Situation in Cote d’Ivoire worsens

As tensions in Côte d’Ivoire continue to escalate, it is getting more difficult to determine if and when a stable investment environment may return to the country.

Montreal-based La Mancha Resources (LMA-T) has had to halt operations at its Ity gold mine for the second time in three months, and with increasing violence in the capital and the western part of the country, the short-term prospects for peace do not look good.

“I fear that the worst is not over,” Hannah Koep, a senior analyst at Control Risk says. “Recent mediation had led to the prospect of coming to a power-sharing agreement, but with the events of the last couple of days… it looks as though the crisis is entering a new phase.”

The events alluded to by Koep have to do with an increased intensity and frequency of violent clashes between the military and increasingly well-armed protesters.

The violence stems from Laurent Gbagbo’s refusal to leave the presidency even after Alassane Ouattara defeated him in an election that has been recognized by the international community.

Coinciding with the violence has been the utter collapse of the country’s financial sector as international sanctions have stopped the flow of cash into the country and Gbagbo has resorted to raiding the banks for the cash he needs to pay the military and government officials and secure their loyalty.

The move is tied to the fact that Gbagbo cannot simply print more money (as other infamous African strongmen, such as Zimbabwe’s Robert Mugabe, have done) because the country is part of a block of countries that uses the West African franc, which is printed in Senegal.

Realizing the banks only have so much money in reserve, Gbagbo is now said to be looking to set up a parallel currency that would allow him to continue to meet payroll obligations.

But cracks in the loyalty he seeks to buy are beginning to show, regardless of funding.

Koep says there have been reports of mutiny within the army as certain factions push back against orders to harm civilian protesters.

If those dissenting factions gain strength, and Gbagbo runs out of sources of cash, his regime could well begin to crumble.

Such a scenario would be a best case one for the country, according to Koep, as it would leave Gbagbo with a much smaller group of hardcore supporters, which would likely lead to him leaving the political scene.

But there are two other scenarios that could also play out.

The second scenario is one which sees a negotiated power-sharing deal. While such an arrangement may sound desirable, Koep warns that should a power-sharing deal come to be, it would only delay underlying problems instead of solving them, and the country would encounter more serious issues in the long-term.

The last scenario, and the worst according to Koep, is the continuation of the strife and violence that has been witnessed recently.

“A worst case scenario would see the country descend into a civil war,” she says. “But it is impossible to tell which scenario is most likely at this point. I would hope that Gbagbo’s exit is imminent, but it is too difficult to judge certain factors, such as how loyal the armed forces will remain.”

As for how foreign resource companies are faring in such a tumultuous environment, Anadarko Petroleum (APC-N) announced that it has suspended its operations in the country due to the instability.

As for La Mancha, the company says it “interrupted” production at its Ity mine in the country.

It reports that roughly 4,300 oz. of gold (2,000 oz. attributable to La Mancha) have been produced at the mine since mining was re-started in mid-January. Mining activity was suspended late last December due to problems in the region.

As for its 2011 production guidance, the company issued a conservative estimate of 12,000 oz. gold since production is “vulnerable to the country’s current political situation.”

“Luckily, our ability to quickly suspend and restart activities at the Ity mine gives us the flexibility to adapt ourselves to the evolution of the political situation, which should allow Ity to meet this year’s gold production target while assuring the safety of our employees and their family,” Dominique Delorme, president and CEO of La Mancha, said in a statement.

La Mancha’s consolidated production remains in line with its 2011 guidance of 115,000 to 135,000 attributable oz. of gold.

The company has a 45.9% stake in Ity which is located in the Zouan Hounien region, in the troubled western part of the country.

La Mancha expects roughly 13% of this year’s total gold production to come from Ity, which would be down from the 15% that the mine accounted for last year.

The other Toronto-listed miner with a gold operation in the country is Cluff Gold (CFG-T, CLF-L).

The company operates the Angovia mine which produced more than 20,000 oz. gold in 2010.

As of late January, the company said operations were continuing through the political unrest despite disruptions to critical supplies negatively impacting production levels.

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