This month’s coup in Mali saw military leaders take power from president Ibrahim Boubacar Keita and his government. Now the new junta of Mali wants to review the foundations of the state, according to media reports. The West African country has a very weak economy and protests were focused on unemployment as well as militants running amok. If they are looking for new government income, there is one guaranteed source of income: gold miners.
Hummingbird Resources (HUM) and Resolute Mining (RSG) have major operations in Mali. Both companies have said their operations are so far unaffected by the military takeover. Their operations are far from the capital, Bamako, and they already provide income to the government through royalties and taxes. Last year, Hummingbird handed over $13m (£9.9m) on revenue of $157m from its Yanfolila mine. Its tax rate across the business was 30 per cent. Resolute paid out $55m in taxes and royalties to Mali, from revenue of $321m at the new Syama operation.
The existing payouts are fairly standard across the continent. The tax and royalty rate is one factor in the risk matrix that mining companies use to decide where to look for assets.
Political risk is the technical word for considering situations like Mali, although it also includes the possibility of a government changing its approach to miners. This happened in Tanzania (RIP Acacia Mining) and the Democratic Republic of Congo in recent years. The new leaders in Mali should note that, within reason, miners will accept royalty and tax increases. The DRC floating royalty for cobalt has failed because the metal’s price collapsed, but offers a way to raise money when the going is good.
There have also been coups that change little for miners. There were two major regime changes in Egypt within a few years, but Centamin (CEY) was able to keep producing despite a legal challenge to its licence after Hosni Mubarak was ousted.
The situation in Mali is still evolving, and it won’t be clear how much Hummingbird and Resolute will be affected until the junta decides on a path. So far, the issue after the coup has been the reaction of the West African regional alliance, the Economic Community of West African States (Ecowas), which shut borders with Mali. BMO analyst Colin Hamilton said this could “disrupt miners’ ability to export their gold to be refined or import any necessary supplies”. He said stockpiles would likely cover them for a few months at least.
London investors’ appetite for companies mining in ‘riskier’ jurisdictions is well known. The chief executive of LSE returnee Yamana Gold told us his Americas-focused company would offer buyers a safer option than the Russia- and Africa-focused companies.
But mines being in countries with more stable governments does not guarantee success. Even if operationally they do well, a democratically-elected prime minister or president can still change the rules.
In fact, the closest recent parallel to Mr Forsyth’s tale of a scheming miner knocking off a leader was the industry in Australia pulling together to fight Kevin Rudd’s mining super profits tax in 2010. While the Minerals Council of Australia-led campaign paid for airtime rather than storming the national broadcaster, this was a crucial factor in the swing in popularity against Mr Rudd that saw the Labor Party party oust him before the 2010 election.
In short, he fell out of favour and his own MPs got rid of him. His successor, Julia Gillard, went with a watered-down version of the tax and by the time it came in the cycle had turned so there were no super profits left for anyone.
