Jurisdiction: Africa & South America

In the last episode, I shared some thoughts on Canada, Australia, Central Asia, the Caucasus and Europe, and exploration and development destinations in general. Today I will talk about Africa and South America, two vast continents where large commercial discoveries continue to be made. And that is the attraction. Geologists and explorers take a view that their chances of finding a company-making asset is higher in Africa or South America than, say, in the traditional mining hubs of Canada and Australia.

My first job back in the day was as an exploration geologist for Rio Tinto. And I flew out to South Africa exactly one month after Nelson Mandela was inaugurated as president of South Africa back in 1994. A quick mental arithmetic will tell you that was almost 30 years ago. And since then I have worked in various countries up and down the length and breadth of Africa. Of course, it's an enormous continent of huge diversity. So generalizations and emissions are going to have to be made. Forgive me, please.

In the late 1990s, I went to Africa. I went to West Africa on the back of a research report called The Search for Quality Ouncers, which I co-authored for HSBC. Companies were making large oxide discoveries across West Africa, and in the subsequent decade, there were seven new gold mines built in Burkina Faso. The future looked bright.

My time in West Africa recently, however, has shown that it's becoming increasingly difficult and dangerous to work there. What started as an Islamist insurgency has now spiraled into a complex and terrifying mess of banditry, kidnapping, tribal and religious warfare, criminality, smuggling, and artisanal gold mining. I'll refer to this kind of broad area of instability now as the red zone, where it's unsafe for Westerners to work without the security cordon of a private army.

Thanks to the poisonous cocktail of instability within the red zone, I am slightly down on West Africa as a whole because the security situation continues to deteriorate and it's spreading season by season, year by year. I refer you to an interview I did with Liam Morrissey for Crux which covers this in more detail. In short however, I find it hard to justify the risk of losing geologists and local workers and technical staff in security incidents. What started in Mali spread to Burkina Faso and Western Niger. And there were also flashpoints in Northeast Nigeria and Northwest Cameroon. And the situation is bad, and it's spreading in almost every direction. So you can now add in Chad and Niger, all of northern Nigeria, much of Cameroon, and trouble coming into northern Ghana and northern Ivory Coast. It's really so sad having to make a negative judgment call on the geography because the ??? is superb and the people are just such a joy to work with. And perhaps Mali is the most difficult to categorize since Eastern Mali was where the insurgency started. The country has had two coups in the last two years and yet gold production from the South and the West continues. Indeed, led by companies like junior Cora Gold with a spectacular Sankora deposit, new discoveries are still being made and good ones at that.

From a resources perspective though within that sphere of instability, the better, more advanced projects will progress within a secure perimeter, but grassroots exploration will gradually dry up. It's simply becoming too unsafe to do the scout work and frontier exploration that is needed to make fresh greenfield discoveries. Brownfield's exploration around the flanks of existing operations and deposits can and will continue for the time being at least until perhaps a corporate concentration lapse or some kind of taking the eye off the ball occurs and avoidable deaths happen. But grassroots exploration, where there's trouble in West Africa is in a long term downward trend. And clearly we all know that without the grassroots exploration, feeding that hopper of targets and new projects eventually the sausage machine of discoveries dries up. Outside of the amber and red zones, however, on the fringes of safety and beyond, the opportunities still exist. The Kenyeba Inlayer of eastern Senegal and far west in Mali and much of the Ivory Coast have superb geological potential. An inlayer, by the way, is a geological feature where older rocks that are normally covered

Guinea Conakry, Liberia and Sierra Leone are a long way away from the Red Zone and as such security issues are not as acute as in the countries mentioned above. However, Liberia and Sierra Leone are actually separated from the Red Zone by Guinea and Ivory Coast. I first visited Guinea on an analyst's trip to Seguru in 1998, just before Seguru's first And that eventually turned into a 7 million ounce deposit. On that same trip, Mark Bristow, then CEO of Rangold Resources and now the CEO of Barrick Gold, told me that Rangold Resources exclusively invested into Francophone West Africa because it preferred the Napoleonic code and the French legal system.

