VZCZCXRO9566
RR RUEHMA RUEHPA
DE RUEHBP #0225/01 1041637
ZNR UUUUU ZZH
R 141637Z APR 09
FM AMEMBASSY BAMAKO
TO RUEHC/SECSTATE WASHDC 0225
INFO RUEHZK/ECOWAS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 03 BAMAKO 000225 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EIND ETRD EINT EAGR ML
SUBJECT: GOLD INDUSTRY LURES INVESTORS GOOD AND BAD 
 
REF: 08 BAMAKO 00199 
 
¶1. Summary:  Comprising an estimated 70 percent of Mali's 
exports, gold is frequently cited as the country's most 
important financial resource and a key engine for its 
economic growth and development.  In light of this, Mali held 
its third annual mining and petroleum conference in Bamako 
from March 30 to April 2.  The conference assembled current 
and potential investors and public officials involved in 
these sectors.  The theme of this year's conference, "Mines 
and Community Development", also evoked what some view as the 
gold mining industry's insufficient contribution toward 
economic development in Mali.  While the revenues Mali 
receives from gold are a significant share of the country's 
exports, critics argue that this has not benefited average 
Malians.  In addition to increased debate about gold mining's 
link to development, the ever expanding spotlight on Mali's 
legitimate gold industry is also attracting more and 
increasingly creative illicit gold export scams.  End Summary. 
 
--------------------------- 
Mali's Gold Mining Industry 
--------------------------- 
 
¶2. Mali is Africa's third largest gold producer after South 
Africa and Ghana.  Since ramping up production in 2000, gold 
extraction has accounted for the largest share of the value 
of Mali's exports, reaching 70 percent in 2008.  While the 
total volume of gold production in Mali is significant, its 
gold industry is all the more attractive because the 
operating costs of its open pit mines are less than half the 
world average.  For the past several years, the Malian 
government has touted investment opportunities in the sector, 
hoping to leverage rising gold prices to increase production 
and fuel economic growth.  To this end, Mali held its third 
annual mining and petroleum conference in Bamako on March 30 
through April 2.  Opened by Prime Minister Modibo Sidibe, the 
conference featured dozens of current and prospective private 
sector investors, public sector officials, and 
representatives of the international donor community. 
 
¶3. Mali has six industrial gold mines, two of which, Sadiola 
and Morila, have accounted for most of the country's 
production.  Analysts suggest that Mali's gold mining 
industry is in permanent decline, however, with industrial 
gold production having peaked in 2002 at 62 tons.  Since 
then, production has ebbed and flowed, falling to 45 tons in 
2004 and rising to 61 tons in 2006, subsequently falling to 
50.8 tons in 2008.  The decline in output has so far been 
offset by rising international gold prices, which reached a 
high of USD 1,000/troy oz in mid-2008.  As a result, 
government revenue from gold operations in 2008 was higher 
than the CFA 34.4 billion (USD 71 million) earned in 2007. 
 
¶4. While the decline in production has not affected GOM 
revenues, it has increased costs for operators.  One company, 
Anglogold Ashanti, reported an operating loss on two mines 
for the third quarter of 2008.  To mitigate these losses, 
Anglogold invested in new technologies to extract high-grade 
sulfide ores at Sadiola.  The decline in output has also 
placed renewed importance on efforts to develop new mines, 
such as Randgold's Yalea and Gara mines.  Some investors, 
however, have had difficulty raising the funds they need from 
international capital markets due to global financial 
turbulence.  Australia's Resolute Mining, for example, was 
able to raise only USD 55 million of the required USD 73 
million to develop Mali's Syama pit.  Junior mining companies 
have also had to turn to new partners to finance their 
projects. 
 
---------------------------- 
GOM Revenue from Gold Mining 
---------------------------- 
 
¶5. Malian government revenue from the gold industry is made 
up of the dividends it receives as a shareholder in the mines 
and of the taxes, customs, and royalties paid by the mining 
firms.  Mali's 1999 mining code, implemented in 2003, imposed 
on mining firms a 35 percent income tax and a dividend tax of 
between 12.5 and 18 percent.  The GOM retains a 20 percent 
equity in each mine.  Operators receive investment incentives 
such as the duty free import of heavy machinery used in 
production and refining, as well as the duty free import of 
fuel used to power generators at mining sites. 
 
