Barrick Gold (TSX: ABX) is facing escalating challenges in Mali as the country’s military government intensifies efforts to assert control over its lucrative mining industry amid increasing Russian influence.
Since seizing power in a coup in 2021 and subsequently forming an alliance with Russian troops, Mali’s junta has focused on exerting authority over the mining sector. This includes conducting controversial audits and implementing a new mining code aimed at enhancing state control over mining operations.
Recent reports indicate that the regime may be considering the expropriation of Barrick’s key mining complex, Loulo-Gounkoto, which stands as one of the largest gold-producing mines globally.
The timing of these developments coincides with the regime’s broader efforts to tighten its grip on Mali. Last week, it suspended political party activities and imposed a ban on media coverage related to political organizations.
Mali’s government maintains a close alliance with the Russian military, which has been actively involved in various mining operations in the region. Reports suggest that Russian troops have played a significant role in capturing mining sites in Mali and neighboring countries, raising concerns about the exploitation of African mining revenue to finance global military endeavors.
Barrick has been grappling with Mali’s evolving regulatory landscape, including a new mining code allowing increased state ownership and mandates for local content in the mining sector. Despite Barrick’s stance that certain provisions shouldn’t apply to existing mining titles, the government has initiated audits that the company has contested.
In its 2023 annual report, Barrick criticized the findings of government-appointed auditors, labeling them as “legally and factually flawed.” The company’s CEO, Mark Bristow, has acknowledged unspecified challenges in Barrick’s Mali operations during earnings calls.
Bristow has made two visits to Mali since late January, emphasizing Barrick’s significant contributions to the country’s revenue. He noted that Barrick’s operations have contributed nearly US$10 billion to Mali, representing a substantial portion of the nation’s GDP.
Recent concerns raised by the Africa Defense Forum suggest that Barrick’s gold mining complex in Mali may be a target amid government efforts to renegotiate contracts with foreign mining companies following audits.
The situation in Mali mirrors similar instances of Russian involvement in African mining operations, including the takeover of a Canadian-owned mine in the Central African Republic. Human rights researchers have raised concerns about the indirect financing of Russian soldiers by companies like Barrick operating in Mali.
Loulo-Gounkoto
According to sources such as the Africa Report and the U.S. military publication Africa Defense Forum, Mali’s military junta appears to have set its sights on the Loulo-Gounkoto complex. Barrick estimates that this complex has contributed over $1 billion to Mali’s economy in the past year alone.
The complex is classified as a tier one gold mine. In terms of reserves and resources, the Loulo-Gounkoto complex boasts proven and probable gold reserves of 7.2 million ounces, along with measured and indicated gold resources totaling 10 million ounces. Additionally, there are inferred gold resources amounting to 1.2 million ounces.
The Loulo-Gounkoto complex, which comprises the Loulo and Gounkoto gold mines, holds a significant position in Mali’s gold mining sector. Located in western Mali, bordering Senegal and adjacent to the Falm River, this complex represents a cornerstone of the country’s economy.
Loulo Gold Mine is owned by Socit des Mines de Loulo SA (Loulo), while Gounkoto Gold Mine is owned by Socit des Mines de Gounkoto (Gounkoto). Barrick Gold Corporation holds an 80% ownership stake in both mines, with the Republic of Mali owning the remaining 20%.
Within the company’s portfolio, the Mali gold complex emerges as a significant contributor, comprising 13% of attributable gold production in 2023. The African country is the third largest revenue source for the gold miner, and its third biggest asset, after the United States and the Dominican Republic.
Despite the mounting pressures and uncertainties surrounding the mining sector in Mali, the company said that the Loulo-Gounkoto complex remains on track to meet its production targets for the current quarter and the year.
The complex forecasts attributable production of 510,000 to 560,000 ounces, with cost of sales ranging from $1,190 to $1,290 per ounce. Total cash costs are expected to be between $780 and $860 per ounce, while all-in sustaining costs are projected to be in the range of $1,150 to $1,250 per ounce.
Looking back at 2023, the complex produced 547,000 ounces of gold, with a cost of sales of $1,198 per ounce, total cash costs of $835 per ounce, and all-in sustaining costs of $1,166 per ounce. Hence, it achieved production levels within the upper half of its 2023 guidance and at the same time managed to replenish mined reserves for the fifth consecutive year.
Notably, it boasts the third lowest cash costs and ranks fourth in terms of all-in sustaining costs for Barrick.
The complex also generated royalties amounting to $117 per ounce of gold produced in 2023, with a total output reaching 547,000 ounces.
Notably, at Gounkoto, the complex initiated ore production from stoping at its third underground mine earlier than anticipated, beginning in the first quarter of 2023. Moreover, the expansion of the solar plant to a capacity of 60MW was accomplished a full year ahead of schedule, aligning with Barrick’s overarching global initiative to enhance its utilization of renewable energy sources.
Barrick and Mali
In August 2022, the Republic of Mali declared its intention to conduct an audit of the Malian gold mining industry, which included the Loulo-Gounkoto complex. Barrick said it cooperated with the government-appointed auditors, facilitating their visit to Loulo-Gounkoto for an on-site examination in November 2022. By April 2023, Barrick received a preliminary draft report from the auditors, outlining their initial findings.
“During the second quarter, Barrick responded to the draft report to challenge the auditors’ findings, which Barrick believes are legally and factually flawed and without merit,” the company said in its report.
Furthermore, in June 2023, the Republic of Mali unveiled plans to overhaul the Malian mining legislation. Although a new mining code and a law mandating local content in the mining sector were enacted in August 2023, enforcement is currently pending the adoption of implementing decrees. Under the new mining code, existing mining titles remain subject to the legal and contractual framework under which they were issued until the end of their current term.
Towards the end of November 2023, Socit des Mines de Loulo SA and Socit des Mines de Gounkoto received tax collection notices amounting to approximately $417 million. These notices, including penalties and interest, were based on the disallowance of previously certified VAT credit balances by the Malian tax authority. The disallowance retroactively rendered the offsets against corporate income tax, mining royalties, and other taxes invalid for accounting periods spanning from March 2017 to November 2023. But Barrick found these tax notices to be “without merit.”
“The Company has reviewed the tax collection notices and concluded that they are without merit, as tax payments were validly made by Loulo and Gounkoto during the relevant periods by offsetting VAT credits certified by the tax authority in accordance with Malian law, established custom and, in the case of the Loulo mine, as expressly provided in the Loulo mining convention,” the firm explained.
Discussions with the Malian tax authority ensued, resulting in a 6-month stay of enforcement of the tax collection notices in early December 2023, contingent upon Barrick’s payment of approximately $17 million. This payment is subject to refund if the tax collection notices are abandoned or rejected by the Malian Tax Court. Alternatively, it will be applied towards the alleged outstanding amounts if the notices are upheld.
Barrick intends to “defend its position that the tax collection notices are unfounded, and no amounts have been recorded for any potential liability arising from these claims.”
The company also asserted that both Loulo and Gounkoto are governed by separate legally binding establishment conventions with the Republic of Mali, ensuring stability in the regulatory framework, tax arrangements, and recourse to international arbitration in case of disputes.
In the second quarter of 2020, an agreement was reached to extend the convention governing the Loulo mine for a 15-year period upon its expiration in April 2023. However, the Republic of Mali has yet to implement this extension, alleging that the Loulo mining convention expired as scheduled. Barrick said it continues to engage with the government to resolve this matter while safeguarding the rights of Loulo and Gounkoto under their existing establishment conventions.
Barrick last traded at $24.63 on the TSX.