Over the last 120 years, South Africa has produced half the gold ever mined on earth. But all good things must come to an end. The majority of South Africa’s gold mines are sub-economic at USD $1,300/ounce gold.
In 2018, gold’s contribution to South Africa’s GDP was a measly 1%, down from 4% from its peak 30 years ago. South Africa’s gold industry has shed 400,000 jobs in the same time frame.
The problem? South Africa’s big gold deposits are now very deep – in some cases almost four kilometers underground. That makes them expensive and dangerous.
“When you work out the math, you see that you are going to go out of business very quickly,” stated Gold Fields’ CEO Nick Holland in a Bloomberg interview. “The South African gold industry will just continue to see a slow death.”
A little-known country called Burkina Faso is in the pole position to take over the mantle of Africa’s next hot gold producer.
Burkina Faso is one of the poorest nations in the world, but it is on an economic upswing. The country recently built the biggest solar power generator in West Africa and gave a green light to a 2,000 kilometer fibre optic backbone.
Nexus Gold (NXS.V) has a portfolio of gold projects in Burkina Faso, elegantly summarized below by Equity Guru’s Greg Nolan.
Bouboulou – 38-square kilometers comprising no less than five established gold zones contained within three separate five-kilometer-long gold trends. Over 60 holes have been drilled to date demonstrating widespread mineralization.
Rakounga – this 250-square kilometer concession ties in neatly with the Bouboulou concession. The mineralized footprint between the two properties exceeds 15 kilometers in length. Within the eight known gold zones along this 15-kilometer trend, three have been tested with the drill bit. Drilling at the Koaltenga zone has recently produced lengthy gold intercepts, several with higher-grade intervals.
Niangouela – This concession is a 178-square kilometer project featuring high-grade gold occurring in and around a primary quartz vein and associated shear zone spanning approximately one kilometer in length.
Dakouli 2 – Just to the south of Niangouela, Dakouli 2 is located on the Boromo-Goren Greenstone Belt. Significantly, the project is bisected by the Sabce shear zone, a major structural fault which trends southwest-northeast and bisects the entire length of the property. Sabce is the dominant geological feature underlying Nordgold’s 3 million+ ounce Bissa deposit 20 kilometers to the northeast.
“With gold showing strength and year-end tax loss selling drawing to a close,” states Nolan. “There may be an opportunity to scoop up some serious bargains over the next few sessions.
There is no doubt that Nexus fits into the category of a bargain. The company has a market cap of $3.4 million.
A risky investment?
Of course.
Any company with a market cap under $50 million contains significant risks.
Along with the normal geological and financial risks, Burkina Faso – the country – has political risks. It’s often in the headlines for the wrong reasons.
Most of the country’s violence is attributed to the jihadist group Ansarul Islam – who have sworn allegiance to Al-Qaeda. This group is deadly, but they only have about 500 members. They usually operate in the north and the east, away from Nexus’ projects.
Let’s side-step the political and religious rabbit hole and cut to the chase: is it possible to operate a profitable gold mine in Burkina Faso?
As it turns out, that question is not academic.
Eight new mines have been commissioned in Burkina Faso over the past six years.
Endeavour Mining (EDV.T) – a $2.4 billion gold miner – is operating the Houndé and and Karma gold mines in Burkina Faso. The Karma mine is right in the same neighbourhood.
According to a recent EDV news release:
Houndé is comfortably on track to meet the top of end its full-year 2018 production guidance of 250,000 – 260,000 ounces and the low end of its AISC guidance of $580-630 per ounce.
Karma is on track to meet to the low-end of full-year 2018 production guidance of 105,000 – 115,000 ounces and the top end of AISC guidance of $780-830 per ounce.
At the current spot price of CAD $1,738 – 350,000 ounces of gold is worth about CAD $600 million
So yes, it’s possible to operate a profitable gold mine in Burkina Faso.
For an excellent overview of African gold investment, we recommend this interview with Rick Rule, chairman of Sprott US Holdings. The interviewer is painfully stiff but Rule knows his stuff.
On December 28, 2018 Nexus spiked 20% – from .075 to .09 on 402,000 shares traded.
FULL DISCLOSURE: Nexus Gold is an Equity Guru marketing client, and we own the stock.