Sharing Burkina Faso’s Mining Benefits, In Times of Boom and Bust

Challenging industry dynamics exacerbate the benefits balancing act as reform is underway.

Amelia Salutz

Burkina-Faso-BLOGCredit: Flickr/Jeff Attaway

OUAGADOUGOU, BURKINA FASO – Burkina Faso’s mining sector has gone from virtually zero to a top African gold producer in less than a decade. While exploration activities date back to the early 1990s, the country’s first commercial gold mine entered into production in 2007, followed by seven others in the ensuing years. The birth of the sector has had a tremendous impact on the country’s economic growth as gold overtook cotton as Burkina Faso’s top export in 2009. Contributing 12.7% to GDP and adding $189 billion to government coffers in direct revenue, mining is giving the nation a sizeable pillar upon which to grow.

As the country takes on the challenge of regulatory reform for the sector, along with many of its regional counterparts in West Africa, the government is aiming to ensure that mining growth occurs in tandem with local development. The country’s relative political stability, enduring over 20 years to date, makes it an attractive investment destination, especially given its contentious next-door neighbors Mali and Niger. Given this attractively stable climate coupled with its unexplored potential, the country has been an investment darling and can stand to also serve as a regional leader in sustainable mining development.

In 2012, gold production weighed in at 31.3 mt, a slight dip from its peak in 2011 at 32.5 mt. With eight gold mines in production and six to seven advanced-stage projects expected to begin construction in the near- to medium-term, the sector’s role to play in the country’s economic development is set to increase even more considerably in the next decade. In its first move to mineral diversification, Burkina Faso also saw its first zinc operation start production in January 2013 at Nantou Mining’s Perkoa mine.

The sector’s future may look promising, but the success of its investors and the benefits given to local communities will depend on regulations and policies well-tuned to the reality of the jurisdiction. While the region’s Birimian belts run through the country, Burkina Faso thus far has seen lower grades than its regional counterparts in Ghana and Mali. According to 2012 data from the World Gold Council, the average grade of gold production and deposits over 1 million oz in Burkina Faso came in at 1.6 g/t. Western African gold production costs are also quite high on the global scale, with Burkina factoring in at $756/oz, not far below the regional average of $760/oz in 2012.

The adoption of a new mining code is aimed at finding that balance in benefit sharing, yet the plummeting gold price has made for a playing field very much in flux. In pursuit of reform, Burkina Faso’s government began discussions in 2012 to develop a new code for the sector in place of its 2003 law. At the beginning of October, a draft code was adopted by the Council of Ministers of Burkina Faso. The draft will now face the National Assembly before it must meet presidential approval and come into effect.

With this reform, policy makers are aiming to increase governmental revenues from the sector and to ensure the sector has a greater impact on local development by giving preference to local businesses and recruitment. While these stated intentions have raised concerns among investors about a state hungry for a bigger slice of the pie, Minister Salif Lamoussa Kaboré has insisted that the administration seeks not to undermine the sector but to reinforce it.

While the facets of reform remain subject to change, the proposed draft legislation has accounted for increased obligations when it comes to local procurements for goods and services, as well as the recruitment of local employees into senior positions. The new code would call on mining companies to devise training plans for the local workforce aimed at skills transfer from foreign workers. The bill also proposes the establishment of a Local Development Mining Fund, financed in partnership with producers and the government, to push royalties earned more directly back into local communities.

Without a major mining tradition, the objective of increased local recruitment remains a challenge; however the private sector and the ministry have already taken on this issue with extensive training programs. In the case of the state, the government recently created in collaboration with the World Bank the National School of Engineers of Fada.

In further efforts to ensure sustainable development, the government is aiming to develop growth centers nearby operating mines. Coordinating infrastructure and electrification projects, such as in the building of a transmission line between Ouagadougou and IAMGOLD’s Essakane mine, both the mines and surrounding communities can reap the benefits.

Cognizant of the need to maintain a competitive edge in the region, Burkina Faso’s administration is taking measures to improve its climate for investment. Ensuring local benefits are derived from these investment dollars is a much-needed endeavor in many mining jurisdictions, not just Burkina Faso. However, the balance between miner, state and local stakeholder benefits is a tenuous one that necessitates appropriate nuance to preserve Burkina Faso’s enviable status as a preferred mining destination.

This article was written as part of the research conducted on African mining jurisdictions by Global Business Reports (GBR) as part of our partnership with African Mining Indaba LLC. The aim of this partnership is the production of the single most comprehensive intelligence report on the continent’s mineral sector. The Official Mining in Africa Country Investment Guide, will be launched next February 2014, as the only official publication providing country-specific information at Africa’s top mining event, the 2014 Investing in Africa Mining Indaba™ held in Cape Town, South Africa.

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