Allied Gold inks decade-long deal with Mali junta

Allied Gold (TSX: AAUC) has signed a preliminary agreement with Mali for a 10-year permit on its Sadiola mine and production from the nearby Diba deposit while the military government imposed higher fees and a lump sum on disputed taxes.

The amount of the payment to the government, which came to power in a 2021 coup and holds 20% of Sadiola, wasn’t disclosed in the company’s release on Tuesday about the tentative deal. The junta revised the country’s mining law last year allowing for increased royalties and up to 35% state ownership of projects, although Allied said the deal contained royalty increase exemptions.

A spokesperson for Allied didn’t immediately reply to an email on Wednesday seeking clarification.

The deal, which the company expects to be closed within weeks, comes as it negotiates a potential US$275 million in funding for the company’s Kurmuk gold project in Ethiopia. It’s also working on a US$53 million streaming deal this month with Triple Flag Precious Metals (TSX: TFPM, NYSE: TFPM) for 3% of output from the Agbaou and Bonikro gold mines in Côte d’Ivoire.

“Our net asset value on Sadiola is revised slightly lower due to the higher government royalties, ownership on Diba and the one-time cash payment,” Toronto-based Cormark Securities said in a note on Wednesday. “However, the execution of the agreement reduces any uncertainty about government support and will allow for seamless/continued operations.”

Allied stock remains “very inexpensive” on a net asset value assessment with “significant room” for the shares to gain if the company expands Sadiola and develops Kurmuk, Cormark mining analysts Nicolas Dion and Nolan Wilson said.

Shares in Allied Gold fell less than 1% to $2.88 apiece by Wednesday afternoon in Toronto, valuing the company at $720.8 million. They’ve traded in a 52-week range of $2.75 to $5.90.

Rivals in Mali

Mali also hosts Western miners such as Barrick Gold (TSX: ABX; NYSE: GOLD) with its Loulo-Gounkoto gold complex; B2Gold’s (TSX: BTO; NYSE-AM: BTG) Fekola mine in the country’s southwest near Senegal; and Resolute Mining’s (ASX: RSG; LSE: RSG) Syama underground gold mine further south near Cote d’Ivoire.

Toronto-based Allied plans to spend US$65 million in a first stage to expand Sadiola and improve its mill through next year to maintain annual gold production at 200,000 to 230,000 oz. for at least four years. Diba is to start producing this year. The second stage is a new US$400-million plant to be built from 2026 to 2028.

The company’s tax-settlement payment to the government resolves all outstanding disputes, allegations, audits and assessments including those related to tax, customs levies, maintenance and management of offshore accounts, and the development and management of the mine and satellite areas, the company said. The cash payment is expected to be paid from available cash on hand and other sources, it said.

The new mining code includes a 10% profit tax, and a 10% value-added royalty for the first five years of production. It also shows a 1% tax on quarterly revenue that increases to 2.5% after five years of output. Additional measures can be made by decree, it says.

“Allied, along with other industry participants, has been meeting with Malian government representatives to discuss the impact of the new mining law on mining companies,” the company said in the release. “The settlement of the Protocol Agreement terms marks a significant step in securing the future of, and creating certainty for, the Sadiola gold mine and its expansion plans.”

Russian ties

Human rights groups such as the Washington, D.C-based Blood Gold Group have criticized some operators in Mali for funding the military government. It’s getting higher royalties and fees as it deepens ties with Russia and its Wagner mercenary group following the departure of troops from the United Nations and former colonial ruler France. 

There’s been a jihadist insurgency since at least 2012 that has killed thousands, destabilized the country’s north and prompted the military to take over the government twice since 2020. Similar governments are ruling neighbouring Burkina Faso and Niger.

Allied improved company-wide first-half gold production by 5% to 173,312 oz. compared with last year. It reported first-half net earnings before finance costs and income tax of US$61.4 million versus $18.9 million in 2023’s initial six months. All-in sustaining cash costs per oz. during the recent period were US$1,241 at Sadiola, US$1,515 at Bonikro and US$2,336 at Agbaou.