Barrick Gold CEO Aaron RegentSTRINGER/CANADA
When Barrick Gold Corp. spun off its African assets into a separate public company earlier this year, the Toronto-based miner said the move would allow the smaller-sized mines to grow outside the shadow of its larger operations on other continents.
The carved-out company, African Barrick Gold, is a play for investors who have a "greater tolerance" for risk, Barrick chief executive officer Aaron Regent told shareholders recently.
The company is an example of Africa's growing role as a natural-resources force, but an area full of pitfalls for companies looking for expansion opportunties. Africa has some of the fastest-growing mineral reserves in the world, but the mining costs are high and politics in many countries are volatile, or uncertain.
While Barrick separates its high-risk, highest-cost African assets from its key operations, other companies such as Kinross Gold Corp. are diving back into the continent through a strategic investment in Western Africa-focused Red Back Mining Ltd.
Toronto-based Kinross joins a handful of Canadian and international miners turning to Africa, weighing risk against reward to try to find growth as the world's reserves of gold and other metals continue to diminish even as demand increases.
"You really have to look at the particular country and the particular operations," Kinross chief executive officer Tye Burt said after his company grabbed a 9.4-per-cent stake in Vancouver-based Red Back, which owns and operates the Chirano gold mine in Ghana and the Tasiast gold mine in Mauritania.
Kinross sold off some investments it had in sub-Saharan Africa about five years ago, but is now re-entering a different side of the continent, saying it gives the company "a front row seat on a very high growth area."
For African Barrick, analysts aren't concerned so much with political risk in Tanzania, where the company's four mines are located, but the mines' performance.
"We consider operating performance to be a greater unknown than country exposure," Scotia Capital said in a research note.
The Tanzanian government has been publicly supportive of African Barrick, which is also looking at listing on the stock exchange there in the near future.
Tanzania's parliament recently passed a new mining law that increases resource royalties by 1 per cent to 4 per cent, and allows the government to own a stake in future mining projects.
While it won't impact African Barrick's existing mines, rising royalties are never good news for mining companies.
That said, the hike pales in comparison to the 40-per-cent mining tax being proposed in Australia by 2012, which would make it the world's most heavily taxed mining industry.
"Sovereign risk in Australia is higher than South Africa," AngloGold Ashanti Ltd. chief executive officer Mark Cutifani told Bloomberg recently.
"Australians are horrified. It potentially damages the industry. It's a great opportunity for South African industry."