mining and securities lawyer by trade, and Warren Bates, a geologist with global experience in both exploration and mining, is backed by a strong local technical team, which Hibbard sees as one of Pelangio’s biggest advantages.

market focus

RETENtION TENSIONS

The successful development of any mining sector relies on a few fundamental factors: geological deposits, modern machinery, and a technical workforce with specialist skills.

Finding and retaining the latter is proving to be a major challenge for both the Ghanaian government and major corporations oper­ ating in the country. Skilled workers such as engineers or geologists enjoy constant de­ mand for their services; those locally trained or educated in such professions often move abroad to work in new environments that offer better remuneration packages. The government recognizes that more must be done to improve the retention of these skilled workers by offering more competitive salaries and accelerated career progression opportunities. If Ghana is to continue as West Africa’s leading mining jurisdiction—a distinction it has held for the last 20 years— it must focus on retaining experienced and highly qualified geologists or engineers to remain competitive. It is a testament to the country’s education system that students from leading institutions such as the University of Mines and Technology or the University of Ghana are finding immediate employment in countries such as Brazil, Aus­tralia, and India. However, considering that the mining sector accounted for 7% of Ghana’s GDP in 2012, the retention of such students is essential to the future economic development of the country.

John Isaac Kwofie Country Manager SRK Consulting

South Africa, Zambia, and Ghana are the three most established African mining countries. Ghana boasts good programs at the University of Mines and Technology, Tarkwa, and the University of Ghana that provide excellent geological and mining engineers.

But there is a missing link between industry and universities— either the Ministry of Mines or the Chamber of Mines should do more to encourage interaction between the two. Often recent graduates go to other West African countries or to South America, India, or Australia, because there are greater opportunities for them there. In our business of providing mining technical services, finding experienced people is one of our biggest obstacles to growth.

Stephen Southern Regional Director WA Intertek

Like everywhere now, Ghanaian graduates have aspirations that may not be always met by service companies.

Experienced and qualified staff can work anywhere in the world, in Ghana especially, qualified lab technicians are in huge demand. Competitive packages from mining companies can often outweigh offers by service companies.

That is a major issue. Education and professional experience in more remote areas of the continent may be limited. We have to adapt and provide value in other ways­—in training and career progression, for example. We’ve just set up a new office in Burkina Faso. We will convert the premises, carry out upgrades, and locate the staff by mid-2013.

Mark Bruton Regional Manager Knight Piésold

There are many challenges, but certainly from our experiences here on the ground, finding skilled workers is possibly the largest. Getting qualified people is definitely something you have to work toward constantly, especially when it comes to local sourcing of skill. The Minerals Commission and the government want to push local staff and local content, and that’s created some difficulties when handing over the reigns to the local workforce.

My understanding is that many of the experienced staff expatriate, so the country loses many resources anyway: the government is pushing for local content while the local content looks abroad.

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31

Project focus

Nangodi Operator

Abzu Gold

Ticker

TSX:ABS

Resource

Estimate expected May 2013 Release maiden resource

Development 2013

nangodi

Sometimes circumstances can seem to conspire against a project. The potential of the Nangodi project in northern Ghana has been repeatedly proven by the drill results of the firms that have held the property. Just across the border, in Burkina Faso, Endeavour Mining’s Youga mine is producing from the same trend. In the 1990s Australian firm Africwest Gold had to relinquish the project after the fall in the gold price; Nangodi passed through the portfolios of several firms before being acquired by Abzu Gold.

Now the Toronto-based junior has committed to giving the project the attention it deserves.

To do so required a change in strategy for Abzu. When CEO Tim McCutcheon joined in May 2012 he took control of a company that had stretched its financial and human resources to the extreme in order to acquire a diverse package of assets in Ghana. Cash was tight and his first move was to suspend his salary and those of the executive team to guarantee the survival of the company. “I knew it was a good sign when no one left,” says McCutcheon.

“The second thing I did was to look at the lowest-hanging fruit to deliver shareholder value in the nearest timeframe.” As the company sifted through its 16 concessions, with an eye to selling many of them, it became clear that Nangodi, a site previously

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Abzu is refocused on Nangodi. It has been geologically derisked—a fact of which many people are unaware.

Tim McCutcheon CEO Abzu Gold

nangodi

kumasi

Nangodi Work Program for 2012/13 Advance Nangodi discovery Q1 2012—Ground geophysics Q2 2012—Surface sampling and trenching Ongoing geological mapping Q4 2012—Phase 2 step-out drilling >5,000m (~30 RC & diamond drill holes 150m–200m depth) Drill to determine viability of multimillion-ounce resource Q1 2013—Undertake resource evaluation; expected news release by end Q1 2013

mined in the 1930s, had the potential to become a company-maker.

