Burkina Faso introduced a new gold sales royalty for gold prices above USD$1,500 per ounce, which marks a direct change from the previous flat 5 per cent royalty it applied between USD$1,300 and USD$1,500 per ounce.
According to Bloomberg, the government took action to align the country’s royalty system with that of neighboring gold mining jurisdictions when it signed a decree on October 27 to implement the new levy on gold production.
In the West African country, a 6 per cent levy will now apply when the price of gold trades between USD$1,500/oz and USD$1,700/oz, and this rate will increase to 6.5 per cent and 7 per cent, respectively, when the gold price trades between USD$1,700/oz and $2,000/oz. If the gold price surpasses USD$2,000/oz, the percentage will jump to 7 per cent.
“The rates are capped at 7 per cent over $2,000 per ounce, which results in a modest $6 to $8 increase per ounce in West African Resources’ 2023 all-in sustaining cost (AISC) per ounce at current gold prices,” said Richard Hyde, chair of West African Resources (ASX: WAF).
The company stated that it anticipates the rise in royalties will not have a detrimental effect on the debt funding of its Kiaka gold project in Burkina Faso, which amounts to 7.7 million ounces. The company also said, “the project’s funding uses ‘conservative gold price assumptions in the range of USD$1,700/oz over the period of the loan.'”
Gold production in one of Africa’s largest producers decreased by 13 per cent to 58.2 tons in 2022. This decline occurred as a result of deteriorating security and two coups in that year, leading to the closure of at least five mines.
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Stability clauses do not regulate state royalties
Stability clauses in place regulate the stake the state can have in mining operations, but there are no such provisions for royalties, which apply to all existing and new contracts.
The region itself is unstable politically as gold companies in the region, including Endeavour Mining plc (LSE:EDV) (TSX:EDV) (OTCQX:EDVMF), Iamgold Corp (TSX: IMG) (NYSE: IAG) and NordGold SE (FRA: RTSD), deal with an ongoing and volatile security situation. At present, the ruling junta combats a growing Islamist insurgency.
Military leader Colonel Ibrahim Traore seized power in September 2022 after toppling the regime of fellow soldier Colonel Paul-Henri Sandaogo Damiba.
According to a mining report published in 2022 by international law firm, Simmons and Simmons, unexpected political changes can influence the share prices of mining companies heavily involved in the affected countries.
The instability is one of the reasons the Fraser Institute listed 8 of 10 African countries among the worst gold mining jurisdictions while Nevada was the top jurisdiction in the world in a report. Nevada is known for its Carlin gold deposits and as one of the most mining friendly jurisdictions in the world.
Companies operating in Nevada include Barrick Gold Corporation (NYSE: GOLD) (TSX: ABX) and Newmont Corporation (NYSE: NEM) (TSX: NGT) with their joint venture Nevada Gold Mines. Other companies include Calibre Mining Corp. (TSX: CXB) (OTCQX: CXBMF) which recently reported outstanding gold production that exceeded both its own forecasts and the predictions of industry analysts.
Political instability is one of the core factors in determining the viability of a jurisdiction. Governments like that of Burkina Faso can put strain on a struggling sector by various means such as the country’s new royalty limits. This can have a negative impact on stock prices, which ultimately affect investors. Meanwhile, jurisdictions like Nevada with comparatively few political problems, continue to thrive.
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