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Gold, Wagner, nationalization and great geopolitics in Burkina Faso

2024-11-28
Gold, Wagner, nationalization and great geopolitics in Burkina Faso
Burkina Faso

A lot is happening in the African countries of Sahel region. Pro-nationalist and anti-colonial movements, often instigated directly or indirectly by Beijing and Moscow, are strengthening. With regards, today we will focus on Burkina Faso and the nationalization of gold mines located within the country.


Burkina Faso's political independence in a nutshell

Burkina Faso is a landlocked country located in West Africa, although until the end of 19th century, there were numerous small states in its area. Between 1896 and 1901, they were conquered and colonized by France, forming a component of French West Africa for the next half century. Since divided area consisted numerous, now former states, there was no single force in the region that could oppose Paris' rule. France was therefore able, among other things, to make administrative changes at will, causing certain territories to “fall away” from the historic “Upper Volta” to neighboring administrative units. This is how borders of today's Burkina Faso were born. Let’s not forget that both British and the French tended to draw the borders on maps in a way that took into account their imperial interests and administration, and did not care about making divisions of former tribal or state territories.

Of course, trade unions and anti-colonial political parties were quickly formed within the country, along with anti-colonial guerrillas operating the area. Meanwhile, however, as a result of two world wars, European powers lost ground for advantage of United States and USSR. World has changed, balance of power shifted, perception of colonial possession became more negated and criticized, money from then socialist bloc supported liberation and “red” movements, and profit and loss statements often indicated costs of maintaining colonies relative to the profits realized, were much greater.


Burkina Faso
Burkina Faso. Source: https://www.africaguide.com/country/bfasso/

At the end of the 1950s, the process of dismantling colonial empires of France, Great Britain and others (including Belgium) began. In 1958, Upper Volta was granted autonomy within French Community. In 1960 new independent republic was proclaimed under the name of Upper Volta. Country bore this name until 1984, when, following a military coup, new authorities decided to rename country Burkina Faso, which in the local language means “country of the incorruptible people.” The above may seem a bit over the top, as the country ranks 83rd out of 180 in Transparency International's Corruption Perceptions Index for 2023, along with Kosovo, South Africa and Vietnam. It is also not among most politically stable republics - coups (successful as well as not) took place in: 1966, 1980, 1982, 1983, 1987, 1989, 2015, twice in 2022 and in 2023. And these are movements were not only organic, but also strongly instigated by Paris or other political centers.

The reality under CFA Franc zone and economic subordination

Did this mean that Burkina Faso became a completely independent country? De iure yes, while de facto there were numerous political, economic and economic ties with Paris remaining in place. An important element in the context of regional economic or economic ties is the existence of the CFA Franc in two versions, dedicated to Central and West African countries.

Its exchange rate in the period 1945-1960 was to favor the French franc and the import-export balance of Paris, with CFA franc was worth 2 French francs at the time. In the late 1950s/early 1960s, on the occasion of the granting of independence to the former French colonies, there was a sudden and brutal devaluation to 50 CFA per franc. This was to favor Paris' position as West Africa's main trading partner, and was intended to negate benefits of local international trade, which became... very expensive overnight. In addition, unlike in the sterling bloc at the time, the operating within CFA franc zone did not burden Bank of France and did not cause France to be indebted to its partners. Expected by local elites economic “renaissance” of the region, among many in Burkina Faso, was stifled by the 1986-1993 financial crises and then by the 1994 devaluation. As of the 21st century, the CFA franc still exists, being rigidly pegged to the EUR at 655:1.

The existence of CFA franc zone, despite initial economic growth of the former colonies resulting from independence, eventually led to: limited regional trade, heavy reliance on the production and export of a limited number of primary commodities finding an outlet in developed markets, retention of a narrow industrial base, and high vulnerability to external shocks.


Frank
Frank CFA countries in two versions. Source: https://www.dw.com/en/africas-cfa-franc-colonial-relic-or-stabilizing-force/a-48908889

In the CFA system there are numerous requirements and restrictions imposed on local central banks. And these include two regional entities - Central Bank of West African States and the Bank of Central African States - with 14 countries under them. One of the requirements is the obligation to maintain min. 50% of foreign deposits at the Bank of France in operating accounts, which is explained by Paris by the necessity required to mitigate exchange rate risk, but also negatively affects financial liquidity of former colonies.

This gives party controlling monetary system of the CFA zone tools, to expand its export influence. Hence the long-term considered increases in French exports to Africa, and sectoral investments. The latter relate to the telecommunications sector, but especially to the extraction of local minerals such as gold, manganese and uranium.

