Mali
Selected Issues

Gold mining represents an engine of growth for the Malian economy. A description of the techniques and importance of artisanal gold mining in Mali, the key developments of the industrial mining era, and potential gold mining developments are discussed in the paper. The Malian mining policy and regulations, the impact of industrial gold mining on the Malian economy, public finances, and employment are discussed. The statistical data on the economic indices of Mali are also presented in the paper.

Abstract

Gold mining represents an engine of growth for the Malian economy. A description of the techniques and importance of artisanal gold mining in Mali, the key developments of the industrial mining era, and potential gold mining developments are discussed in the paper. The Malian mining policy and regulations, the impact of industrial gold mining on the Malian economy, public finances, and employment are discussed. The statistical data on the economic indices of Mali are also presented in the paper.

Mali: Basic Data1

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Data may not add up owing to rounding.

Excluding SDR allocations and medium- and long-term liabilities.

In percent of exports of goods and nonfactor services; after debt cancellation; before debt relief; excluding debt service due to the People’s Republic of China and Russia.

Mali: Selected Social and Demographic Indicators 1

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Sources: World Bank, Social Indicators of Development, 1999; African Development Indicators, 1999/2000; World Development Indicators, 2000 CD-ROM; and Fund staff estimates.

Latest single year between 1990 and 1998, unless otherwise indicated.

I. Gold Mining in Mali: An Overview1

A. Introduction

1. The rapidly expanding gold mining industry in Mali provides an example of what resource endowments, combined with a stable environment and globally competitive sectoral policies, can yield. Endowed with significant gold deposits but starting from a virtually unregulated artisanal industry less than two decades ago, Mali has developed into Africa’s third-largest gold producer and exporter, after South Africa and Ghana.2 Since 1991, with the reform of the Mining Code, Mali has succeeded in creating an environment attractive to international exploration and mining companies. Gold mining now represents an engine of growth for the Malian economy, contributes significantly to the public finances, and, to a more limited extent, creates modern sector jobs.

2. Gold mining represents a Malian artisanal tradition, dating from about the seventh century, that is still practiced to a significant degree today. The era of industrial gold mining began in 1984 with the opening of a government-owned open pit mine at Kalana. Later in the 1980s the mining sector was opened to private and foreign investors; however, foreign mining companies initially exhibited little interest, owing to the government’s interventionist policies and the absence of a clear, consistent, and globally competitive mining policy.

3. Since the introduction of a new Mining Code in September 1991, broadly reflecting internationally accepted standards, and the arrival of a democratically elected government in 1992, the gold mining industry in Mali has grown rapidly. Following the commissioning of the Sadiola Hill mine in 1997, gold became Mali’s second most important export commodity, after cotton. Currently, gold is mined at Sadiola Hill and Syama (industrial operations) and in the Kenieba and Kangaba regions (artisanal mining areas, see Figure 1). Gold represents Mali’s most important mineral resource, with estimates of reserves ranging between 500 and 700 metric tons.3 Deposits of other mineral resources exist throughout Mali but remain largely undeveloped or of limited commercial significance.4

Figure 1.
Figure 1.

Mali: Location of Gold Mines and Artisanal Mining Areas

Citation: IMF Staff Country Reports 2000, 128; 10.5089/9781451826272.002.A001

Figure 2.
Figure 2.

Mali: Mining Sector Employment by Type of Activity, 1992-99

Citation: IMF Staff Country Reports 2000, 128; 10.5089/9781451826272.002.A001

Sources: Société d’Exploitation des Mines d’Or de Sadiola SA (SEMOS), Société des Mines d’Or de Syama SA (SOMISY), and the Malian authorities.

4. The remainder of this note is organized as follows. A description of the techniques and importance of artisanal gold mining in Mali is provided in Section B. Sections C and D respectively trace the key developments of the industrial mining era and outline potential gold mining developments. Section E describes the key government and regulatory institutions involved with mining, while section F describes current Malian mining policy and regulations. Section G describes of the impact of industrial gold mining on the Malian economy, public finances, and employment. The final section concludes with some comments about prospects for the gold mining industry in Mali.

B. Artisanal Gold Mining

5. Artisanal gold mining has been practiced continuously for more than a thousand years in Mali. It currently serves as a source of livelihood for an estimated 150,000 seasonal miners, a significant proportion of whom are women.5 About 250 sites located in the southern and western parts of the country are exploited on an artisanal basis.

