By Thomas Biesheuvel
Sept. 10 (Bloomberg) -- AngloGold Ashanti Ltd. and Randgold Resources Ltd. are pushing into one of the world’s poorest and most unstable countries to boost reserves as the metal trades close to a record and global reserves dwindle.
The two companies are buying control of a deposit in the Democratic Republic of Congo containing as much as $22 billion 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.
The move puts AngloGold and Randgold at the vanguard of miners moving into risky areas like Congo, which has been beset by more than a decade of violence that left 5 million dead. Gold output in countries such as South Africa has dropped, and the price has risen for eight straight years, making Congo’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 Ltd. in London who has a “buy” rating on Randgold. “While it might be highly enticing, it doesn’t come without baggage.”
The rebels, who have battled Uganda for 20 years, have been more active since September 2008 in Haut-Uele territory, a region of Orientale province in Congo about the size of Maine, where the Moto project lies. AngloGold and Randgold have agreed to pay about $520 million for its owner, Australia’s Moto Goldmines Ltd.
Killings, Abductions
The Lord’s Resistance Army made an unprecedented 55 attacks in July in the Faradje area, about 90 kilometers (56 miles) north of Moto, and drove 125,000 people from their homes in Haut-Uele in August, the United Nations Refugee Agency said. It 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, 65 kilometers from Moto, according to the UN.
Moto Goldmines delayed restarting operations after the Christmas holidays because the rebels looted nearby villages. The company “reinforced” security measures at all levels and operations were “held back” earlier in the year because of rebel attacks about 50 kilometers to 100 kilometers from the site, General Manager Louis Watum said.
“There is some uncertainty, that’s true, but it’s better than it was,” he said.
Mali Mines
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, chief executive officer of Jersey, Channel Islands-based Randgold, said he’s relying on the governments of Congo and Uganda to curb the violence to protect the investment that the mine will bring. The company also has mines in Mali and is developing projects in Senegal and Ivory Coast.
“We’re an African business,” Bristow said in a London interview. “We make it our business to know how to work there.”
Randgold fell 84 pence, or 2 percent, to 4,188 pence at 9:12 a.m. in London trading. The shares have more than doubled in the past year, leading gains in the U.K. benchmark FTSE 100 Index. AngloGold rose 4.30 rand, or 1.4 percent, to 316.95 rand in Johannesburg.
Worker Withdrawal
AngloGold, the continent’s biggest gold producer, withdrew workers from some of its Congo exploration camps in November because of fighting between government forces and rebels in Orientale. Johannesburg-based AngloGold considers Congo to have become more stable since then, company spokesman Alan Fine said.
Gold for immediate delivery has gained 13 percent this year and on Sept. 8 rose above $1,000 an ounce in London for the first time since March 2008. Bullion for immediate delivery added $1.05, or 0.1 percent, to $993.35 an ounce at 9:15 a.m. local time.
The Moto mine may cost about $500 million to build, estimates Jonathan Guy, an analyst at Investec Ltd. in London. Randgold says bringing it into production in 2015 would require two years of trucking equipment across the border with Uganda, 150 kilometers to the east.
Moto is part of the so-called Congo Craton, a geological formation that’s the only “big” African gold resource still under-explored and unexploited, Bristow said.
‘More Will Follow’
“Central Africa is one of the last gold frontiers to exploit,” said Mark Smith, an analyst at GMP Securities in London. “To unlock the potential in the DRC you need one or two flag-bearers to come in, then more will follow.”
Congo’s gold output was 6 metric tons, or just 1.2 percent of total African production in 2008. Production may reach 25 tons by 2015, said William Tankard, an analyst at U.K. research firm GFMS Ltd., as outside investors establish new mines.
The world’s largest producers need to find new sources of the metal. Global mine output declined since 2005 and was 2,415.6 tons in 2008, a 12-year low, according to GFMS. North American production fell by a third in the past decade while output from South Africa, once the largest producer, sank more than 50 percent.
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 about $244 million in cash and about 3.9 million Randgold shares. That’s equal to about $520 million based on Randgold’s closing price in London yesterday.
For the acquirers, the transaction is well-timed, Guy said.
“They want to pick this up now,” Guy said. “In five years time, if the DRC is politically stable, they wouldn’t be able to buy it.”
To contact the reporter on this story: Thomas Biesheuvel in London tbiesheuvel@bloomberg.net
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