Guinea is a former French colony and it's worth separating the big infrastructure minerals there from the smaller stuff that juniors or independents can do. The bauxite production and the iron ore potential is strategic and political. The Americans are in town co-owning the 14 million tamper anon producing national bauxite company CBG. The Chinese are there in large numbers offering infrastructure for mining rights and the Russians are there having trained the military for decades and offering mining services and security contracts.

The latest for Rivenforce are the Turks with a diplomatic and trade push as well as some private companies, some Turkish private companies. Although the balk site and the iron ore space is crowded there is the opportunity for smaller companies to explore for gold in Guinea. Moving on, Liberia and Sierra Leone do offer geological potential but you need deep pockets to work there. Exploration is expensive in the jungle and David Redding, then the CEO of Oris Mining, me a few years back that a brutal contributing factor for New Liberty going bust on top of the 2013 Ebola epidemic and falling metal prices was the fact that there were no other gold operations in Liberia. This meant that Aureus effectively needed to have a spare processing plant in stores which killed the working capital and contributed to breaking the company.

Further afield, Nigeria, which has a strong reputation as being corrupt and dangerous, does have tremendous geological potential. One company doing great work in Nigeria is Thor Explorations, which has brought the Sigalola mine into production this year. So one might legitimately ask if this is a new dawn for Nigerian mining. Unfortunately, it feels that Nigeria is actually getting more difficult as the red zone of instability, fundamentalism, and banditry encroaches from the north.

Next. Right, Ghana, formerly known as the Gold Coast, there's a clue in the name.

Unfortunately, Ghana is difficult as well. For a start, it's been very well explored. So a lot of the low-hanging fruit has been picked. And another factor is that the majors hold dominant land positions in Ghana. So getting licensed tenure for the juniors on one of the main gold-bearing structures is actually quite difficult. And there are security challenges up in the north, and the bureaucracy can give you a hard time or a headache. For the very determined and for the very experienced, there's still opportunity in the country.

And a good example has been set by Iron Ridge Resources, who have made great strides with the Iwoia lithium discovery in southern Ghana on the coast between Takuradi and Accra. That's really value added. Thinking outside of the gold box and coming up with a future metal idea in Ghana. Good stuff. But again, you need to find your way in. It's one of those things, you can be driven by the geology, but that's not enough in itself. You need to have a local champion, someone who knows how to work in the place and how you can get things done without paying bribes.

Moving east, Sudan has been taken off the terrorist list, which is great. There's great geological potential in Sudan. And even though there's no commercial mining there yet, it's actually the second or third largest gold producer in Africa due to all of the artisanal production. Personally, from what I've observed, it's really hard to obtain a license cleanly in country. Well, it has been over the last few years. It might have changed in recent months since I last looked.

Carrying on round, Eritrea. What an extraordinarily beautiful and complicated country. It's a police state, it's very small and difficult, but the people who work there love it. Ethiopia is now off the cards due to the instability and the war, which is such a pity. What a stunning country, I absolutely love Ethiopia. It's also worth noting that the geology of Ethiopia is very much covered by the younger battle since they have only limited windows of openings through which you can see the Arabian Nubian shield underneath, which has got the gold potential.

Tanzania has had its ups and downs. Some great discoveries have been made over the decades. And then five years ago, the country was more effectively nationalized by the government. Investors have been scarred and scared, but the opportunity is opening up again. The new president promoting foreign direct investment has reached a settlement with Barrick and issued new licenses, which all bodes well for Tanzania. Right, where next? Now, there are 55 or 56 countries in Africa, so I can't go through them all.

But let's now head to Southern Africa. In Southern Africa, Namibia and Botswana, these countries are still offering some of the best investment opportunities for investors on the continent. Not only that, they're lovely places to visit too. All good. They're safe. They've got workable governments. And the permitting process is fine. However, the deposits in Namibia have a tendency to be small and poddy. There is now potential for the Kalahari copper deposits to extend into the east of the country. Gold in Namibia has traditionally been difficult, although there are a few decent-scale gold projects there. And although Namibia is viewed as a uranium country, the grade is pretty low, especially when compared to the grains, grades seen in Niger. Mind you, It's a lot safer operating in Namibia than it is operating in Niger. So in conclusion, everybody wants to find something good in Namibia because they all want to live there. You've even got great beer, Vintock, which is still brewed under the Reinutzgebot rules of 1516, which just permits three ingredients, water, barley and hops. Yum. Delicious. Especially after a long day out in the field.

