Gold Miners : Burkina Faso Update

 

IAMGOLD* (IMG : TSX : $2.25), Net Change: 0.10, % Change: 4.65%, Volume: 2,077,314

Endeavour Mining* (EDV : TSX : $0.62), Net Change: 0.01, % Change: 1.64%, Volume: 1,560,390

Franco-Nevada* (FNV : TSX : $57.45), Net Change: 0.94, % Change: 1.66%, Volume: 692,493

Sandstorm Gold* (SSL : TSX : $3.80), Net Change: 0.25, % Change: 7.04%, Volume: 142,864

True Gold Mining* (TGM : TSX-V : $0.16), Net Change: -0.02, % Change: -11.43%, Volume: 2,440,473

Roxgold* (ROG : TSX-V : $0.63), Net Change: -0.02, % Change: -3.08%, Volume: 273,497

Orezone Gold* (ORE : TSX : $0.26), Net Change: -0.01, % Change: -3.77%, Volume: 41,855

STABILITY DURING INSTABILITY?

Media sources are reporting that a military junta has taken power in Burkina Faso following the arrest of interim President and Prime Minister. The transitional government has also been disbanded, only four weeks before elections (planned for October 11). The military guard that is leading the coup is the RSP (Régiment de sécurité présidentielle), loyal to the ousted leader Compaore who has fled to Ivory Coast almost a year ago.

Demands from the RSP have not yet been tabled. While there have been no reported impacts to mining operations, companies with exposure to Burkina Faso are likely to face headwinds in the near term. Among producing companies  IAMGOLD and Endeavour Mining have the largest exposure to Burkina Faso at 45% and 32% of NAV, respectively.

The Canaccord Genuity Metals & Mining Team notes that for IAMGOLD, approximately 45% of NAV and 43% of YTD gold production is sourced from Burkina Faso and is its lowest cost owner-operated asset. Endeavour Mining is less exposed at 32% of NAV; however, only 13% of 2015’s estimated gold production is sourced from the country. In the Team’s opinion, Hounde is already heavily discounted by the market and a positive construction decision is unlikely in the current market environment. The bigger impact would be Youga which is in production but only 1% of NAV.

Endeavour has a solid operating base in Mali, Ghana, and Ivory Coast, and we believe that the coup should have minimal impact to the company in the near term. Streaming companies Franco-Nevada and Sandstorm Gold both have streams on True Gold’s Karma project in Burkina Faso; however, company-wide exposure for the streamers remains small. For Franco-Nevada, Karma represents 1.7% of NAV.

In Sandstorm’s valuation, Karma represents approximately 6% of NAV; however, this would decline to 4% if you net out the money that still needs to be paid to True Gold. If anything, this perfectly showcases what royalty/streaming companies are all about – a defense against government coups and instability and the general risk. Development companies Roxgold and Orezone have 100% exposure and may see development delays depending on how the coup impacts logistics and workers in the country (via general strikes, for instance).

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