SA firms buy DRC gold mine despite violence
September 11, 2009
By Thomas Biesheuvel
AngloGold Ashanti and Randgold Resources are pushing into one of the world's poorest and most unstable countries to boost reserves as gold trades close to a record and global reserves dwindle.
The two companies are buying control of a deposit in the Democratic Republic of Congo (DRC) containing as much as $22 billion (R166.2bn) of gold at current prices.
The project is in an area increasingly torn by fighting between the government and Ugandan rebel group, the Lord's Resistance Army (LRA).
The move puts the firms at the vanguard of mining companies moving into risky areas like the DRC, which has been beset by more than a decade of violence that has left 5 million people dead.
Gold output in countries such as South Africa has dropped, and the price has risen for eight consecutive years, making the DRC's untapped reserves look more attractive.
"If you want to retain your position then you've got to look at places like the Congo, because that's where the very richest deposits are," said John McGloin, a mining analyst at Arbuthnot Securities in London. "While it might be highly enticing, it doesn't come without baggage."
AngloGold and Randgold have agreed to pay about $520m for its owner, Australia's Moto Goldmines.
The LRA rebels, who have battled Uganda for 20 years, have been more active since September last year in Haut-Uele territory, a region of Orientale province in the DRC, where the Moto project lies.
The LRA made an unprecedented 55 attacks in July in the Faradje area, about 90km north of Moto, and drove 125 000 people from their homes in Haut-Uele last month, the UN Refugee Agency said.
It has killed 1 273 people and abducted 655 children and 1 427 adults in the past year in Orientale. More than 540 000 people have been displaced in the province.
In January 100 civilians were massacred in the gold-mining town of Tora, 65km from Moto, the UN said.
Moto Goldmines delayed restarting operations after the Christmas holidays because the rebels looted nearby villages.
The company "reinforced" security measures and "held back" operations earlier this year because of rebel attacks about 50km to 100km from the site, said general manager Louis Watum.
"There is some uncertainty, that's true, but it's better than it was," he said.
The rebels "are highly mobile and extremely resilient", said Philippe de Pontet, an analyst at New York-based political risk research firm Eurasia Group. "The Congolese do not have the capability to root out this kind of insurgency."
Mark Bristow, the chief executive of Randgold, said he was relying on the governments of the DRC and Uganda to curb the violence to protect the investment that the mine would bring.
AngloGold withdrew workers from some of its exploration camps in the DRC last November because of fighting between government forces and rebels in Orientale.
The company considers the DRC to have become more stable since then, according to Alan Fine, the spokesman for the gold mining company.
Gold for immediate delivery has gained 13 percent this year and on Tuesday rose above $1 000 an ounce in London for the first time since March last year.
The Moto mine may cost about $500m to build, estimates Jonathan Guy, an analyst at Investec. Randgold says bringing it into production in 2015 will require two years of trucking equipment across the border with Uganda, 150km to the east.
The DRC's gold output was 6 tons, or 1.2 percent of total African production last year. Production might reach 25 tons by 2015, said William Tankard, an analyst at UK research firm GFMS, as investors establish new mines.
The world's largest producers need to find new sources of the metal. Global mine output has declined since 2005 and was 2 416 tons last year, a 12-year low, according to GFMS. In the past decade North American production has fallen by a third while output from South Africa, once the largest producer, has sunk more than half.
AngloGold and Randgold will pay a mixture of cash and Randgold shares for Moto Goldmines. The deal, which still needs Moto Goldmines shareholders' approval, will see investors receive as much as $244m in cash and about 3.9 million Randgold shares. - Bloomberg
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