- Operators in coup-heavy region have seen major share price upticks this year
- New Peter Marrone company says North American investors are becoming interested in higher-risk areas
The London Stock Exchange has long been the home for mining companies digging up West Africa. But that position looks shakier after a new Africa-focused outfit run by former Yamana Gold boss Peter Marrone has picked the Toronto Stock Exchange and perhaps New York as its listing venues.
Just three years ago, Marrone brought Yamana Gold back to London in order to take in more institutional buyers and offer investors a gold company without exposure to Russia or West Africa. Now Toronto has first dibs on Allied Gold (CN:AAUC). Allied will look at a New York listing as well.
So where does that leave London? Once proudly the home of Randgold Resources, there are now only a few gold plays in the region. Endeavour Mining (EDV) is top of the pile, with around half its trading volumes here after taking a premium listing two years ago. Others focused on West Africa include Hummingbird Resources (HUM), Thor Explorations (THX) and Resolute Mining (RSG). Centamin (CEY) also has some exposure, but only through its Doropo project in Cote d’Ivoire, one of the area’s best-regarded jurisdictions.
A spokesperson for Allied said London investors were still keen on Africa but added that “interest [in the region] is now also developing within North American investors”. They added: “Investors are looking for returns, and returns on many African opportunities are often better than those in other areas, including developed markets."
Coup coast
But the region has certainly not made itself a beacon for investor cash. A string of coups and the presence of terror groups have brought on a rethink from even major players with assets in Burkina Faso, Niger and Mali.
Endeavour sold its Boungou and Wahgnion mines to a local Burkina Faso consortium earlier this year. Chief executive Sebastien de Montessus said last month the sale allowed the company to “refocus all the management, but also our security efforts into one single area, which is obviously one of the safest parts of the country”. That means the Mana and Houndé mines. Boungou is in the far east of the country, near the border with Niger.
Endeavour’s share price shows little impact from operating in these areas. Liberum analyst Yuen Low said it was the “go-to” stock for London funds looking for gold exposure.
“Endeavour’s periods of outperformance would tend to suggest that investors are not too concerned about West Africa risk," he added.
The company has largely kept up with the performance of the VanEck Gold Miners ETF (US:GDX), used as an industry average. Endeavour was well ahead of the ETF at the end of May when the gold price surged, although it has underperformed it in the past month.
Midcap moves
Endeavour is a major operator that generates operating cash flow of over $100mn a quarter. Mining in a riskier environment without that scale is a different beast.
Hummingbird has gone through two purple patches in terms of its share price. The first, in late 2017, was as it started up the Yanfolila mine in Mali, a point when its market capitalisation reached £130mn. The second was in 2020 when profits rose on the back of a strong gold price. This run, when the market cap made it to £140mn, ended with a coup in Mali, and by mid-2021 the shares were down by half.
Now, the company is on the up again with a new mine in Guinea. Yanfolila is still running, but Hummingbird had to make site changes and deal with trade restrictions imposed in response to the 2021 coup, the second in two years. These were lifted last year, but an update from last week showed the impact of the various challenges.
Total reserves at the mine fell 126,000 ounces (oz), to 593,000oz, and mine life is down to six years. The company is working on extending that, however. “Exploration plans on greenfield and existing brownfield sites at Yanfolila are currently being implemented and expected to add to the mineral resource base in H2-2023 through to 2024,” Hummingbird said.
Crossing the continent
Shanta Gold (SHG) operates in East Africa. Tanzania has had its own jurisdiction issues – ask any former Acacia Mining shareholder, who suffered the impact of a bogus tax claim. But prospects may be improving. Investment is shifting “towards East Africa from West Africa”, said Shanta boss Eric Zurrin. He highlighted Lifezone Metals (US:LZM), a nickel company backed by BHP (BHP) that listed in New York in July, and increased activity by Barrick Gold (US:ABX) on the ground.
But even with more stable operating environments, and a growth story in Shanta’s case, investors are not paying up for reduced risk. Egypt-based Centamin’s share price has underperformed both GDX and its junior equivalent. Year-to-date, Centamin is down 23 per cent and the VanEck Junior Gold Miners ETF (US:GDXJ) is down 1.4 per cent. Shanta is up 10 per cent, off the back of its new mine performing strongly.
Low from Liberum said “recovery stories and growth allure can outweigh West Africa risk" for mining investors. This is obvious when looking at Hummingbird, which is up 55 per cent in the year to date. Resolute Mining, which has operations in Mali and Senegal, is up 47 per cent based on a turnaround after a terrible few years. Zurrin rightly points out that the “value” in his company, which has been much more stable than the West African operators, was not being rewarded. Looks as though London investors do still like West Africa after all.
