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ESSAKANE, BURKINA FASO – This is a dangerous land. Just across the border are the Sahara wastes where Islamist terrorists and separatist rebels roam free. Inside the country are gangs of bandits and the occasional violent riot by drunken soldiers.
Yet it’s also a land where Canadian miners are eagerly investing hundreds of millions of dollars. The gold belt of northern Burkina Faso, like other regions of West Africa, has emerged as a new favourite haunt for Canadian mining companies, despite a vast array of security risks.
Less than four years after its arrival, Toronto-based Iamgold Corp. (IMG-T12.55-0.13-1.03%) has become the biggest private employer in Burkina Faso with 2,200 employees. It plans to invest a further $600-million over the next three years to expand its mine and double its processing capacity.
Like many other Canadian investors, the company sees its future in West Africa’s fast-growing mining sector, rather than in the older mines of South Africa, even though the South African industry is still bigger.
“We’re very confident in the mine, the country and the region,” said Stephen Letwin, president of Iamgold. “There’s a migration out of South Africa and towards West Africa, even though it’s more virgin territory.”
While the grade of the gold in West Africa is not as high as in South Africa, there are other big advantages here: Government relations are better, labour conflicts are fewer, taxes and royalties are often lower, and costs are more predictable.
Mr. Letwin estimates that his company is earning a 15- or 16-per-cent rate of return at its Essakane mine, where it produced about 340,000 ounces of gold last year. It already has plans to expand its mining operations into new areas of its 1,200-square-kilometre concession.
Six major gold mines are now operating in Burkina Faso, with hundreds of other companies in exploration here. The country’s gold production rose by 32 per cent last year. The country is now the third-biggest site of new exploration in Africa, and is projected to become Africa’s fourth-biggest gold producer soon.
Two of its neighbours, Ghana and Mali, are the also among the top producers on the continent, with only South Africa ahead of them. Mining production in South Africa, meanwhile, is falling steeply, with a 13-per-cent decline last year alone, and new investors are looking to West Africa instead.
“We believe that Africa, especially West Africa, is a key engine of potential supply growth for the gold-mining industry, and that the exploration commitment to the region is likely to increase over the medium and long term,” said a recent report by RBC Dominion Securities.
Until recently, there was virtually no industrial development in the northern half of Burkina Faso, despite its gold wealth. It seemed a remote and inhospitable place. The landscape is harsh and semi-arid, on the edge of the Sahara, with gigantic dust storms sometimes blowing through.
Local people discovered gold at Essakane in 1985, and small-scale miners poured in, digging their own pits to extract the gold by hand. This sparked the interest of bigger investors, who learned that the site had a quarter of Burkina Faso’s gold reserves.
A junior Canadian mining company, Orezone Resources Inc., acquired an interest in the site, and Iamgold purchased the asset for $139-million in 2008 as part of its strategy of building mines in several West African nations.
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