Dear Reader,
Welcome to your first edition of Mining Memo! Our latest project.
As promised, these short but (hopefully) insightful updates will cut through the market noise and give you the information that matters most week to week.
So, let’s kick it off.
Unfolding Story: Resource Nationalisation
Heating Up
It’s a nervous time for gold miners in Mali.
Last week, eyewitnesses at Barricks Loulo-Gounkoto mine watched in disbelief as the Mali government airlifted several tonnes of gold from the mine site!
Around US$245 million worth of Barrick’s gold, according to The Business Insider Africa.
It’s just the next step in making Mali un-investable for international miners.
You might recall Australia’s Terence Holohan, the chief executive of Resolute Mining, being detained in Mali’s capital, Bamako, late last year.
Disputes over royalties and taxes led to his arrest.
Authorities in Mali also issued an arrest warrant on Barrick’s CEO, Mark Bristow, late last year in a push to capture more tax revenue.
And with the government’s latest helicopter gold heist, Barrick has finally pulled the pin on Mali, officially suspending operations.
Mining Memo’s Take
Barrick and certain other major miners have favoured developing mines in sketchy locations…
In addition to its Mali operation, Barrick is building a vast copper-gold project on the Pakistani-Afghan border, Reko Diq.
It also holds ‘risk projects’ in Tanzania and the Porgera gold mine in Papua New Guinea.
The latter was also suspended in September after an eruption of tribal violence.
So, why take the risk?
Barrick has long sought to capture value in places where most dare not go. The company’s CEO, Mark Bristow, highlights this as one of his key long-term strategies.
The allure of untapped frontiers, large deposits, and relatively high grades equates to improved profit margins.
Throw in the much lower labour costs in these jurisdictions; there’s every reason for a miner to take on these risky ventures.
But…
The troubles surrounding Barrick’s Loulo-Gounkoto mine offer an example of what can go wrong when these bets fail to pay off.
And as you can see, Barrick’s attraction to these places has resulted in a woeful share price performance:
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| Source: TradingView |
The company has fallen 12% over the last 5 years, that’s despite gold prices soaring 76%!
A miserable outcome for what was once the world’s largest gold miner.
Key Message
Given that resource nationalisation tends to flare up whenever commodity prices rise, it’s a risk worth considering. Mali’s interventions have developed in line with record gold prices.
I suspect we’ll see much more of this in the years ahead as commodity prices strengthen.
Don’t get me wrong, I’m not averse to investing in stocks that hold operations outside the ‘safe places’ like Australia or Canada.
But having worked in a few of these places throughout my career, you need to understand what you’re getting into!
Until next time.
Regards,
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James Cooper,
Editor, Mining: Phase One and Diggers and Drillers
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