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Randgold is looking to diversify in AfricaJune 22 2012, 9:12am
The West African country of Mali has been a company maker for FTSE 100 listed Randgold Resources (LON:RRS) with two-thirds of gold production coming from the country. Having been democratic for twenty years a military coup has seen elements of the army take power a month before a Presidential election. With no effect on the operations Randgold’s shares had sold off.
Mali is a land-locked country in West Africa which has come to be the third largest gold producing nation in Africa. This is in no small part due to the success of Randgold Resources which has its operations – Loulo/Gounkoto and Morila – in the South West of the country.
The military coup is under the pretext that the country’s rulers haven’t supported the military’s campaign in the North-East of Mali sufficiently. Tuareg rebels in the North-East have been empowered by fighters and arms coming to the country after the end of the Libyan war. In terms of Mali’s recent history the country became democratic in 1992 with its first multi-party elections. The first President served two terms and was succeeded by Amadou Toumani Toure who was responsible for putting in place democracy 20 years ago.
Following the 22nd March 2012 coup the leader is Capt Amadou Sanogo. The stated aims of the coup are to ensure the Army can “secure the country” which means more support for the fight in the North-East. The coup leaders have said they are looking to restore democracy soon (within 9 months).
However, at present a curfew is in place, some former ministers have been arrested, the constitution has been suspended and borders have been closed. Capt Sanogo has also said that former leaders will be “transferred to the justice system”.
Randgold shares ownership of its Loulo/Gounkoto project with Randgold providing the country with an incentive to see it succeed. In total Mali saw just under two thirds of group gold output in 2011 while the Tongon mine in the Ivory Coast provided the remainder. Clearly the Loulo/Gounkoto complex in Mali is key for the company.
Randgold is looking to diversify in Africa with the Kibali mine in the Democratic Republic of Congo (DRC) set to see output in 2014 and the Massawa project in Senegal due to start producing in 2016. However, from 2012 to 2015 the Loulo/Gounkoto complex in Mali is set to produce more than half of total gold output.
Randgold CEO Mark Birstow said in a statement that: "Malians respect laws and I don't believe this will come with a high-handed change in political direction. We don't expect any subsequent governments to disregard proper and due process." Bristow said.
Whether that is wishful thinking or not will remain to be seen. Certainly in the Ivory Coast legitimate civilian rule was restored after the former President tried to cling onto power. However, an army coup in the midst of instability in half of the country makes the situation less clear in the case of Mali.
The strength of the share price gain illustrates Randgold’s success to date and the high stock market rating it has enjoyed relative to some gold mining peers. This premium rating is reflective of growth prospects and the quality of management and its operations.
A good example of this is that Randgold has managed to contain gold mining costs and is actually set to see lower costs per ounce going forward. This is at a time when other gold miners are seeing higher costs due to factors like wage inflation and higher energy bills.
This report was produced by Senior Research Analyst, Andrew Latto