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24-Mar-2012
PERSEUS MINING, PAPILLON, MIDDLE ISLAND RESOURCES, TAWANA
Lure of large deposits stimulates investment to unlock west Africa
ASX Code PRU, PIR, MDI, TAW
LONG-TIME gold bug Warwick Grigor once noted about mining exploration in Africa: "You have a tiger by the tail, and if you hang on long enough, you might turn it into a mine."

The chief executive of stockbroker Canaccord BGF should know, having been involved in prospecting for miners in the region for a good 25 years. One of his successes was identifying Perseus Mining six years ago when it had just started exploring in Ghana and the Ivory Coast. Then its shares were trading at 15c and its market cap was about $30 million. Fast-forward to today and it has moved into full-scale production. Its share price is about $2.40, giving it a market cap of $1.1 billion.

This has worked both ways, however. In the case of Rio Tinto, unfortunately the tiger has turned on it and mauled the mining giant in Guinea, west Africa. Rio started exploring the Simandou prospect in the mid-1990s, and it has subsequently turned one of the largest iron ore discoveries in history. The full details of the story are not known, but in the past few months Rio lost control, and possibly hundreds of millions of dollars, of its iron ore concession to the Beny Steinmetz Group, which on-sold it to the Chinese.

For others such as Perseus that are, maybe ironically, at the smaller end of the spectrum, the tiger has proved very profitable. Other success stories include Anvil Mining in the Democratic Republic of the Congo and more recently, the gold miner Papillon Resources has turned investors' heads after making a big discovery in Mali.

When Under the Radar Report first rated Papillon it was just another junior explorer, scratching around various spots in west Africa. It had a share price of 43c and a market cap of $46m. Today its share price is about $1.20 and market cap is $410m, which is amazing because it hasn't even released a resource yet. It has yet to tell the market the amount of gold it thinks it might be sitting on.

What is it about west Africa that has caught the market's imagination?

"The opportunity generally lies in the lack of exploration that has been done," says David Coates, analyst with Baker Steel Capital Managers, which runs one of the biggest specialist precious metals investment funds in the world.

"The so-called easy deposits are still there to be found, whereas in North America, South Africa and Australia there has been systematic exploration over the past decade."

West Africa is however, a big place, and as Coates says, "the spectrum of investability (openness to foreign investors) is wide".

One of the best regarded countries in west Africa is Ghana, due to its infrastructure and stable government. But because of this success, in mid-March its government announced plans to raise mining taxes from 25 to 35 per cent, with a windfall tax on super profits.

In the wake of Rio Tinto's recent experience with Simandou, Guinea is very much on the nose as far as miners are concerned. One region that is hotting up however, is Liberia, which has come out of a period of civil war.

These days, ex-president Charles Taylor is on trial in The Hague and Ellen Johnson Sirleaf, who won the Nobel Peace Prize last year, is President. For many miners, the relative stability that she represents is an opportunity to explore ground that has been dormant for 30 years.

One miner scratching about in Liberia is Middle Island Resources, which is favoured by one of the top fund managers in the sector. It's only small, but Rick Yeates and his team have about 100 years of experience between them. Another is Tawana. The boss there, Len Kolff, worked for Rio Tinto and was instrumental in finding the giant Simandou iron ore prospect in Guinea in the 90s. He has uncovered another iron ore prospect in Liberia, and this is on top of the gold he is looking for.

Such stories are the future Papillons and even Perseuses of the west African world.
Source: The Australian

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