African countries need to focus on long-term goals to unlock the potential of untapped gold reserves, according to Randgold Resources CEO Mark Bristow.
Speaking at the Mining Indaba in Cape Town on Tuesday, Bristow had harsh words for the short-term mindset of mining companies, investors and African governments.
“I believe we need to work together to find new mines,” he said. “We need to attract investors by proving to them that this is a place which is capable of returning real returns higher than elsewhere in the wold and that supports fiscal stability and good governance.
“They will deliver tax revenues, employment and substantial GDP requirements,” he said. “It all starts with mutual commitment to the long term.”
Bristow revealed that 14 countries in Africa are either changing or reviewing their mining codes.
“If you compare Africa’s mining codes with other countries, the cash that flows to state is significantly higher than elsewhere. Until there is a commitment for long-term infrastructure development, investors will take their money elsewhere.”
He said while Africa is the go to place for gold reserves, the codes are sending them elsewhere. Meanwhile, the deterioration in gold ore grade is reducing the industry’s ability to manage future cycles.
“One way to halt the decline and create real value for stakeholders is by not doing dubious deals … or affecting another swathe of legislation,” he said. “All stakeholders need to make long-term commitments of discovering gold deposits and transforming them into profitable mines.”
Mineral Resources Minister Mosebenzi Zwane told the indaba on Monday that the Mining Charter would be finalised in March, despite criticism from the Chamber of Mines.
Lack of awareness led to short-term mindset
Bristow said a lack of awareness around the commodities cycle, which hit the industry at the start of the 21st Century, resulted in short-term plans being implemented to the detriment of all stakeholders.
The result has led to no real value being created in the sector in the last 10 years, said Bristow.
“Sub-Saharan Africa, excluding South Africa, has as many gold reserves as Australia and more than Canada and the US,” he explained. “Then why has no real value been created in the last 10 years?”
The answer: that companies and governments reacted incorrectly during the peaks and troughs. He said during peaks, the focus was on growth and not profitability, while during the troughs, the focus was on survival and not how to grow.
It left miners with excessively poor balance sheets, he said.
“The market demand for constant delivery has driven the market to short termism,” he said.
Super cycle left companies indebted
Now, mining companies and government are sitting on plans with far higher price when companies are trading worse than at the end of 2005, when the super cycle began.
“That is despite the fact that we’ve seen significant movements in share prices,” he said. “The super cycle left the industry highly indebted.”
He said all the investments spent during the super cycle “went straight down the drain”.
“Investments are now demanding better cash returns,” he said. “It has impaired the industry to invest in its own survival.”
Bristow said the entire gold mining industry is in same boat, as they have mimicked the “myopic behaviour” of the other.
Companies shelve development projects, while states intervene with legislation.
“Government’s negatively impact the industry we represent,” he said. “Africa needs to unlock value of mineral resources, while investors need consistency. They don’t want rules changed half way through game.”
