AngloGold Ashanti Pushes For More Reserves

• Mark Cutifani — Chief Executive Officer, AngloGold Ashanti

AngloGold Ashanti Ltd is pushing into one of the world’s poorest and most unstable countries to boost reserves as the metal trades close to a record and global reserves dwindle.

The company is buying control of a deposit in the Democratic Republic of Congo containing as much as $22 billion of gold at current prices. The project is in an area increasingly torn by fighting between the government and the Ugandan rebel group, the Lord’s Resistance Army.

Equally on the reserve trail is Randgold Resources Ltd, another South Africa-based mining company. The move puts AngloGold and Randgold at the vanguard of miners moving into risky areas like Congo, which has been beset by more than a decade of violence that have left millions dead. Gold output in countries such as South Africa has dropped, and the price has risen for eight straight years, making Congo’s untapped reserves look more attractive.

The metal was trading at $1,000 a ounce in early trading last Monday. “If you want to retain your position then you’ve got to look at places like the Congo, because that’s where the very richest deposits are,” said John McGloin, a mining analyst at Arbuthnot Securities Ltd. in London who has a “buy” rating on Randgold. “While it might be highly enticing, it doesn’t come without baggage.”

AngloGold and Randgold have agreed to pay about $520 million to Australia’s Moto Goldmines Ltd., the current owners of the Haut-Uele territory concession.

Mark Bristow, chief executive officer of Jersey, Channel Islands-based Randgold, said he’s relying on the governments of Congo and Uganda to curb the violence to protect the investment that the mine will bring. The company also has mines in Mali and is developing projects in Senegal and Cote d’Ivoire.

“We’re an African business”, Bristow said in a London interview. “We make it our business to know how to work there.”

AngloGold, the continent’s biggest gold producer, withdrew workers from some of its Congo exploration camps in November because of fighting between government forces and rebels in Orientale. Johannesburg-based AngloGold considers Congo to have become more stable since then, company spokesman Alan Fine said.

The Moto mine may cost about $500 million to build, estimates Jonathan Guy, an analyst at Investec Ltd. in London. Randgold says bringing it into production in 2015 would require two years of trucking equipment across the border with Uganda, 150 kilometres to the east.

Moto is part of the so-called Congo Craton, a geological formation that’s the only “big” African gold resource still under-explored and unexploited, Bristow said.

“Central Africa is one of the last gold frontiers to exploit,” said Mark Smith, an analyst at GMP Securities in London. “To unlock the potential in the DRC you need one or two flag-bearers to come in, then more will follow.”

Congo’s gold output was six metric tonnes, or just 1.2 per cent of total African production in 2008. Production may reach 25 tonnes by 2015, said William Tankard, an analyst at U.K. research firm GFMS Ltd., as outside investors establish new mines.

The world’s largest producers need to find new sources of the metal. Global mine output declined since 2005 and was 2,415.6 tonnes in 2008, a 12-year low, according to GFMS.

North American production fell by a third in the past decade while output from South Africa, once the largest producer, sank more than 50 per cent.

AngloGold and Randgold will pay a mixture of cash and Randgold shares for Moto Goldmines. The deal, which still needs Moto Goldmines shareholders’ approval, will see investors receive as much as about $244 million in cash and about 3.9 million Randgold shares.

That’s equal to about $520 million, based on Randgold’s closing price in London on Wednesday.

— Bloomberg