Jennings Capital Analyst Dan Hrushewsky sees investors' understanding of risk as directly related to the unknown. West Africa is unknown to many investors but it has a long history of mining, good infrastructure, favorable geography, many active producers and huge potential. In this interview with The Gold Report, Hrushewsky details three gold mining business models and specific companies active in West Africa that provide investors with asymmetric possibilities of limited downside and strong upside in a world-class mining jurisdiction.
The Gold Report: When many mining investors hear West Africa, the first thing they think of is risk, especially political risk. Is that a baseless concern? West Africa sounds exotic, but does that mean that it's high risk?
Dan Hrushewsky: I think risk often times has to do with the unknown. The less we know about something, the more risky we think it is, although one doesn't mean the other. Exotic does not have to mean higher risk from an investor standpoint. The lack of general investor awareness of West Africa provides outsize return opportunities for those who are aware.
TGR: Some gold investors will be familiar with Ghana because several majors have been active there for many years. What other countries stand out in West Africa as being mining friendly and prospective?
DH: Burkina Faso is a real standout for several reasons. First, it's had relative stability for the last 20–25 years. Second, the potential for exploration is huge because it was fairly late to the exploration game, especially compared to Ghana. Burkina Faso's adoption of a world-class mining code in the mid-1990s kick-started modern mining exploration, which has paid dividends in the form of six new mines starting up in the country in the last five years. On the other hand, Ghana has seen at least 60 years of modern mining exploration. Other areas in West Africa are highly prospective for gold as well, including Mali, Liberia, Senegal and Côte d'Ivoire.
TGR: The two most interesting countries for mining from your point of view are Burkina Faso and Ghana?
DH: I like those two a lot, but that doesn't mean that the others don't have a lot of potential. Both Ghana and Burkina Faso are interesting for the combination of exploration potential, stable operating environments and stable political situations.
TGR: What's the infrastructure situation like?
DH: The highways in Burkina Faso are top quality, almost at the level of North American single lane highways. The construction quality and level of maintenance is very high. Burkina Faso is a very flat country, so accessibility is not a problem. If your destination is not on a road, you can generally just drive there anyway by going off-road because of the flat, savannah-type topography and dry climate. The power infrastructure varies with the location. Some parts of the country have access to hydroelectricity that comes in through Ghana, through the Lake Volta Power Authority. Most of the country is outside that system and companies have to produce their own power, but that's largely the situation in most of Africa, and in many mining jurisdictions in the world.
TGR: Are the best projects in this part of West Africa financeable? Are they moving forward?
DH: Financing a mining project is currently a challenge worldwide. The risk trade is still generally off. While some of the major stock indices are hitting new highs, junior and senior mining equities are very undervalued due to investors' lack of appetite for mining company risk, and the turbulent gold price environment. This makes financing the equity component of an overall financing package a very dilutive exercise. It doesn't matter whether the mining project is in Ontario or in West Africa, it is still a tough go. That's the general landscape.
Having said that, selected high quality mining projects are finding equity financing regardless of location. In West Africa, I can cite a couple of projects that have been successful in raising equity recently. These have tended to be higher quality projects with a critical mass of several million ounces plus an above-average grade.