Understanding West African Risk

Green Zone, Red Zone

In most years, violence in the Sahel would lessen during the wet season. This year, however, has been different. “The war is getting worse,” said Liam Morrisey, CEO of London-based security consultancy MS Risk.

While 10 years ago, the worst that mining companies had to deal with was local banditry, today security is a big challenge, and it can be a decisive factor for exploration companies. Instability in the Sahel region started about 30 years ago with the nationalist-separatist movement of Tuareg rebels in Mali but intensified a decade ago when neo-Islamic groups, predating on local grievances and bringing in both weaponry and ideology, found a new sanctuary in sub-Sahara. “Islamic extremists married up with Tuareg separatists, which created an implosion of violence,” explained Morrisey.

Unlike other IS affiliates that want to form a caliphate governed by Islamic law, the ISGS is more predatory and has ethnic, nationalistic and economic undertones superimposed on the Islamist dimension. In Niger, the BBC reported that the ISGS gathers support mostly from Tolobe clans of the Fulani ethnic group, a community marginalized that has turned to local jihadist groups.

The violence spread out from Mali into the three-border juncture known as the Lipako-Gourma Triangle, straddling Northern Burkina Faso, Western Niger, and Eastern Mali, as well as reaching into the two other Sahel countries, Chad and Mauritania. In the last two years, both Niger and Burkina Faso have seen a severe upsurge in attacks, leaving hundreds dead. The Global Terrorism Index reported that the number of fatalities caused by the IS in Sub-Saharan Africa grew by 67% in the last year, affecting most Burkina Faso, Mali, Niger and Cameroon. Outside of the Sahel, Nigeria has dealt with its own casualties, Boko Haram causing over 19,000 deaths since 2011.

“Our red zone is the militants’ green zone. They have the freedom of movement and they can racketeer local businesses, as well as insert themselves in illegal mining value chains. We all need to help one another and aid local governments to reverse this trend.”

Liam Morrissey, CEO, MS Risk

“Security risks are a challenge for Mauritania, Mali and Burkina Faso, but the country that was probably most impacted is Burkina Faso, simply because it came from such a high point about 10 years ago, when many Australian and Canadian companies picked up licenses and enjoyed great success. I doubt the country is at the top of the list for many investors in mineral exploration, and I cannot see this changing in the short term,” said Simon Meadows Smith, managing director of SEMS Exploration Services.

Even though Burkina Faso still yields strong revenues for the service provider, SEMS does not work with any exploration companies in Burkina Faso, for the simple reason there are not many juniors in the country. The heightened security threat translates to a higher risk of kidnap or murder, but also banditry and illegal checkpoints through which rebels finance the war; roads also become more susceptible to ambushes, which in turn leads to the militarization of the areas or curfews.

Moving forward, the situation remains uncertain. Although there are 28,000 international troops on the ground, including UN’s mission MINUSMA, the French counterterrorist ‘Operation Barkhane’, two British non-combat military operations under ‘Operation Newcombe’, and a G5 coalition, these forces concentrate on Mali, while the insurgents operate in a decentralized way across the region.

France’s announcement that it will halve its 5,000 troops, but also Chad’s decision to fully withdraw its forces, leave a dangerous void in the region. To fill the gap left by the French, Mali has been in discussions with a controversial private Russian military company called the Wagner group, which is associated with war crimes in Libya and had been involved in various other conflicts, including in Syria, Mozambique, Sudan and the Central African Republic. While public opinion on the French presence had been sour on account of the county’s colonial history, the turn to Russian mercenaries is seen as a drift from the West and an expansion of Russia’s interests in Africa.

Seeing the retreat of the French as a signal of victory, disparate and rival rebel factions are intensely competing against each other for recruits and territory. The two dominant groups are al-Qaeda affiliate Jama'at Nusrat Al-Islam wa'l-Muslimin (JNIM) and ISGS (Islamic State in the Greater Sahara). “Al Qaeda-leaning groups and ISGS groups are killing each other, as well as civilians and soldiers,” said Morrisey.

Real and Perceived Risks

“Real risk and perceived risk are two very different aspects, and real risk is in fact lower,” said Nana Sangmuah, the CEO at Roscan Gold (TSXV: ROS).

