BMI View: Similar to gold miners across Africa, those in Mali will face headwinds over coming quarters as weak gold prices reduce the profitability of operations. Gold is the on ly mineral commodity produced in Mali in any sizeable quantity and accounts for as much as 70% of the country's exports. As such the downturn in gold prices is set to have a negative impact on the country's wider economy.
Difficult Times For Miners
Lower gold prices will bring about difficult times for miners in Mali as cash costs surge towards the spot gold price , making increasing numbers of mines unprofitable . We forecast gold prices to average US$1,235/oz between 2013 and 2017. This week the joint venture between Iamgold, AngloGold Ashanti and the Malian government announced an end to mining at its Yatela gold mine by the end of September 2013 as a result of safety issues, rising costs and lower gold prices. The company stated that Yatela was no longer able to provide a positive contribution to stakeholders. We see this as key example of a broader trend of mine closures likely to play out all over Africa in coming quarters.
|Select Companies - Cash Costs (US$/oz) & Average Gold Price (US$/oz)|
The new Malian government recently announced a complete inventory and review of all existing mining contracts. It is too early to say whether this could result in a new mining code under which the government might extract larger revenues from the mining sector. However the present intention of the review is to streamline the sector and reduce corruption. The Malian government is highly su pportive of the mining industry as it is desperate to attract foreign investment into the country to boost economic growth . Mali's Mines Minister Boubou Cisse stated his intention to increase mining sector value from around 8% of GDP at present to 20% in the long term. This aim is ambitious considering the downturn in metal prices, however it indicates an attractive investment environment is to be expected under the new government.
|Mali - Mining Industry Value & % Growth|
Political Risk Subdued
The decisive victory of former Prime Minister Ibrahim Boubacar Keïta in Mali's presidential election in August was a very positive sign for Mali's long-term democratic prospects. The new president now has a strong mandate to tackle the social, economic, and institutional fragility that allowed the Malian state to implode in early 2012. As such we expect investor sentiment to improve toward the West African country and for political risk to gradually decline relative to its African peers.
|f= forecast. Source: WBMS, BMI|
|Gold Mine Production, moz||1.52||1.36||1.28||1.45||1.48||1.51||1.53||1.56||1.58|
|% growth y-o-y||5.0||-10.6||-6.1||13.4||2.1||2.0||1.8||1.5||1.4|