Believing that having one's own currency is one of the defining conditions for independence, then for majority of the former French colonies of Africa, this condition is not met. It should come as no surprise, that Burkina Faso and other countries using CFA franc have attempted in the past to take collective steps to use other currencies, such as the project of regional African supranational currency, or to attempt transfer of funds from Paris to US Fed, since dollar is, after all, the world's main trading currency. However, the move is fraught with implications, as the loss of the pool of resources and control over the economies of the CFA group countries would undoubtedly have an impact on the French economy. Obviously Paris blocks such attempts.

Ergo, another reason for anti-French or generally anti-European resentments in Burkina Faso.

Patriots and pawns

It is true that Burkina Faso is caught between influences of Russia and France, tilting from coup to coup one way or the other. Just a few years back, Burkina Faso concluded a military-technical cooperation agreement with Russia and signed contracts for the supply of aircraft equipment. At the same time this African country is a member of the G5 Sahel, French troops have been stationed on its territory, and France itself has provided Burkina Faso with military assistance in its fight against armed groups linked to the Islamic State and al-Qaeda.

In recent years, however, regional anti-French or anti-European (anti-colonial) sentiment has increased - and let's be honest, there are some basis for such after all. Additionally, pro-Russian sentiment has further strengthened in this balance. Moscow has traditionally been seen in the region for decades as a superpower supporting local independence and anti-colonial tendencies. During the USSR era, even at the expense of the living standards of its own citizens. This requires Moscow to use soft power skillfully, but also to play the “historical injustices” card, and of course, is yet another piece of the geopolitical puzzle. In recent years, a conspicuous manifestation of this has been, for example, regional presence and activities of mercenaries from Russia's PMC Wagner group. Although a few months after the bizarre “mutiny” of their commander - Yevgeny Prigozhin - and his death in a “plane crash,” their local structures in Africa were since renamed to “Expeditionary Corps.”

Burkina Faso tilted towards Russia after an early 2022 coup by Col. Paul-Henri Damiba and then due to another, in September, by a group of officers led by Capt. Ibrahim Traoré, disgruntled by defeats in the war against the insurgent jihadists. During both coup d’états, “street” took a chance and loudly expressed (whether spontaneously or instigated), its dislike towards former colonizers. And this should be seen, as a wider movement, as the neighboring Republic of Mali, which is also taking a course towards the Kremlin, was in need of allies, and has therefore joined the intensification of Russian influence in Burkina Faso.


Ibrahim Traore
Captain and President - . Ibrahim Traoré. Source: https://www.vanguardngr.com/2024/11/burkina-faso-plans-to-reinstate-death-penalty/

New leader of the military junta, Capt. Ibrahim Traoré (representing younger generation of military officers), has stepped up military and energy cooperation with Russia, and what's more, there have also been ideas about closer military cooperation with Turkey and military-energy cooperation with Saudi Arabia. Matter of religion is not insignificant in this context, as Traoré is a Muslim, while previous leader of the military junta, Colonel Damiba, was Christian.

And here's a statistical fact, as it turns out that a military takeover, when democratically elected leaders abuse power, is generally supported by 56% of Africans aged 18 to 35, according to a survey published by the independent Afrobarometer research network. And Burkina’s putschists, appealed directly to what the youth demanded of civilian governments - elimination of the threat of terrorism, unemployment and poverty. Yes… as we all know well, above may be eliminated overnight, by decree... Not insignificant in this perception, is also the age of Traoré, enabling young people of Burkina Faso to identify with the leader of a military dictatorship. But in a country with a high illiteracy rate, poverty, underdeveloped education, and an average IQ of 73.8, it is far easier to successfully “convince” citizens to a leader from the masses or military structures and his “mission.” We ask readers to remember this passage, as we will refer to it in the last chapter of our analysis.

As of early 2024, Burkina Faso, Mali and Niger (all “flipped” by Russia) announced, they were leaving the West African political union ECOWAS, with Ibrahim Traoré soon announcing another goal in the process: saying goodbye to the CFA Franc in the region. In 2023/2024, finance ministers of Burkina Faso, Mali and Niger said, they would consider possibility of forming monetary union, while top officials from all three countries expressed varying degrees of support for the move to abandon current currency. In addition, head of Niger's ruling junta, Abdourahamane Tiani, said in an interview with state television that abandoning the CFA franc would be a sign of sovereignty and a necessary step away from French “colonization.”

It's not just about the currency. Anything that keeps us in bondage, we will break those ties.

In February 2023, the Traoré’s government expelled French military from the country. In November of the same year, Council of Ministers of the landlocked country approved the construction of Burkina Faso's first gold refinery. Burkina Faso will be assisted in this task by a Malian company - Marena Gold.

