Botswana has been crowned the top mining jurisdiction in Africa and the 7th mining jurisdiction in the world by the Fraser Institute. At first, this could seem trivial, but mining companies have faced sovereign risks in the past that have impacted their operations, revenues, and investments. 

Botswana’s good business environment, favorable tax regime, accommodative mining code, and ease of doing business will allow companies such as Cobre Limited (ASX: CBE) to grow their operation and become industry leaders in Africa effectively. This will protect shareholder value over the long run and ensure that Cobre gains effectively from its current projects, notably those located in the Kalahari copper belt. 

How has Sovereign Risks Impacted Mining Companies across Africa?  

In 2023, Leo Lithium (ASX: LLL) faced some challenges in its lithium project, where shipping was suspended due to a difficult relationship with the Malian government which owns a stake in the project. However, its Chinese-backed JV partner bought in $213 million to fund costs, forcing the company to hand over 5% of its share and decreasing its ownership to 45%. Meanwhile, a sale of an additional 5% of its share for $98 million was announced, leaving it to own 40% of the project. This is a textbook case of how sovereign risk can flow into mining projects, hurting shareholder value and creating a great deal of uncertainty. This impacted Leo’s share price over the medium term but the dispute was ultimately resolved in the second quarter of 2024, allowing it to produce its first shipment of spodumene concentrate.  

Like any other emerging market economy with massive potential and risks, mining companies can be caught in the crossfires, denting shareholder value. At the height of the crisis with the Malian government (who experienced a coup back in 2023), some shareholders lost the equivalent of one year's worth of profits, leaving them in the red. 

What Mining Companies are Benefiting from this Business Environment?

There are some success stories across Africa such as West African Resources (ASX: WAF), which is currently operating the Sanbrado mine in Burkina Faso. The company has outperformed its forecast production target of  280,000ozpa, delivering almost 289,000oz at a super-low US$796/oz. The company has delivered solid quarterly revenues and is currently in the middle of building the Kiaka long-life, low-cost mine near Sanbrado. Its low-cost production of gold means it is well placed to continue benefiting from high gold prices across the world. 

In Q4 2023, the company invested a total of $50 million and the project remains on budget and scheduled to produce its first gold in the second half of 2025. The Kiaka mine has a long shelf life of 18.5 years, averaging 219,000ozpa or US$1,052/oz. Other explorers such as the successful and now-sold  Cardinal Resources, who are equally trying to replicate this with Bishop Resources, are exploring and developing projects both in Senegal and Ghana.

Meanwhile, Cobre (ASX: CBE) has started exploration in the Kalahari copper belt, with strong potential prospects for a range of metals to justify the project that could unleash shareholder value. Cobre Limited (ASX: CBE) is well placed to avoid such a showdown as it operates in a stable environment, with limited political risk, a supportive mining and tax code, and clear guidelines on how governments operate when they get a stake in the project. While political uncertainty is impossible to forecast, Botswana has not had a major political crisis in the last two decades, and its tax policy and mining guidelines have sought to attract mining companies to support its long-term development.