In recent months, the phrase “This is Africa” has become a viral meme shared among retail investors as an increasing number of ASX-listed mining companies fall victim to African sovereign risk.
The meme, a picture of Leonardo Di Caprio from the film Blood Diamond and captioned with the phrase “This is Africa”, has come to describe all the risks and uncertainties of doing business in the untamed plains and jungles of the African continent.
“This is Africa” has become a viral meme shared among retail investors.
ASX data shows more than 104 listed companies with “significant operations, revenue or incorporation” in the African region, and hundreds more with minor exposure via single projects in a larger portfolio.
“The easier access to funds makes the ASX a destination of choice of African miners seeking capital,” said Elio D’Amato from analysis platform Stockopedia. But it’s also a double-edged sword, with many inexperienced investors underestimating the risk, and getting the impression companies “look too good to be true – until reality hits of course”.
This month, shares in Leo Lithium plummeted 50 per cent after the government of Mali unexpectedly banned it from exporting its lithium ore, backtracked on tax exemptions, and decided it wanted an extra 10 per cent stake in the company.
Many retail investors have learnt that hard way that investing in mining companies in frontier markets such as Africa can be more risk than reward, with the most common disruptions to operations including revoked permits, disputes with unstable government regimes and coups or insurgent attacks.
“I was doing well in 2023 until July when I was caught in the [Leo Lithium] suspension that turned a $400k+ profit in that stock into $100k loss, wiping out all of 2023 profits,” said Darwin-based ASX trader who is known only as “Stockrocker” on social media.
“Like any emerging economy, [Africa] carries both massive potentials, alongside massive risk,” said D’Amato. “As recent examples have shown us, even the best prepared companies can have the rug pulled from under them.”
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.
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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.
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“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.
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