There is something to fight for - local gold mining sector

Burkina Faso is one of Africa's leading gold producers. According to World Gold Council estimates, in 2023, the continent mined 1,000 t. of yellow metal, of which Burkina Faso supplied 96.6 t., or about 9.8%, which would be equivalent to about $6 billion at prices at the time. Except that in the Council's methodology, we are dealing with an estimate of gold from ASM mines and other estimates. Meanwhile, hard data reports production in Burkina Faso as declining since 2022, due to numerous terrorist threats. The World Bank reports volumes at 66.8 t. in 2021 and 57.3 t. for 2023.

In addition to official and legal employment in the mining sector, an additional approx. 430k people work in the artisanal mining (ASM) stream. This allows for continued livelihood of more than 1 million in this country of 19 million people. We're talking about mining mostly gold and diamonds on a small scale and mostly illegally with primitive tools. This is often done with the complicity or under the control of organized crime groups or local warlords. At least 30% of those employed in this way are minors.

Let's leave methodology behind, and focus on the impact of gold on the country's economy. And this one accounts for about 82% of the country's $8.2 billion worth of merchandise exports, 16% of GDP and 22% of government revenue according to the latest data from the World Bank. The vast majority, 87%, of Burkina Faso's gold goes to Switzerland, with another 8% going to United Arab Emirates. This makes the country the 13th largest gold “mining jurisdiction” in the world. Since most of the gold is mined by private corporations based in Europe, Canada and the US, however, total annual GDP of the Burkinabe economy is only about $18 bln.


Gold
Gold in Burkina Faso is an interesting bit for interested parties. Source: World Gold Council

The Fraser Institute, in turn, ranks the country 60th out of 84 international mining-friendly jurisdictions surveyed. The country is well regarded in terms of the performance of the mining market compared to other African countries. In this case, the richness of the deposits, and having at least a partial geological record that remembers colonial times, and cheap labor are important. In addition to general instability, the problem is the increased cost of developing and operating the projects. Lack of access to the ocean increases expenses related to crew rotation and transportation of equipment and fuel by up to an average of 45%. At the same time, terrorist threats and the activities of criminal groups, force foreign companies to purchase protective equipment, armored personnel carriers or reconnaissance drones. The scale of the danger is confirmed by the case of Russia's Nordgold - holder of a 90% stake in the Taparco mine, which was forced to suspend mining at one point due to numerous attacks on transports and infrastructure.

Apart of gold, in Burkina Faso there are also miners focusing on silver, zinc, and manganese ores. The country has a manganese mine in Tambao operated by the Americans under the Pan African Minerals banner, and a zinc mine jointly operated by British-Swiss Glencore and Australia's Blackthorn Resources. At the same time, there is a strong potential for Asian powers to get involved. China and India, for example, have been heavily involved in building rail infrastructure in the country over the past few years.

In 2009, gold overtook cotton as the country's main export product until then, and 45 t. in 2010 rose to nearly 103 t. in 2021, making Burkina Faso at a time third largest gold producer in Africa. Meanwhile, cotton exports have fallen to 3%, while in 2007, for example, they accounted for 73% of the country's merchandise exports. On one hand, this has contributed to an increase in the country's export value by several times. On the other, rapidity of the change is confirmed by the growing international interest in African gold, and is also the result of the country's increasing desertification.

In Burkina Faso, 300 mining prospectuses had been issued by 2010, and 60 international companies were involved in mining exploration and exploitation. Currently, there are nearly 20 large-scale open-pit and underground mines in the country. All specialize in gold, except for one mining zinc. The most numerous nationality represented are Canadian mining entities of the junior gold mining sector. That is small mining companies specialized in the extraction of one particular commodity and with capitalization much smaller than that of international mining giants. Of all, worth mentioning are Australia's West African Minerals, Canada's Iamgold and Orezone Gold Corporation or London-listed Endeavour Mining. In addition to the above Russian capital is being represented by Nordgold involved in the Taparko mining project.

Nationalization in the times of price boom

Finally, it’s about time to move to the clue, and tie together all elements.

Burkina Faso plans to withdraw mining permits from some foreign companies and will seek to produce more of its own gold, junta leader Ibrahim Traoré said Saturday, October 5th 2024, in a radio address given to mark the second anniversary of the coup. While doing so, he did not specify which permits could be canceled.

We know how to mine our gold, and I don't understand why we want to allow international companies to mine it

This comes at a time when we are experiencing record gold prices globally. Prices have risen by about 30% since the beginning of this year and are nearly kissed $2,800 per ounce on good morning. And given that dilution of the purchasing power of currencies is ongoing (everyone is cutting or will cut rates, except perhaps Japan, which has nothing to cut from), possible price cap, which can be reached in a few months or years, is more likely higher than the current levels.

