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True Gold’s (TGM.v) bad Karma (from IKN298)

This is one of the shorter pieces in IKN298, out last Sunday, with more details of the problems and travails faced by Mark O'Dea and his True Gold (TGM.v) vehicle in Burkina Faso. Shockingly, it's down further this week, all while the rest of the sector has seen decent gains.

UPDATE: Here's a special message for people linking in to this and other posts from CEO CA


True Gold’s (TGM.v) bad Karma
This is the stock I owned briefly in 2014, but dumped the position at basically breakeven when they took away most of the potential upside for shareholders by raising capital via a $100m streaming deal with Franco Nevada (75%) and Sandstorm (25%). Today I’ll also repeat the nerves I had (and discussed at the time) about holding a position in an exploreco in Africa, as the political/community risk was pretty much a closed book to me and I’ve learned the hard way not to fly blind on these matters (it’s why I largely stick to LatAm, after all).

And that’s because of the events of the last 11 days at its Karma project. We first noted them on the blog on the day of the violent protests (15) and then early Tuesday morning Jan 20th (16) just before TGM published its latest NR (17) to tell of the work stoppage, the unknown resumption date, the $4m to $8m damage to plant and buildings and the sacking of President/CEO Melrose at the hands of the main TGM player Mark O’Dea, who wished his ex-CEO “well in his future endeavours”. That was nice of him.

In my Tuesday post I linked to several news stories on events and it seems there are several problems faced by TGM with locals, but the main one, the stand-out issue (and obviously the one that ex-head Melrose dropped the ball on) is the small matter of Islam’s most sacred mosque that lies just next to the open pit mine plan. Last week things went into damage control mode in the newly installed Burkina government, with the Minister of Mines and Energy, one Emmanuel Nonyarma, trying to calm locals by telling them (18) “...(we) assure all Muslims and particularly those of the Tidjania (directly attached to this mosque) that nothing will happen or can happen to the mosque, which is in a sacred and divine location”.

Unfortunately, locals aren't that easy to convince and for one I can’t blame them. As if you check on the Karma feasibility study project area map (page 39 of the Karma feasibility study dated January 2014), you see the outline of the pit (red) and to the right, those grey blotch areas. The larger of the two blotches is the town of Ramatoulaye, with a population of around 7,000 people and home to the aforementioned sacred mosque.

Further on in the Karma feasibility study, on page 195, we get more information on the local religious mix and the mosque itself:

And then further on, we get to read how TGM at Karma recognizes the potential for community problems, as during the two years when the closest pit to the town is developed the mining will be at less than a kilometre from the town and the mosque. Explosive charges, shovels and trucks, dust and noise, all the things we know and love about open pit mining operations.

Right next to Burkina’s most sacred spot for its four million followers of Islam.

According to TGM NRs in December (19) (20) the problems started on December 9th, at which time we were told “the Company is working to address the concerns voiced by certain individuals in the community and expects to reach a resolution shortly.” In January the religious heads of Islam had their 93th conference at the mosque in Ramatoulaye. We’ve also been told that the major earthworks were scheduled to begin in January and that first pour was planned for end 2015. As situations go, it looks sticky from the outside and there’s obviously been some serious community relations negligence on the part of TGM for things to have gone sour the way they have (the probable cause for Melrose’s sacking). Whether or not the situation is repairable at this point is beyond my ken, but I will say that when there’s this type of confrontation in Latin America and the main sticking point is religious and/or about sacred sites, it’s a whole lot more complicated than just trying to throw money at a problem until it disappears. Majaz/Tambogrande in North Peru, Esperanza in Morelos South Mexico, the Wirikuta zone in North Mexico, there are three off the top of my head. In a best case situation, I’d venture to say this project just got more expensive and its timeline stretched (and obviously in a worst case it’s simply not going to happen as a mine) and according to its streaming deal, True Gold has 20,000 oz of gold to deliver to FNV/SAND in 2016, even if it has to buy the metal on the open market (in fact the wording of the deal makes that clear).

Yes you guessed it, this one is an almighty “avoid” until further notice, dirt cheap shares or not.