Why Africa?

By Reginald W. Ogden         Feb 6 2003 www.resourceworldmag.com

South Africa has been the leading gold producer in the world since the late 1880’s when it took over the leadership mantle from the U.S.A. with the discovery of the deep Witwatersrand reef structures. Despite annual gold production declining at the rate of approximately 4% per annum, South Africa is still the leading gold producer in the world.

In the post WWII political environment, when African countries were being freed from colonial rule, almost all of these governments adopted state control and ownership of mineral resources, heavy taxation and regulations. Many of these countries, such as Ghana, Zimbabwe and The Congo, that had viable mining industries as European colonies saw mining production and exploration start a long decline that lasted for 30 years.

By 1991 Canada, Australia and the U.S.A received close to 70% of all mineral exploration funding. From 1981 to 1991, Canada was number one in this category. In 1994, Australia took over the lead to be replaced by Latin America in 1997. During this period, almost unnoticed, Africa moved from 7^th to 3^rd place in exploration funding. Africa is now equal to Australia and ahead of Canada and the U.S.A. in the dollar value of exploration funding and activity. In 1990, Africa attracted less than 5% of world exploration funding. Since then, it has increased 9 times to represent 17% of the world total.

Prior to 1990 the legal, political, ownership, regulatory and taxation regimes deterred international and junior mining companies from the African continent. The limited exploration that did take place was primarily done by South African companies seeking to diversify before apartheid collapsed. The exploration was primarily centred on Zimbabwe, Namibia and Botswana by South African mining houses.

Despite the rapid growth in continental African mining, especially gold and large discoveries by both junior and senior companies, there is 10 times as much written in the press and mining journals about South African mining than about the rest of the continent. On a continent that has little economic success, suffers famine and deteriorating living and health standards, mining has been the sole exception in providing world-class economic success.

In 1986, Ghana was the first independent black controlled government to reform its mining regulations to provide a viable tax and regulatory framework that allowed for foreign ownership. By 1995, 35 African countries had followed suit redefining rights and obligations for investors, as well as, increasing incentives, deregulating and privatizing. The reduction in political and economic risk has attracted junior and seniors to explore in these countries. The latter group has in turn been rewarded with some world-class discoveries in recent years.

The period 1993 to 1995 saw several new mines come on stream. In recent years, several large discoveries have been made, which will lead to a rapid increase in future African gold production. A Canadian junior, Sutton Resources, made a 30 million ounce discovery in Tanzania. Over a 5 year period, a mere $100 million was spent to outline the resource or less than $4.00 an ounce gold in ground. Randgold, at Morila, made a 7 million ounce discovery, also for a mere $4.00 per ounce cost.

In the period 1985 to 1990, the abandonment and dismantling of apartheid in South Africa opened up the rest of Africa to South African mining houses, who in turn, were followed by U.S., Canadian and Australian companies.

Over the past 5 or 6 years, all of sub-Sahara Africa has seen dramatic changes in mineral exploration in both dollar terms and areas under exploration. For instance, one Canadian junior, PMI Ventures (PMV.V), has just acquired a private company that has staked a group of concessions along the prospective Asankrangwa Belt in the Kumasi Basin that is equivalent in size to the whole Carlin Trend in Nevada. Large geologically prospective areas like this are not available in North America to junior companies or even to seniors.

The exodus of exploration funding by both junior and senior mining companies from North America has occurred decades after the oil industry went through the same process. As they say in Texas, "All the slow rabbits have been caught". The leading North American mining camps have been, if anything, over explored. New discoveries require disproportionately large financial, technical and scientific expenditures of time and money.

Two-thirds of the African continent is geologically prospective. Despite limited exploration, Africa hosts about 30% of the world’s mineral reserves including 40% of global gold and PGM reserves. To date, 60% of all mineral exploration in sub-Sahara Africa has gone to gold and diamond exploration. Unlike copper and base metal operations, gold mines do not require much infrastructure to be economically viable.

All analysts agree on the basic criteria used to draw up favourable factors for the development of mineral resources.

1. Geologic prospectivity
2. Economically, fiscally and legally friendly regimes
3. Infrastructure
4. Political stability
5. Moderate or minimal corruption

On the basis of the above criteria, Michael Oliver at CIBC World Markets rates South Africa and Ghana as #1 and #2 on his list of African countries.

African gold mining has already shown up on the radar screens of multinational and junior mining companies and recently with the international investment community. It will not be long before it becomes familiar to the individual investor. The recent high-grade gold base metal discovery by Nevsun Resources (NSU.T), at its Bisha property in Eritrea, may well be the catalyst that draws the attention of the individual investor to the mining potential of continental Africa. When this occurs, we will no longer need to ask ourselves the question, "Why Africa?"

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Reginald Ogden is an Investment Executive with Canaccord Capital Corp. in Vancouver, BC. He can be reached at 1-800-663-8061 or reg_ogden@canaccord.com

Disclaimer:

I do not personally own any of the above mentioned securities, although a minority of my clients do own the above mentioned securities. This publication does not provide an analysis of a company's financial position and the information herein should NOT be construed as an offer to buy or sell securities. The information herein is taken from sources thought to be accurate, but there is no guarantee. All due diligence should be done by the reader or their financial advisor. Investing in securities is speculative and carries risk. Past performance does not guarantee future results. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.