The Current State of Gold Mining
The Current State of Gold—Burkina Faso
March 23, 2016
Primary Article Contributor – Talitha Cherer, Co-Leader Burkina Faso Team
Key Words: Gold, Mining, Burking Faso, Market Instability
Gold trade in Burkina Faso remains threatened by two major factors: poverty and political unrest. Burkina Faso is one of the poorest countries in West Africa, with estimates that 47% of its citizens live in poverty. The United Nations Human Development Index rates Burkina Faso as the seventh lowest on a 187-member list. This extreme poverty fuels unrest and civil protests. There have been multiple examples of gold miner demonstrations against mining companies as local populations are displaced by mine developments and are forced into poverty. These incidences may result in property damage or violence and possibly deter future investment. Consider that in January 2015, True Gold Mining decided to temporarily halt operations at its Karma Gold Project as a precautionary measure in order to ensure employee safety and project security. Residents living nearby caused about $6.1 million of damage to the site and equipment, claiming that the project threatened their village’s existence. This incident immediately resulted to a drop in True Gold’s stock prices. Examples such as these reveal the vulnerability of the gold market to civil unrest that stems from poverty and local dissatisfaction with the industry.
The gold market in Burkina Faso is also vulnerable to political instability. Burkina Faso’s experience with military coups in recent years has revealed the correlation between political instability and gold stock prices. In 2011, it was claimed that the high stock sell-off rates that occurred after news headlines reporting political unrest were released, suggests that investors are becoming increasingly intolerant of political risk. Political upheaval in 2014 provides a clear example of this market vulnerability and uneasiness of investors. On October 31st, long-term president, Compaore, was finally ousted in a military coup. News sources reacted quickly, claiming that Burkina Faso went from a promising destination for gold mining companies to a “big question mark” in just one night. Almost immediately following this news, it was reported that True Gold’s stock prices fell by 37% in reaction to this unrest. The mining industry and investors require a stable government to ensure stable stock prices. Considering that Burkina Faso has been prone to military coup in recent years, it is of utmost necessity that the political scene be monitored and secured in an effort to advance the gold market.
In recent months, Burkina Faso has reached a fairly stable political status. Campaore has been successfully removed from his position and new leadership has emerged. Currently, a transitional government is in place and the country is preparing to hold its first general election since the overthrow of Compaore. The outcomes of this election are to be monitored closely. In relation to current gold issues, the Mining Code was revisited and, on June 26, 2015, the Conseil National de la Transition approved new legislation. The new Mining Code was officially passed into law on July 16, 2015. The new legislation aims to introduce measures that increase the country’s benefits from the gold sector. This goal is made clear by the following new items of the legislation: “the introduction of a new tax of 1.0% of the gross revenues to support a Mining Fund for Local Development, the removal of 10% reduction in income tax rates for the mining sector, penalties for changes in production levels, the obligation for a mining company to pay a dividend if an after-tax profit is made and adequate reserves have been accumulated, and for feasibility studies to include a plan for the training and promotion of local mining executives”.
Although there are clear positive trends, Burkina Faso’s political history cannot be ignored. This year will be pivotal as a new government attempts to successfully establish itself. The country must be closely monitored in order to detect any political or civil unrest that may negatively affect the gold industry.