Botswana, famous for diamonds, has now opened up as a new copper province. The issue of sand cover plus access to licenses, thanks to composition, means that it's now hard for later entrants to get access, but investors can certainly take advantage of the existing suite of companies with exposure to Botswana.

Continuing our journey south, South Africa is still just about a premier mining jurisdiction in Africa. The country has the skills and manufacturing ability, however, there is great instability and the country has a weak government and security issues. It's also a very mature exploration environment and thus it's difficult to find something new in South Africa. I keep coming back to the maturity of the exploration environment.

It's really hard to find something that's worth looking at in a country where it's been gone over time and time again. In a place like South Africa, there's this fantastic skill set and amazing people who know how to do stuff. There are geologists, engineers, metallurgists, construction teams, health and safety, education, accountants. It's fantastic, but the opportunity suite for investment is limited by maturity in new projects. You can't even go deeper in South Africa as it's happening elsewhere around the world because South Africa has historically already gone deep. It's got some of the deepest operations in the world, if not the deepest.

Talking about maturity, in contrast to South Africa, there's the story I mentioned earlier about auras mining's inventory requirements being the only mine in the country despite the geological potential being there. Auras had to carry a complete inventory because there were no stockists in Liberia, no spares in the country, and everything had to come from Ghana, which could take weeks. This is the difference between a country with a well-established mining industry and one which doesn't. In South Africa, if something breaks, you can call up a spare or you can get it made up.

These are the kinds of considerations to take into account. It's the first mover, disadvantage. The Canadians say that it takes a lot of energy to break trail, and I would say yes, it does, especially if you're in the West African jungle.

Finally, it's worth talking about the DRC because it polarizes opinion. Some people say it's too corrupt to be able to work there. Others say that you can't ignore the potential of its geology. Of course, the leading example at the moment is Robert Friedland with Kamaukakula and the great historic copper deposits of the past, taking from Gurumi, for example. Having spent most of my professional career working in Africa, Central Asia, and South America, there's no prize for guessing that I belong to the school of thought

of following the geological potential and the transformational asset and development will follow. This is what Adolf Lundin did. This is what Robert Friedland did. This is what BHP and Ria Tinto did in Chile. And breaking news, it seems as if BHP is doing it again in the DRC. If you have an asset that is really worth spending capital on, you can get it built. Personally, I think there are limits. War and instability are the top of those limits for me. Working in the Congo is something that one can do, but it has to be of the scale and grade that will make it worthwhile.

I recall trying to get into the Livingston Conference in northern Zambia about 10 years ago and we were stuck at an airport in northern Zambia trying to get 100 fat, fleshy, mostly white analysts and investors into the country. The passport control people were being so officious and deliberately obstructive you could feel the heckles rising on every side. The investors were hot and tired and just wanted to get through. The customs control were being bloody minded and digging their heels in.

Ross McGowan, who was operating a copper explorer in the Congo, in fact he's won a prize at the PDAC for making the discovery at Comerca Cooler when he was a contract geologist for Robert Friedland, he said to me that this wouldn't happen in the Congo, this is ridiculous. You've got a hundred people trying to get through customs and a bottleneck and in the Congo you'd just pay a hundred dollars, you would leave your passports there, everyone would go through and be happy, the customs people would get their money, the investors would go through and the passports would follow later. He said, you can absolutely work in the Congo. My experience of watching investments and projects in the Congo is that it can be incredibly expensive. A Belgian company, a Belgian country manager who I knew he ran projects for foreign companies there. He said that in the Congo, you've got to imagine that you need a fence around your company at all times and that there are people outside trying to get in to take a bit off you whether it's the tax man with spurious tax claims or people challenging a title or physically trying to take your vehicles away. On every level, you need vigilance and alertness to ensure that your company isn't being undermined by people chipping away at the edges. It may sound like a nightmare, but if you're used to it and you get that mindset into your process and the way you're way of thinking, the reward of the project, it can be significant. As long as it's big and it's high grade, it can be worth doing it. But it might not be for the faint-hearted.

