Barrick and Mali: inside a 20-year partnership

JP Casey 22 January 2020 (Last Updated January 22nd, 2020 09:47)

Barrick is celebrating two decades of work in Mali, having kick-started the country’s gold-mining industry and delivered benefits for shareholders and locals. We consider the miner’s history of production and controversy in Mali, and how it could be uniquely positioned to affect the country’s future.

Barrick and Mali: inside a 20-year partnership
Barrick Gold intends to undertake exploration outside its operating base. Credit: Dominik Vanyi on Unsplash.

The recent history of gold mining in Mali is one linked to the involvement of foreign companies. In 1996, IAMGOLD and AngloGold Ashanti, headquartered in Canada and South Africa respectively, opened the Sadiola gold mine, and four years later, Randgold partnered with AngloGold Ashanti to operate the Morila mine in southern Mali.

Over the last nineteen years, Randgold has merged with Barrick, and the new company has significantly increased its investment in Malian gold. Barrick’s mines account for more than 40% of the country’s gold production, making it a key player in Mali’s most profitable export, and the company’s investments accounted for around 6% of Mali’s GDP in 2018, establishing a clear connection between Barrick’s wealth and the Malian economy.

However, tying the fate of Malian mining to that of a single company poses an inherent threat to the sector, with Mali reliant on the performance of Barrick. With the company’s flagship Morila mine set to close this year, following the production of 209 tonnes of gold over its two-decade lifespan, we consider the legacy Barrick’s operations have left, and what the future will hold for Malian mining.

Two decades of development

Barrick has involved itself directly in Mali for close to two decades now, with CEO Mark Bristow highlighting the company’s achievements in the country at a recent press conference to commemorate the partnership, and finalise plans for the closure of Moira. Bristow noted that Barrick has contributed around $6.5bn to the Malian economy since Randgold first developed the Moira project, with around $2.6bn of this total in taxes, royalties and dividends.

These projects have underpinned a dramatic increase in the productivity of the country’s gold mining sector, with annual gold production leaping from around 5,000 tons in 1990 to 53,000 tons in 2017, according to the United States Geological Survey. In more recent years, the country’s impressive mining sector, the third-largest producer of gold in Africa, has contributed to an increase in year-on-year GDP growth from 2.3% in 2013 to 5.3% in 2016, and an increase in export growth from 2.5% to 2.7% over the same period.

The company has also paid $190m towards local businesses over the course of its involvement in Mali, as it aims to simultaneously turn a profit and empower local companies and workers. Bristow noted that all of the company’s Malian mines were operated by Malian executives, and 95% of the employees at the Loulo-Gounkoto complex, the major project that is set to replace Moira as Barrick’s flagship Malian operation, are Malians.

These moves have been in line with Bristow’s desire to improve the efficiency of the mining major’s operations. Announcing the initial Barrick-Randgold merger, he criticised the mining industry for its “short-term focus, undisciplined growth and poor returns on invested capital,” issues he plans to tackle through a decentralised approach, which will cut operating expenses for Barrick, and, in the process, place greater emphasis on local management and employment.

New mines and new taxes

Production at the Morila operation is set to end this year; the mine was originally expected to close in 2013, but a series of extensions have kept the mine in operation, despite dwindling production. The operation’s annual gold output fell from 165,788 ounces in 2015 to 98,767 ounces the following year, and Barrick is turning its attention to other projects as it aims to extend its influence in Mali.

These new operations are headlined by the Loulo-Gounkoto project, a complex comprising three mines, owned by Barrick, with a controlling 80% share, and the Malian Government. In 2018, the mine produced 660,234 ounces of gold, orders of magnitude ahead of the flagging Morila operation, and earlier this year, Barrick announced that the mine was on track to hit its ambitious annual production target of 690,000 ounces of gold.

The Loulo-Gounkoto project has also helped further Barrick’s more holistic ambitious in Mali, with the company investing more than $6.4m into local communities. A portion of this money has gone towards the development of an agribusiness for local people; in its quarterly report, published in the third quarter of 2019, Barrick noted that this business had seen 48 local farmers trained in food production, who had gone on to produce 30 tonnes of food and generate an income of $39,000.

However, there may be testing times ahead for the close relationship between Mali and the miner, with a new mining tax code, introduced in October and currently under consideration, posing risks for private companies. In broad terms, the code increases the taxes mining companies are obligated to pay to the government, by cutting a tax reduction for corporations from 15 years to three years, and removing VAT exemptions for mining production.

The law will also create a new local development fund, with money coming from the government, which will pay 20% of its mining royalties, and mining companies, which will contribute 0.25% of their turnover. In effect, this will create two new revenue streams siphoning money from miners such as Barrick, and towards local projects; while Barrick has been eager to publicise the work it has been directly involved in with regard to local development, it remains uncertain if the company will be as satisfied for its money to be used in an independent fund over which it has no control.

Controversiesand challenges

This financial uncertainty continues one of Barrick’s larger controversies since its initial involvement in Mali, a long-running dispute with the national government over tax payments. The matter is based on the government’s argument that the Kankou Moussa bank, to which Randgold sold its gold prior to its merger with Barrick, owed $80m in unpaid taxes in 2016, a debt that the state argues has since transferred first to Randgold, and now to Barrick.

This close relationship has the potential to harm Mali too, with the mining industry disproportionately influential over critical political matters, such as national security. Since 2012, a series of armed conflicts between northern Malians desiring greater political autonomy, and southern Malians around the capital Bamako, has destabilised the country; with the involvement of terrorist groups and little more than a temporary ceasefire currently in place, the country faces significant political challenges ahead.

A World Bank report, published in April 2019, noted that alongside its economic potential, “mining can also contribute to peace consolidation and stability by stimulating local development and shared growth”, creating a unique environment where the economic activities of private companies such as Barrick can have an impact on socio-political matters that would typically be beyond their scope of influence. The same report called the performance of the country’s mining sector “below expectation” however, with much of Mali’s gold production tied up in older mines that are being rapidly depleted.

“Industrial gold production trend has been nearly flat since 2008, while mining contribution to GDP has been declining in view of the slow pace of developing new mines,” according to the report. “With the depletion of mineral reserves and price volatility, the challenge faced by Mali is to strengthen the ability of the mining sector to serve as a buffer during economic shocks or political crises.”

As a result, the future of Barrick in Mali is uncertain on two fronts: how the company will respond to the new mining tax code, and whether it will take a more active role in the security challenges facing Mali, considering its unique position. With the company’s flagship mine closing, and the national government reliant on firms such as Barrick for support, the miner’s actions could dictate the future of the country.