¶6. Between 1994 and 2004, the Malian government derived a 
total of USD 624.5 million in royalties, taxes, customs and 
dividends from the gold mines, an average of USD 57 million 
per year.  In 2007, following the boom in production of the 
previous year, revenues reached CFA 130 billion (USD 260 
million).  All told, the mining sector, in which gold is the 
primary commodity, comprises between five and fifteen percent 
 
BAMAKO 00000225  002 OF 003 
 
 
of Mali's GDP.  Mali's 2009 budget estimated that revenues 
from gold would reach CFA 120 billion (USD 240 million). 
This will be offset, however, by the GOM's value-added tax 
(VAT) refund to companies for the years 2006-2007, estimated 
at CFA 60 billion (USD 122 million), 1.5 percent of Mali's 
GDP. 
 
------------------------------------ 
"Gold Doesn't Shine for All Malians" 
------------------------------------ 
 
¶7. The promise of gold's contribution toward Mali's economic 
diversification and growth has drawn skepticism from some 
observers, who claim that the average Malian has been 
conspicuously absent from this supposed development panacea. 
A 2006 study on the socioeconomic effects of gold mining in 
Mali, which was commissioned by the World Bank and undertaken 
by Norway's Chr. Michelsen Institute, argued that communities 
in the vicinity of the Sadiola and Morila mines have seen 
little benefit from the industry.  An article in the Malian 
press on the eve of the mining conference declared that,"gold 
doesn't shine for all Malians", despite the fact that 
government revenue from the industry totaled CFA 130 billion 
(USD 260 million) in 2007.  In response to such criticism, 
the Malian government indicated it would establish 
public-private partnerships using mining revenue to build 
much needed infrastructure around the mines as well as 
contribute to community development.  An article in the 
government's official news outlet on March 31 stated the GOM 
would give renewed attention to residents in the vicinity of 
the mines, providing services such as potable water and 
health clinics.  One such model for development has been the 
ongoing partnership between the Morila mine, USAID, and the 
Commune of Sanso to strengthen local government capacity to 
more effectively use mining revenue toward community 
development. 
 
------------------------------------ 
Artisanal Gold Mining Unearths Scams 
------------------------------------ 
 
¶8. In contrast to its industrial mining industry, Mali's 
artisanal gold mines, which produce an average of 2 tons each 
year, are poorly regulated and thus provide fertile ground 
for scams.  The Embassy frequently receives requests from 
prospective U.S. investors seeking to export gold from Mali. 
Most of these scenarios involve the export of gold dust, 
which is illegal in Mali (reftel).  In one recent instance, 
the Embassy was contacted by the U.S. based attorney of a 
potential investor, allegedly negotiating the purchase of one 
ton of gold dust from a Malian artisanal mining cooperative. 
We informed the American attorney that the export of gold 
dust was illegal in Mali.  After conducting some brief 
background research, we also determined that the Malian 
attorney the U.S. investor had hired to oversee the 
transaction was not, in fact, a registered attorney and had 
provided his American partners with fabricated court 
documents designed to mimic Malian legal rulings. 
 
¶9. The latest gold scam reported in the Malian press involved 
a group of Russian nationals who reportedly lost CFA 6 
billion (USD 12 million).  As reported by one Malian 
newspaper on April 1, the complex scheme involved a motley 
crew of nationalities, diplomats and private citizens.  The 
Russians were allegedly introduced to two Malian businessmen, 
owners of a nightclub and travel agency, via the defense 
attache of the Embassy of Guinea-Bissau in Moscow.  The 
Russians traveled to Mali to meet their contacts, from whom 
they purchased 30kg of gold (the articles did not specify 
whether this was in the form of dust or bars).  The Malians 
then put the Russians into contact with a member of the 
National Assembly of Benin and a Togolese businessman, who 
offered to sell the Russians an additional 80kg of gold. 
After having received their payments, the sellers reportedly 
absconded, having given the Russians none of the gold for 
which they had paid.  The article quoted the Guinea-Bissau 
defense attache as claiming he used his cut of the deal - CFA 
376,250,000 (USD 752,500) - to charter an airplane.  The 
Malians involved in the scheme were reportedly arrested on 
March 27 and are awaiting trial. 
 
--------------------------------------------- ----------- 
Comment: Gold May Not Prove the Nest Egg that Mali Hoped 
--------------------------------------------- ----------- 
 
¶10. The high price of gold on the global market, and Mali's 
ranking as the third largest producer in Africa, has placed 
Mali on the center stage for investment in the sector.  The 
countercyclical nature of the gold industry vis a vis other 
commodities, such as cotton, has buffered Mali from the 
global financial crisis and compensated for falling revenue 
from cotton exports.  The Malian government has duly 
 
BAMAKO 00000225  003 OF 003 
 
 
attempted to take advantage of this in order to diversify its 
economy and fuel economic growth.  Declining output and 
rising operational costs may, however, stymie these efforts 
and leave Mali even further exposed to the volatility of 
commodity prices on the world market. 
MILOVANOVIC