South America. Moving across to South America, it's worth remembering that for all of its geological potential the continent has a really socialist bent to it, particularly in the Spanish speaking countries. Mining as an industry can be state run, but by and large it's been most successful when it's been done by private enterprise and therefore it represents capitalism. Therefore, the resources sector sits at odds with the national psyche of many South American countries.

It's no surprise, therefore, that in Chile, where the mining sector has been the most developed, is where you find the most entrepreneurial culture of the individual in relation to minerals. And this is demonstrated by the fact that Chile is full of pecaneros, the little guys. At the weekends, you see them driving out of town in their pickup vehicles. They've got a tank of water in the back because water is scarce in Chile, and they've got an air compressor. These are artisanal workers who are rich enough to have a vehicle, compress their water tanks, equipment, and they go up into the hills

They've got a little plot and they mine high-grade veins and they make money from artisanal mining. This is a part of Chilean culture, the Chilean equivalent of the British vegetable allotment. So it's no surprise that Chile is where you find the biggest contribution to the economy from the mining sector, with 29% of the world's copper production in 2019 coming from Chile and all the majors present in Chile. Having said that, Chile is now a mature exploration environment however and if one looks at the rate of discoveries of the big deposits across South America you can see that the huge company making deposits were mostly discovered before the turn of the century in the 70s, 80s and into the 90s. New techniques continue to improve so the country is still prospective and occasional big assets are being found but the low hanging fruit now lies further to the north.

Staying in the south, Argentina flatters to deceive with great geology but inconsistent politics often taking a turn towards socialism. It has been said that whenever there's a window of opportunity in Argentina, the thing to do is to take advantage of that and to get out. I tend to agree. For the most part, the local government tends to be dead set against you as a foreign company ever making money out of your investment. There are occasional wins which keep people interested in the geology of course, is fascinating, but personally I'm cautious about investing in Argentina and only do it rarely on a PA basis.

For the record, I've worked in Chile, Uruguay, Peru, Venezuela, and Brazil, but not in Argentina, Colombia, well, kind of in Colombia, Bolivia, Paraguay, or the Guianas. And I'm currently working in Ecuador and part of our portfolio in Colombia. So let's continue with Ecuador.

Ecuador, of course, has got stunning geological potential, seeing that it's a fertile continuation of the Andes, which between Peru and Chile contribute a combined 45% of annual copper supply. Essentially, if you're looking for big copper and gold deposits globally, you need to include Ecuador in your search. But don't think that operating there is straightforward. The government is staunchly pro-mining as it pursues a development agenda to improve lives. And yet, there's a very strong anti-mining element to the population that is looking to put so many restrictions on the resources sector that it would effectively end mining investment in the country. This is dynamic tension in action. All of this means that to be successful in Ecuador you need to be able to manage the above ground risks well and establish such a strong local brand and such a strong license to operate that with support from your community and the government you can advance your project. Similarly if you are an investor a key part of your decision making process should involve being completely comfortable with the integrity of the CSR work of your target company.

South of Ecuador, of course, are Bolivia and Peru.

Bolivia has never quite managed to have a stable or welcoming enough investment climate to see a modern international mining industry thrive.

Peru has just lurched towards a socialist government, but it's very much on the modern mining map, producing about two and a half million tons of copper annually and 99 tons of gold. So it's on the cusp of being the 10th largest gold producer in the world. It's worth noting that Peru is comprised of a hugely varied tapestry of communities, some of which are rabidly anti-mining, where others are open to the sector. Once again, progress or lack thereof can often come down to the strength of your local relations and your community work, although real country experts would know which areas are worth pursuing and which are not. Some parts of Peru are just too hard to try. And as for exploration investment over the next ten years or so, the new president will set the tone in the coming months. It's hard to be positive, but let's wait and see.

