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.

Kibali – already one of Africa’s largest gold mines – going strong

The ongoing search for additional reserve ounces at Kibali will secure its future as a long-life mine and one of Africa’s largest gold producers, Randgold Resources chief executive Mark Bristow said in a speech in Kinshasa, DRC.  Randgold develops and operates the mine and has a 45% stake, which it owns in partnership with AngloGold Ashanti (also 45% owners)  and the Congolese parastatal SOKIMO which holds the 10% balance.

In 2014, its first full year of operation, Kibali produced 526,627 ounces of gold at a total cash cost of $573/oz and Bristow told a media briefing here that production and cost for the first quarter of 2015 were likely to be within guidance.

“When you’re producing gold at the rate of around 600,000 ounces per year, the need to replace the reserves that are consumed is of critical importance,” he said.  “We believe Kibali’s KZ structure hosts significant additional resources, and our continuing exploration is confirming this potential.  A number of targets have been identified and the Kalimva-Ikamva and Kanga sud targets have been prioritised for in-depth investigation.”  One suspects that the promising geology around the mine should host sufficient gold resources to keep it in operation well beyond its initial 18 year mine life.

Kibali is still a work in progress, with its third open pit now operational and the development of its underground mine ahead of schedule.  Ore from its stopes is already being delivered to the plant but the underground mine is only expected to be in full production by 2018.  The first of the mine’s three hydropower plants was commissioned last year and work on the second is well underway.  The metallurgical plant is operating at its design capacity and construction of the paste plant is nearing completion.  Despite the high level of production and development activity  –  some 5,000 people are currently employed on site  –  Kibali is maintaining a good safety record, with the lost-time injury rate reduced by 16% last year.

Kibali represents an initial investment of more than US$2 billion and at a gold price of $1,200/oz and its current mine plan is only expected to repay its funding after 2024.  Thanks to its strong cash flow, however, it has already been able to repay the first tranche of its debt in March.  The whole project has been a remarkable success to date, particularly given its location – almost right in the geographical centre of the African continent, close to the South Sudan and Ugnadan borders which necessitated the bulk of the supplies and equipment having to be delivered from the African east coast rather than through the DRC itself.

Bristow said Kibali was continuing to invest in the development of the regional economy by using local contractors and suppliers wherever possible.  A prefeasibility study on a palm oil project, designed to provide a sustainable source of post-mining economic activity for the region, has been completed and work on a bankable feasibility study has started.

On the issue of the DRC’s proposed new mining code, Bristow said he welcomed Prime Minister Augustin Matata Ponyo’s recent statement that the government was ready to re-engage with the mining industry with the intention to review the draft submitted to parliament and was open to further discussions with the sector.

“We were surprised and disappointed when the ministry of mines presented a draft code to parliament without taking the industry’s comments on board and which departed radically from the common ground we thought had been established.  As the DRC Chamber of Mines warned at the time, enactment of the code in this investment-hostile form will have a catastrophic effect not only on the mining sector but on the Congolese economy generally.  It was therefore very heartening to learn from the prime minister that the government has recommitted itself to negotiation,” he said.