Thus, for example, Canadian company Orezone Gold reported a 23% year-on-year increase in revenue in the third quarter of 2024, even despite lower production and sales volumes. The company, which operates the Bombore gold mine in Burkina Faso, reported an average selling price of $2.473 per ounce, up from $2.019 per ounce a year earlier. Canadian Orezone sold 27,698 ounces of gold for $68.5 million in the third quarter of 2024, compared to 29,167 ounces for $55.7 million in the third quarter of 2023. Although production declined, higher gold prices offset the decline.

Australia's West African Resources, which operates the Sanbrado gold mine in Burkina Faso, also benefited from rising prices. By the end of September 2024, it had achieved an average selling price of $2.493 per ounce, up 29% from the third quarter of 2023. This means a 26% year-on-year increase in revenue to $123.76 million while sales volumes remained stable.

Burkina Faso government will receive a portion of the increased revenues from royalties. In 2023, it reformed the fee structure, imposing a 7% royalty if gold prices would exceed $2,000 per ounce, compared to a lower rate when prices are between $1,500 and $1,700 per ounce. The government can also get more revenue from minority stakes in gold mines and various taxes.

In 2022, after President Ibrahim Traoré came to power, Burkina Faso nationalized the Perkoa gold mine from Canada's Trevali Mining Corporation after eight local miners died trapped underground. On the same year, government also revoked mining licenses for the Guiro, Yéou and Kalsaka mines, liquidating Trevali's subsidiary, Nantou Mining. In the current year alone, state purchased the Boungou and Wahgnion gold mines. And government bodies - the Société de Participation Minière du Burkina (Sopamib) and the Agence pour la Promotion de l'Entrepreneuriat Communautaire (Apec) - are expected to take control of more gold mines soon.

“It purchased” for the above paragraph is an overly mild statement. For we were dealing with an old-fashioned and classic nationalization. The Boungou and Wahgnion mines were sold back in 2023 by London-listed Endeavour Mining to a local Burkina Faso entity, Lilium Mining, for a price of $300 million. As early as April 2024. Endeavour Mining was accused of misleading Lilium Mining by overvaluing the mines. As a result, Lilium Mining withheld payments owed to the British. Both companies were embroiled in legal proceedings but eventually withdrew their claims. On August 27, 2024, the mines were nationalized by the Burkina Faso government at a total price of $80 mln.


Mines
Selected gold mines within Burkina Faso. Source: own

Overall, nationalization process included renegotiating contracts with foreign entities and ensuring greater control over mining operations, which directly affected several international mining companies, such as B2 Gold, Nordgold (Russia) and Endeavour Mining.

Analitical approach

There is a hypothesis - quite coherent analytically and conceptually - but based, on a document that no one has seen. Well, almost no one. It is about the internal strategic documents of the Russian government, which the BBC has allegedly seen.

This outlines in detail how Russia works and influences changes to mining regulations in West Africa, with the ambition to drive Western companies out of an area of strategic importance. Documents allegedly revealed “a vision of using access to launch a more coordinated attack on Western interests.” For example, it is suggested that Russia's relationship with Niger could be used to threaten French access to uranium mined there, further increasing the French energy sector's dependence on uranium supplied by Russia.

And so, Russia offers governments in Africa a “regime survival package” in exchange for access to strategically important natural resources. Among them of course is gold. And it is well documented fact that Wagner PMC mercenaries actively hunt for yellow metal, which is just part of Russia’s intensified efforts to gain exposure to yellow metal in Africa - fact known for years, and certainly prior to 2022.

Within such “package” comes small arms, but also heavy equipment, military support, economic and political protection from a response through the UN or other international mechanisms. After all, Russia remains a permanent member of the UN Security Council with ability to execute veto. Moscow also provides support of political science technologists enabling successive build up of regime leader popularity in the country. As part of the package, also come talks on energy - after all, Burkina Faso, has signed an agreement with Russia to build a nuclear power plant.


Banner
Central Africa. Banner: Russia is Wagner, we love Russia and we love Wagner. Source: https://www.bbc.co.uk/news/world-africa-68322230

Although the BBC itself, as a medium has to be considered as a tool in the information war and should not be trusted entirely – especially since it repeatedly, in the past, has been caught on various types of manipulation or outright lies - above approach seems to be consistent. And is further substantiated by the analytical and conceptual work of the Royal United Services Institute (RUSI), the world's oldest defense and security think tank. And RUSI explained in details, on how renamed Wagner Group in Africa works to consolidate and expand Moscow's strategic relations across the continent, through guarantees of regime security and geopolitical protection in exchange for lucrative mining concessions - which, incidentally, are used to finance Wagner Group operations, among other things.

And so President Ibrahim Traoré may or may not realize a simple yet meaningful truth. That in his quest for independence, he simply swapped one master, for another.


Banner
Banner seen during street protests in Burkina Faso, January 2023, Source: https://www.cnbc.com/2024/02/27/russia-offering-african-governments-regime-survival-package-report.html
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