Right, now the biggie is Brazil. It's such an interesting country.

Whenever one spends time in Brazil, weeks or months, and you start to speak Portuguese or you start to absorb the Portuguese language around you, even without direct understanding, you cannot fail to notice that the rest of the world starts to shrink in importance and disappear. It's like being in lockdown during a pandemic. Your own house becomes your universe and everything outside becomes remote and intangible and eventually irrelevant.

The longer you stay in Brazil, the more you forget about the rest of the world. Vroom! It's just so Brazilian. And this is really a function of the fact that it's vast. You've got a whole world of geography within the one country, and due to its size, coupled with the fact that no one else really speaks Portuguese globally, apart from in Portugal, Mozambique and Angola, it's also really isolated by its own language. And it's isolated by the fact that its geography is so big. It's had to do everything itself. Therefore it's got its own mining industry, it's got its own expertise, and a bit like Central Asia, it's got this cultural gulf which is not the same as being able to speak the language. It's understanding the Brazilian way of thinking. I would say that operating in Brazil is harder than you think. I've seen company after company spend time in Brazil. They worm their way in, they start making progress, but before the long they find themselves caught in a spider's web of bureaucracy and employment law and you name it. The tax and employment laws in Brazil are a nightmare and it becomes more expensive than predicted to operate there and every employment contract comes with a social contribution. I've been there, I've done it. I've got a lot of respect for the people that can work in Brazil but my goodness it's hard.

When you're doing exploration or reviewing projects in Brazil, trying to understand what is true and what isn't true, who has worked it and who hasn't, what is actually the history in the great. All of this can be a minefield of competing data and facts. I found Brazil to be one of the hardest places to work. Obviously, once you've found your project, you're up and running and you know that this is where your main deposit is. In a sense, once you've got your systems in place, you're okay. But for an early stage company going in saying: ”oh, we've just arrived in Brazil.

We really like the potential here. We've got a great geologist, and we know exactly where everything is, and we're going to explore over here.” My reaction would be, really? Which mug have you got to pay for your school fees?

Colombia and Mexico both have some no-go zones for resource investment with very different conditions in different parts of the country. The governments at some level say that they're being pro-mining and at other levels they're not. It's quite hard to get a consistent story.

The difference is that the Mexican mining industry is better developed than the Colombian, but both have got great potential, and they've got some long life assets being run by the majors and some big assets in Colombia, and lots of mid-tier producers in Mexico, and lots of family producers in Mexico as well. In some ways, relative to the potential of the geology, both of these countries are sleeping giants.

I'm probably doing Mexico a disservice because I've never worked there, and so I'm kind of constrained by my ignorance. But in terms of Colombia, the geological potential is absolutely phenomenal, but it can be a slow and expensive country for junior exploration and development companies. And in some places, it can be really dangerous. Proceed with caution and exceedingly good local knowledge in Colombia.

In conclusion, that is my romp around the geography of the world. I would reiterate the fact that just because a country, in some people's eyes, is difficult to operate in or high risk, it doesn't mean that you shouldn't invest there. It comes down to the opportunity suite in front of you. If the asset is worth it, there will be a way around the social and the political issues in most cases.

I am much less comfortable with war and with risk to life, which puts me off, swathes of West Africa, Nigeria, most of the Eastern Congo, parts of South Africa, even parts of Colombia, Mexico or Brazil. Ultimately, one's perception of risk is absolutely related to what one knows about the country and the more time one spends in the country, the more one sees the challenges and the more one sees the ways to mitigate, live with and to accommodate those challenges.

Another key factor is whether investors have made real money in the country. Since if you've lost money in a certain geography, you are unlikely to want to repeat the experience. But if you've done well, you might want to go back for second helpings. At the end of the day, a multitude of sins or obstacles to development can be overcome by scale and grade. In other words, the geological potential of the project is key. And I'm going to cover technical aspects of projects in a later set of The Con episodes right after a couple of sessions discussing the importance of management. Thank you.

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