GUEST COLUMN — Africa and the VSE

Africa’s mineral potential is considerable and, as a result, mining companies are taking to heart the advice offered by John Babsone Lane Soule in the 19th century: “Go west, young man.”

Africa, which is three times the size of Canada, contains gold, copper and other metals, diamonds, and emeralds for those companies adventurous enough to explore new territory. Although the continent produces more than 60 metals and minerals, it remains virtually untouched by modern exploration techniques and technology.

Such ventures are not without risk, but many Canadian miners believe the potential of Africa makes investment there worthwhile. In raising funds for these and other companies, the Vancouver Stock Exchange (VSE), as the world’s leading venture capital market, is placing growing emphasis on business opportunities overseas.

In response to global business trends, the VSE is reaching out to international companies and investors. As a result, almost half of investment on the exchange comes from outside of Canada.

With its solid infrastructure of mining, geological and investment professionals, the city of Vancouver is well-equipped to support financing of this sort. As the trend continues, the volume of venture capital raised is expanding to support new listings, helping the VSE establish new records for financings and trading. A record $2.1 billion was raised through the VSE last year, up 82% over 1995. In addition, nearly 50 new companies were listed during the year, and the value of shares traded hit $12 billion — another record.

In recent years, many VSE-listed companies have become interested in Africa’s potential.

Political and economic circumstances, and not a lack of geological prospects, have kept companies from investing in Africa’s mineral potential. In some areas, interested companies have faced serious roadblocks — from foreign exchange controls to mineral rights legislation — that have jeopardized their mineral rights and investment. Such uncertainty has discouraged many mining companies from even considering investment there, given the opportunities that exist elsewhere in the world.

But some African countries are becoming more attractive exploration prospects. as a result of significant changes in investment policy, mineral legislation and fiscal and foreign exchange.

Senior mining companies are already established in Africa, but VSE-listed juniors are becoming attracted to certain areas as well. About 42 such juniors are exploring in 15 different countries for diamonds, gold, copper, nickel, silver, emeralds and zinc; in total, they have invested about $90 million in the continent.

“Activity has generally been on the increase, especially in West Africa,” says James Taylor, a mining analyst in the London office of Yorkton Securities. “It started in countries like Ghana and Mali, and has moved to Tanzania, Botswana and Namibia. Africa has a lot to offer and it has become an attractive place to operate for a lot of mining companies.” Australian mining companies were active in Africa before Canadian companies arrived but found raising capital back home difficult, Taylor notes. North American companies, on the other hand, secured funding from Canadian markets (including the VSE) and moved in. They are now the dominant players in exploration there.

“The move into Africa is part of global expansion by junior mining companies,” explains Graeme Currie, mining analyst with Canaccord Capital in Vancouver.

“Mineral exploration in Africa has been on a steady growth curve for the past three or four years,” he says. “It’s a matter of managing the risks associated with operating in some African countries.”

He adds that parts of the continent offer excellent mineral potential, notably West Africa.

Governments in Africa are now competing globally for exploration and development capital. They must be forward-looking if they want to continue attracting Canadian juniors, which are willing to tolerate a certain level of risk and adventure.

Canadian juniors already know about the VSE’s strengths as a venture capital market and, increasingly, companies from around the world are learning.

— The author is vice-president of marketing for the Vancouver Stock Exchange.