Abzu had acquired the property in 2010 and subsequently signed a JV with Kinross to develop the project. Abzu maintain a 51% operator stake and have committed to spend $3 million in three years, a condition McCutcheon expects have fulfilled by April 2013. In 2011, Abzu completed a large-scale drilling campaign, reveal­ ing a multi-meter, high-grade zone and gold associated with a sheared quartz-feldspar por­ phyry. Combined with previous studies and historic drill results, the geological data for Nangodi is detailed. “It has been geologically derisked—a fact of which many people are unaware,” explains McCutcheon. A further 5,000 meters of infill drilling will allow the release of a maiden resource in May 2013. McCutcheon expects this drilling to allow Abzu to expand the resource along strike. The site also has simple metallurgy, a power line, access to water, and a paved road.

Above all, McCutcheon and his team are motivated by the fact that the Nangodi project was an opportunity very nearly lost. Not many firms get a second chance, but Abzu Gold has turned a corner and adopted a fresh approach. “We are focused, we have an asset of merit, and we are ready to show that to the market,” he says.

Measured & Indicated company focus

Inferred

ghana's major gold reserves (excluding obuasi)

OBOTAN PMI Gold ahafo Newmont

M&I: 3.22Moz If: 1.29Moz

ESAASE Asanko

M&I: 13.4Moz If: 3.35Moz

M&I: 3.83Moz If: 1.25Moz

KONONGO LionGold Corp M&I: 0.77Moz If: 0.68Moz

bibiani Noble Mineral resources M&I: 1.19Moz If: 0.79Moz

chirano Kinross

Obuasi

KUBI PMI Gold

M&I: 0.39Moz If: 0.29Moz

M&I: 0.23Moz If: 0.11Moz

EDIKAN Perseus Mining M&I: 1.42Moz If: 0.6Moz

daMANG Gold Fields

BOGOSO Golden Star

M&I: 7.08Moz If: 2.8Moz

M&I: 1.31Moz If: 3.1Moz

tarkwa Gold Fields M&I: 12.05Moz If: 2.98Moz

nzema Endeavour Mining M&I: 2.1Moz If: 2.7Moz

iduapriem AngloGold Ashanti M&I: 2.99Moz If: 0.51Moz

Mining Leaders

33

analysis

by Sarah Tzinieris Senior Africa Analyst Maplecroft

The populist voice

Across West Africa, voters are loudly singing a populist tune, protesting work conditions, and demanding more equitable wealth distribution from policy makers. Governments, in turn, are making hasty legislative changes. The question remains: is the risk worth the reward in West Africa?

Concerns over resource nationalism in West Africa will gain traction in 2013 amid signs that regional governments are increasingly tar­ geting foreign investors to top up state revenues and appeal to populist sentiment. The risks are particularly salient for mining companies: resource nationalism tends to affect the extractive indus­ try disproportionately due to the large profits, scale, and duration of projects. Together with the slow global economic recovery, rising prices for many of the commodities mined in West Africa, such as gold and diamonds, will also divert the attention of cash-strapped govern­ ments toward the mining sector.

Some of the world’s largest metals producers are identified as most at risk in Maplecroft’s Resource Nationalism Index 2013, with sub-Saharan Africa hosting three of the five countries classified as “extreme risk.” Out of the

Source: the Guardian

To enable companies to identify potential risks arising from the issue,

risk analysis company Maplecroft has developed the Resource Nationalism Index. The Index enables investors to monitor and compare this risk across 197 countries by utilizing qualitative and quantitative data focused on relevant risk drivers. These include: the transparency of a country’s political and legal institutions; its recent history of resource nationalism and state intervention in private investment; government dependency on natu­ral resources for revenue; and economic pressures, such as rising debt and poverty.

Demonstrators in Djibo, Burkina Faso, set up a road block to protest a nearby gold mine

34

197 countries assessed, Zimbabwe, which has the potential to supply 25% of global diamond demand, is identified as posing the most risk. The Democratic Republic of the Congo, which produces around half of the world’s cobalt, ranks second, while Guinea, estimated to hold 26% of the world’s bauxite reserves, is fifth.

However, resource nationalism is far from endemic across the continent.

Out of the 49 sub-Saharan African countries assessed in the index, 32 are classified as “low-” or “mediumrisk.” This variation is also reflected in West Africa, home to seven countries classified as “extreme” or “high-risk,” seven as “medium-risk,” and one as “low-risk.” Nevertheless, resource nationalism appears to be intensifying in the region, with mining code revisions in countries such as Guinea catalyzing copycat reviews elsewhere. This trend is also likely to persist in the longer term, given the region’s vast amounts of unexploited mineral resources, especially iron ore, gold, uranium, copper, and diamonds.

The case of Guinea highlights how long-established mining opera­ tions can become targeted with minimal warning in regimes with weak governance and rule of law.

A controversial new mining code announced in September 2011 man­ dates a review of all foreign-operated mining concessions in an attempt by the state to improve transparency and ensure a more eq­­uit­­able financial return. Besides the extra costs

Mining Leaders

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