Knowledgeable about mining I am not, so this post is essentially a collection of links and quotes regarding the Tasiast mine in Mauritania, a project of Canada’s Kinross Gold Corporation. Tasiast is in the headlines this week because of Kinross’ drop in second quarter profits. The importance of the story, for me, lies in how the situation at Tasiast might affect the investment climate in Mauritania and, given the unrest in Mali, the western Sahel as a whole.
Reuters on Tasiast’s future:
Kinross Gold Corp’s new chief executive laid out a strategy to cut costs on Thursday, but did not provide any clarity on expansion plans for the underperforming Tasiast mine in Mauritania.
Studies at the underperforming West African mine are expected to continue into 2013 and the lack of clarity did little to calm analysts’ jitters, with a number of them cutting their price targets for the stock.
“They’re still disorganized on Tasiast,” said George Topping, an analyst at Stifel Nicolaus who has a “hold” rating on the stock. “They are spending, this year, $800 million on Tasiast – without a plan – it’s hard to fathom.”
Topping noted the mine has been on Kinross’s books since 2010 and said the expansion should be further advanced at this point.
And some background from the Globe and Mail:
Last week…Kinross dismissed [CEO Tye] Burt, the former investment banker who led the company through the acquisition of Tasiast’s owner, Red Back Mining, in the summer of 2010.
“In our view Tye Burt staked his reputation on Tasiast when he asked investors to trust him that it was worth the $7-billion purchase price,” Credit Suisse analyst Anita Soni wrote in a report on Aug. 1. “Thus, we believe that the decision to replace him cannot be viewed in isolation and must be a call on the value of the asset.”
The Kinross purchase of Red Back was the largest acquisition in the company’s 19-year history. The price was controversial, but Tasiast has been touted as the engine that will thrust Kinross into the ranks of the world’s fastest growing gold companies. So far, however, it is the source of its biggest-ever loss after a $2.49-billion writedown on the project earlier this year.
Although it seems that investors are often unfazed by short strikes, it is worth mentioning that Tasiast shut down for several days in June over a workers’ strike.
I say all this to make a relatively simple point: profitability concerns could be compounded by political risk issues. As Geopolitical Monitor wrote in March, following the coup in Mali,
The coup generates considerable business risk as well, especially in the mining sector. Mali aspires to become one of the world’s leading gold producers. Mining giants such as AngloGold Ashanti Ltd. (ANG) and Randgold Resources Ltd. (RRS) have significant operations in the country. However, to their benefit, gold is largely extracted in the south, which is unaffected by the rebellion in the north. Canadian AVion Gold and Iamgold are also operating in Mali. Other Canadian mining companies are indirectly exposed to the intensified Mali risk. They include Kinross which has commitments in Mauritania, LaMancha, which operates in Ivory Coast and Semafo, which still has opeartions in Niger.
I am not attaching a positive or negative moral value to mining operations in the Sahel; indeed, mining projects have often brought upheaval to local communities. But I am arguing for the significance of the mining sector in economic and political terms. Sahelian governments have attached major hopes to mining projects; by 2011, gold had overtaken cotton as Mali’s main export. Perhaps the fears of political risk have been overblown. Randgold has reported a record profit in Mali this year, and is “casting its eye over possible acquisitions in west and central Africa.” Perhaps Tasiast should be viewed in isolated as one company’s headache. Still, the news out of Tasiast, and the continued chaos in Mali, could keep investors jumpy.