That risks exist, both in the form of operational risks and more serious human life risks, is understood and cannot be treated blithely. But it’s important to also understand that risks are uneven, isolated, indirect, or sometimes simply perceived. Certainly, they are not indomitable. The region has been mired in episodes of violence and political unrest, yet mining has unfailingly thrived over the years.

Mirroring the escalation of on-the-ground violence, the region has also registered numerous coups over the last two years. In Sudan, Omar al-Bashir was removed from power in 2019. Bashir had himself taken power in a military coup back in 1989. In Chad, the army led what was dubbed a “dynastic coup,” bringing to power the son of former leader Idriss Deby after his death. Mali had two coups in 14 months: In 2020, the military overthrew President Ibrahim Boubacar Keita in the wake of mass protests. In a second coup, the leader of the first intervention, Colonel Assimi Goïta, overthrew the leaders of the interim government and declared himself President. Also this year, a coup attempt was thwarted in Niger just before the presidential inauguration of a new president-elect, Mohamed Bazoum. Finally, in the most recent coup, Guinea’s third-term president Alpha Conde was ousted and replaced by Colonel Doumbouya, a former French legionnaire who blamed corruption, human rights abuses and economic mismanagement for the intervention.

Between 1960 and 2000, about four coups a year occurred on average across Africa. The recent series of military coups reflect boiling political tensions with leaders that have been holding power for many years. Following the recent power exchanges in Guinea and Mali, the two new interim presidents are Africa’s youngest leaders, and they both profess to democratic elections following a transition period.

“There is always a group of people who will be interested in high-risk and high-reward investments, particularly in good jurisdictions and when you are wise enough to diversify your geopolitical risks. Europe is certainly a fertile ground for us to find investors, even more than North America because North Americans tend to focus on what they know better, which is the USA and Canada.”

François Lalonde, CEO, Stellar AfricaGold

In the thick of all this, mining and exploration go on. After the Guinea 2021 coup, Asimwe Kabunga, chairman of bauxite exploration company Lindian Resources (ASX: LIN), said: “Lindian has witnessed limited change following recent political developments with the new leadership being supportive of mining companies. The new leadership has stated that they are opposed to corruption and economic mismanagement. If this mandate can be implemented, then this can only be positive for Guinea.”

In Mali, the executives of both Firefinch (ASX: FFX) and Roscan Gold travelled to the country soon after the coup, noting business as usual, at least from a commercial and operational perspective. “There is no denying that there has been political instability, but what shines through is the quality of the assets and the track record of companies like Barrick, B2Gold, Resolute and Anglo American, all with successful operating histories in Mali,” said Michael Anderson, managing director at Firefinch.

Reputationally, however, political instability is irretrievably damaging the image of West African individual countries, but also of West Africa collectively. Investors can be taxing over risks obliquely understood. Andrew Dinning, the CEO of Sarama Resources (TSXV: SWA), a new junior operating in Burkina Faso, thinks many of the country’s assets are mispriced because not many people know violence is mostly confined to the north of the country: “Many people blanket Burkina Faso with the same risk profile across the country, but it’s important to go a little deeper to understand the granularity of the risk and look for mispriced assets and opportunities.”

Sarama is listed in Toronto, but it plans to proceed with a dual listing in Australia: “As a market, the ASX understands well African risk, and we can see many Australian companies active in Africa that are enjoying great success from both a technical and capital markets point of view,” said Dinning.

Arrow Minerals (ASX: AMD), another junior operating in Burkina Faso, also finds European and Australian investors particularly attuned to the risks and rewards of Africa. Howard Golden, its managing director, thinks the high gold price may encourage investors who are hesitant about Burkina Faso to think twice: “If we are indeed trading at a discount, then we are obviously a bargain for investors, and I invite them to join us,” he said.

With real risks manageable, the perceived level of risk is also overcome by the prospect of a great discovery, such as Burkina Faso and Mali have delivered over the last 10 years. While safety is of prime consideration for any mining player, geology rules. “Every mining executive I have spoken to has said that political risk comes second to geological risk. African issuers on TSX and TSXV predominantly operate in Burkina Faso and Mali,” said Graham Dallas, head of business development at TSX and TSXV EMEA.

Image courtesy of Diego González on Unsplash