There’s Opportunity in African Gold Miners

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Mining companies with operations predominantly in Africa tend to trade at a significant discount to comparable companies that operate in North America. As Americans, we read headlines about dangerous working conditions, underpaid workers, political uprisings, civil wars, and other red flags that lead us to the conclusion that we shouldn’t invest in African mining companies.

The fact of the matter is that Africa is an enormous continent with all sorts of different peoples, political systems, and geographies, and it is counterproductive to lump all African mining companies together. Yet a look at these companies’ valuations tells us that many Western investors are guided by such an undifferentiated investment approach. As a result, savvy investors can make money if they are willing to put in the effort to understand which African mines are high risk, and which are low risk.

Generally, there are two questions that investors need to ask and answer when determining whether an African mine is low risk or not. First, is the mine a surface mine or an underground mine? Second, is the mine located in a politically stable region?

Surface mines, as opposed to underground mines, make for far safer working conditions. When we read about worker strikes and dangerous working conditions, this is often in reference to deep underground gold and platinum mines in South Africa. Workers there have to go deep underground, where they can potentially be injured, and where they have to breathe in a lot of soot.

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