The African continent is experiencing a veritable boom in its gold industries. In fact, Africa is the fastest-growing region in the world by several economic measures. Major mining companies have been able to weather the blows of civil unrest in many of the most gold-rich areas of Africa, surviving with operations unscathed.
The challenge now is to take full advantage of the boom, something that African nations have had a difficult time doing in the past.
Moreover, like their counterparts in other areas of the developing world, these African countries will need to find ways to keep more of the profits from the export of natural resources mined from their soil.
War, Upheaval Across Africa
Many major gold mining companies have shied away from working in Africa due to the risks of social upheaval and military coups. Although this is understandable, it hasn't quite panned out. In spite of issues like civil war in Côte d’Ivoire (Ivory Coast), the "Arab Spring" unrest in North Africa, military coup in Niger, and similar regime change in Mali, the lucrative gold mining industry has been allowed to thrive.
"Africa has become the gold industry’s biggest growth story . . . Excluding South Africa, where reserves are shrinking after a century as the world’s top producer, the continent boosted output by 68% since 2008, more than any other region, according to researcher GFMS."
For instance, during the hectic regime change in Mali, Randgold Resources (NASDAQ:GOLD) was the only foreign entity given an exception to move freely in and out of the country. Money talks: Randgold's tax bill on over $1 billion in annual gold production from the country is enough to fund the payroll for Mali's entire civil services division. To paraphrase Randgold's CEO, nobody kicks you out when you're paying your rent.
Cheaper Costs, More Deposits
Parts of Africa are home to the richest gold orebodies found anywhere on Earth. Although the continent has undoubtedly been exploited for its natural resources over the last two centuries, it is still endowed with phenomenal riches in the form of raw resources. This is why so many locals turn to illicit diamond mining and other illegal activities.
Barrick Gold (NYSE, TSX:ABX) was one of the firms that decided to pull out of the region amid recurring regime changes and social unrest. The company spun off all of its African mines in 2010. Over that time, the new separate company has actually outperformed Barrick.
Randgold, on the other hand, exclusively operates in Africa, and has mines in various corners of the continent. The company has seen its gold output increase by 159% over the last 5 years.
Still Facing Challenges
There is not only the challenge of attracting miners despite the social problems facing many African nations. At issue for many Africans is how to capture more of the economic benefits from their respective homeland's bountiful resources. Many developing nations in Southeast Asia are grappling with the same problem: an influx of multinational corporations (MNCs) and foreign capital have helped their economies grow, but huge opportunities to capitalize upon such growth are lost when the vast majority of profits made by foreign companies are taken out of the country.
There is also the problem generally attributed to "blood diamonds," the support of violent or destabilizing factions through the purchase of precious metals or gemstones they obtained illegally. Legislation in the U.S. has attempted to hold companies accountable for where their products come from by maintaining supply chain integrity. Unfortunately, this problem is widespread and very difficult to track.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.