-- Posted Sunday, 30 October 2011 | | Disqus
Investments in the Democratic Republic of the Congo often get dinged with an "exotic locale" discount, but the jurisdiction is much less risky than even a few years ago. Kevin Puil, a portfolio manager with Malcolm H. Gissen & Associates and senior analyst with the Encompass Fund, recently traveled to the Congo and he liked what he saw. In this exclusive interview with The Gold Report, Puil shares his insight about this emerging mining jurisdiction.
The Gold Report: You just returned from a trip to the Democratic Republic of the Congo (DRC), a country with a troubled past and, some might argue, a troubled future. Few areas are more geologically gifted than the DRC with its vast copper and gold belts. Is it worth the risk?
Kevin Puil: The DRC is one of the last major undeveloped gold belts in Africa. Although it has had a troubled past, the Congo implemented new mining codes with the support of the World Bank in 2003 that have mitigated risk quite substantially. In 2006, the country held its first democratic elections in over four decades. The new parliament and government seem to be running the country very well.
TGR: Are the companies that are operating in the DRC doing anything else to mitigate the risk?
KP: Aside from the general security of any gold operation—being fenced and having security guards, etc.—they are working with the government more closely than they would in a more developed nation. They are also providing a lot of employment, community services and infrastructure, which the country needs, not to mention providing revenue to the government. I think that has helped mitigate political risk.
TGR: How likely is the DRC to seize mineral rights form a company operating in the country? It has happened before.
KP: Far be it for me to comment on what foreign governments are thinking, but I think that the conflict in the Congo looks to be over. There could still be isolated incidents in certain areas of the country, but from what I saw, its citizens want to move on.
I don't think companies will lose their licenses to operate. I think that the government understands that it needs to work with the mining companies because they contribute an ever-increasing part of the gross domestic product of the Congo. I think there could be a revision of some of the terms like there has been elsewhere in the world, such as in Peru and Mongolia. But I don't think the government is going to seize the assets.
TGR: How does the jurisdiction risk in the DRC compare with that of other gold mining areas in Africa, namely Mali, Ghana, Eritrea and Burkina Faso?
KP: There is certainly a country discount for some of these exotic locales. The DRC is currently where Mali and Ghana were maybe 10 or 15 years ago. The DRC is just starting to get some mining investment and learning how to deal with it. Luckily, some of these other countries have paved the road for the Congo. That should ease the transition of major mining operations in the DRC.
TGR: Did you feel safe when you were there?
KP: Absolutely, although I did have my reservations prior to going. You read a lot on the Internet and it can put the scare in you. But when I was there I felt as safe as I do in Burkina Faso or any South American country. There are always going to be areas of town you want to avoid, but we've got those problems here in California, too. The people we met in the Congo were all very friendly.
TGR: With the high gold price, are there other African countries that are stepping up gold exploration?
KP: Mali's always been an attractive place to mine, but the new up-and-comer is definitely Burkina Faso.
TGR: Did you also go there on your recent visit?
KP: Yes, I did. I was very impressed with the infrastructure there and the level of development that has gone on the last couple of years.
TGR: What advice might you offer an investor looking to get some exposure to African gold plays?
KP: Not all ounces are equal. Investors should seek out projects with good management, which could be standalone mines with robust economics and a low cost of production. They shouldn’t invest in a company whose only exit strategy is to be acquired by a major.
In terms of political risk, a lot of these countries are definitely less risky than they used to be 10 years ago, but even Burkina Faso and DRC are not without risk.
TGR: Do you believe jurisdictions in Africa will ever be as "risk free" as projects in Australia or Canada, for example?
KP: Every jurisdiction has risks, but they are just a different set of risks. In Canada and Australia, the risks might be more in terms of permitting or native land claims, whereas in South America or Africa the risks might be more of a political nature.
TGR: Well said, Kevin. Thanks for your insights today.
A Chartered Financial Analyst (CFA) with more than 15 years experience in the investment management business, Kevin Puil currently serves as portfolio manager at Malcolm H. Gissen & Associates Inc. in San Francisco and as senior analyst for its Encompass Fund. The Encompass Fund, which focuses on global resource companies exploring for and producing gold and silver, copper, uranium and rare earth elements, racked up a healthy 60% return in 2010, following a spectacular 139% in 2009. Before relocating to California, Kevin worked in Canada, where he also studied economics at the University of Victoria and the University of British Columbia.
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-- Posted Sunday, 30 October 2011 | Digg This Article
| Source: GoldSeek.com
