ASX-listed mining companies and sovereign risk in Africa

Last week, Leo’s shares were suspended from trading for a second time awaiting further “correspondence” from the government of Mali, with retail traders quick to flood social media with This is Africa memes in response. The suspension is expected to last until this month, but perpetually extended suspensions are not uncommon.

For investors caught in AVZ Minerals, a Malian lithium miner, watching Leo Lithium must feel like they’re watching a movie they’ve seen before. Infamously, shares in AVZ Minerals fell 20 per cent in May 2022 after the Democratic Republic of Congo government effectively sold from under them their mining rights to one of the world’s largest lithium deposits to a Chinese company.

Shares were suspended from trading, with the company anticipating reinstatement later that month. Now, 15 months later, the shares remain suspended from trading, and with them many trapped investors.

For many retail investors who joined the market during the COVID-19 pandemic mania, it was their first experience of the This is Africa legend. Indeed, the disruptions faced by some ASX miners over the past two years could provide Hollywood scriptwriters an endless supply of material and keep Di Caprio busy until retirement.

Explorer Sarama Resources’ share price, for instance, has tumbled more than 60 per cent in since September after the Burkina Faso government unexpectedly withdrew its exploration permit for its flagship gold project.

Shares of ENRG elements, a company developing uranium and lithium projects in Niger, fell more than 50 per cent over three days in July on investor concerns after Niger’s president was detained by mutinous soldiers.

‘Investors should get in the frame of mind that the majority of companies in such markets do not succeed, and the odds are stacked against them.’

Elio D’Amato, Stockopedia

Also that month, Indiana Resources shares jumped 75 per cent after a World Bank tribunal awarded it $109.5 million after litigation spanning fives years against the government of Tanzania for unlawfully expropriating its nickel project. Shares have fallen 40 per cent since as the government disputes the award.

Perth-based Equatorial Resources commenced legal action in March for compensation of more than a billion dollars against the Republic of Congo after the company was dispossessed it of its iron ore assets, with the government giving them to a Chinese firm.

In February, the Tanzanian government unexpectedly withdrew two prospecting licences from Auking Mining’s planned uranium project in February, with shares down more than 20 per cent since.

Loading

And for a year, Syrah Resources has faced multiple disruptions to its graphite mining operations in Mozambique due to illegal industrial action and the threat of insurgency.

Triton Minerals, also located in Mozambique, had two of its employees killed last year during an attack by Islamist militants.

Gold miner Firefinch (ironically the progenitor of Leo Lithium) has also been suspended over 14 months after flagging a production downgrade at its Morilla gold mine, following sanctions imposed on Mali’s government.

One of the most bizarre tales is that of Cassius Mining, investigated by this masthead in 2022. Cassius is in the process of litigation against the Republic of Ghana to the Permanent Court of Arbitration at The Hague seeking $US270 million ($376 million) in damages.

Cassius alleges corrupt government officials redrew its licence boundaries to transfer its assets to a neighbouring illegal Chinese mining operation, which had been stealing tens of millions of dollars’ worth of their gold from under them.

Last year, the Ghanaian government launched an inquiry into the claims.

The dispute is now set to be determined by a three-member tribunal.

“The company and Ghana have appointed their respective party tribunal members and it is anticipated that a chair will be appointed by October 9,” Cassius said in a letter to shareholders.

The litany of challenges described above demonstrates the difficulty and risk for investors, is it even worth it?

“Investors should get in the frame of mind that the majority of companies in such markets do not succeed, and the odds are stacked against them,” said D’Amato. “One needs to invest with eyes wide open, particularly when investing in stocks with geopolitical risks, conflicted boards or government interference.

Loading

“Read carefully business updates, half/full-year reports and their quarterly updates. Look for transparency, progress and sufficient detail to get an understanding of the current state of play before investing,” he said.

For some, Africa is now a no-go zone for investing. Stockrocker has decided to minimise his future Africa exposure following his Leo Lithium experience: “I won’t trade size in anything in Africa again that’s for sure.”

It’s a sovereign risk jungle out there for investors, but This is Africa.

The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.