Randgold’s Kibali U/G section on track despite possible political pitfalls ahead

In a statement to local media Randgold Resources CEO, and driving force, Mark Bristow, reported excellent progress at its 45%-owned Kibali gold mine in the DRC, which it operates.  It built the mine ahead of schedule as an open pit operation with the underground section to follow, despite it being located in one of the most remote parts of the African continent in the northeast of the mineral rich Democratic Republic of Congo (DRC) close to its border with South Sudan.  The construction logistics were daunting with virtually all the heavy equipment needing to be trucked to the site from ports far away on Africa’s east coast.

Kibali is also owned as to 45% by the much larger Anglogold Ashanti, which ceded construction and management to Randgold because of the latter’s strong prior expertise in constructing and operating gold mines in Mali and Cote d’Ivoire and in maintaining good relations with the governments in those nations – even through some major political changes. The balance of 10% of Kibali is owned by DRC parastatal, Sokimo.  However, while technical progress has perhaps exceeded expectations there are obviously some potential political pitfalls ahead if they cannot be warded off through negotiations with government, Bristow also warned.

The Kibali gold mine, nowadays one of the largest such operations in Africa, remains on track to achieve its production target of 610,000 ounces this year as its underground operations and the integration and automation of the vertical shaft enters the final commissioning and automation stage, Bristow told the audience at an event in DRC capital, Kinshasa.  The mine is anticipating a significant increase in production once the final shaft commissioning, which remains on a tight schedule, has been completed.

At a briefing for local media, Bristow said in spite of the high level of activity at the mine, there had been a significant improvement in the safety statistics, with its total injury frequency rate continuing to decrease and lost time injury frequency rate down to 0.31 per million hours worked in the September quarter.

Following the anticipated completion of the underground mine in the fourth quarter, the only major capital project still in the works would be Kibali’s third new hydropower station, currently being constructed by an all-Congolese contracting team.  Bristow said the availability of self-generated hydropower and the mine’s high degree of mechanisation and automation were important factors in Kibali’s ability to sustain its profitability throughout the ups and downs of the gold price cycle.

To date, over $2 billion has been spent on acquiring and developing Kibali, of which the majority had been paid out in the form of taxes, permits, infrastructure and payments to local contractors and suppliers.

“With capital expenditure tapering off, Kibali should now be preparing to pay back the loans taken to fund its development.  We are concerned, however, that its ability to do so will be impeded by the increasing amount of debt – currently standing at over $200 million – owed to the mine by the government.  TVA refunds, excess taxes and royalties in violation of the country’s mining code, make up the bulk of this amount,” Bristow said.

Another troubling development was the recent re-introduction to parliament by the Ministry of Mines of a proposed new mining code which is exactly the same as the one the government withdrew in 2015 after it was comprehensively demonstrated that it would seriously damage or even destroy the Congolese mining industry.

“Randgold has proven and continues to prove that it is committed to the DRC and to the development of a gold mining industry capable of making a substantial and lasting contribution to the country’s economy.  Despite all the challenges, including the volatile political climate and a deteriorating economy, we continue to invest here.  Our exploration teams are searching for our next big discovery in the greenstone belt of the north-eastern DRC.  In line with our local supply strategy, Kibali spent approximately $40 million with Congolese contractors in the past three months alone.  We are developing substantial agribusiness and other community projects.  And perhaps most important, we invest in the training and empowering of Congolese nationals, who already make up most of the Kibali management team, thus making a contribution of incalculable value to the expansion of the country’s skills base,” Bristow said.

“The DRC has all the materials for building a sustainable mining industry but that will require a fully committed partnership between the government on the one hand and the mining companies on the other.  Despite recent indications to the contrary, we remain confident that such a partnership is within reach, and that the government will see the critical importance of maintaining a stable, investor-friendly fiscal and regulatory environment for the country’s mining sector.  In this regard, we would welcome the opportunity to work with the government in jointly selecting an independent group of experts to benchmark the DRC mining code and its fiscal framework and to model the impact of the new proposed code, which we believe will be damaging to the development of the industry.”

These are, in effect, dire warnings by Bristow and illustrate some of the potential problems arising when working with the DRC government.  The DRC has enormous mineral potential for the production of many strategic metals and minerals, but the kinds of problems noted by Bristow could have a serious impact on further potential inward investment in the mining sector and could also adversely affect ongoing operations in the country.  The country had a hugely successful mining industry back in the mid 20th Century, but this largely fell into disrepair in the latter half of the century as foreign expertise was shunned.  One hopes this will not happen again.  The world needs the metals and minerals the DRC can supply.

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