6. Artisanal gravel-mining techniques involve digging underground mines with hand picks; crushing the gold-bearing ore with metal mortar and pestle; and separating the gold from the ore using water in a calabash (gourd) with hand action (similar to the classic “panning” technique). These methods are not efficient, with an estimated 50 percent of the ore left in the ground as pillars to support galleries, while the washing process fails to recover more than 20 percent of the gold because the particles are too fine to be collected by hand.

7. Artisanal miners tend to operate under what are generally considered unsafe conditions. Although safety records are not maintained, cave-ins and suffocation are reportedly high, especially at the outset of the rainy season. Some artisanal hard-rock mining, employing pneumatic drills and explosives, are done on a limited basis. Malian artisanal miners do not generally utilize chemical separation processes (mercury and cyanide) to extract gold from ores.

8. Under the current mining law, artisanal miners are recognized, but they can neither apply for mining permits nor be conferred mineral rights. Artisanal miners therefore risk expulsion from a property if it is granted to a legal permit holder. Despite the potential for legal difficulties, most of the problems typically associated with “gold-rush” style artisanal mining appear to be minimized in the Malian context, as the artisanal miners are well organized under their customary village structures and laws.

9. Until 1990, artisanal miners produced most Malian gold, with artisanal production exceeding that of the industrial operation at the Kalana mine. Estimates of annual artisanal production and exports range between 2 and 3 tons for the period 1987-90 and about 2 tons for the period 1990-99.6 The value of artisanal gold exports in 1999 was estimated at CFAF 9.6 billion (approximately 0.6 percent of GDP and equivalent to about US$11 million).

C. Industrial Gold Mining

10. As mentioned above, Kalana was the first industrial gold mine developed in Mali. It was operated from 1984 until 1991 by the Sociétié de Gestión et d’Exploitation des Mines d’Or de Kalana (SOGEMORK), a public enterprise, with Soviet technical assistance. The mine generally produced less that 500 kilograms of gold per year, as opposed to the 2 tons annually that had been anticipated. Profitability and production reportedly suffered owing to significant errors in grade evaluation and mine operation. The Kalana mining operations ceased in 1991, and SOGEMORK was liquidated in 1992.

11. Mali’s first privately operated industrial gold mine was commissioned in 1990 at Syama in southern Mali. The Syama mine7 was originally developed by BHP-Utah (Broken Hill Proprietary Company, Australia). Hampered by technical production difficulties and low profitability for several years, BHP-Utah sold its participation in the mine to Randgold Resources (South Africa) in 1996. Subsequent to taking over the Syama mine, Randgold undertook a new investment program aimed at reducing operating costs through increased throughput. This program has resulted in a reduction of production costs to about US$210 per ounce, thereby returning the mine to profitability at current international gold prices (the London gold fix averaged US$279 per ounce in 1999 and about US$288 per ounce over the first half of 2000). Production rose to 6.1 tons in 1999, an increase of some 56 percent over the average of 4 tons produced during 1993-98. However, the Syama mine has continued to encounter operating difficulties. A feasibility study is being conducted to ascertain whether the mine should be expanded to an underground operation to take advantage of the remaining reserves, estimated as sufficient for another six or seven years of production.

12. At present, Mali’s largest gold mining operation is the Sadiola Hill mine,8 which has been operated by Anglo-American (South Africa) since its commissioning in early 1997. Sadiola is also reported to be the second-largest gold mine in West Africa. Production, all of which is exported, has increased from 12¼ tons in 1997, the initial year of operations, to 15¾ tons in 1998 and 17 tons in 1999 (Figure 3). On the basis of the original public estimates of reserves, the mine was expected to produce a minimum of 10 tons annually for approximately 13 years. The ores mined at Sadiola are relatively concentrated, yielding estimated costs of production over the 1997-99 period of US$125-165 per ounce, thus making the mine quite profitable.

Figure 3:
Figure 3:

Mali: Gold Production by Type of Activity, 1992-99

Citation: IMF Staff Country Reports 2000, 128; 10.5089/9781451826272.002.A001

13. The gold-mining operations9 at the Morila site began prestripping operations in February 2000 and are on track for commissioning in the third quarter of this year. Full production and exports are set to begin either later this year or in early 2001. This mine is expected to produce some 7 to 10 tons of gold annually over an expected life of approximately 14 years. Average operating costs are expected to be about US$137 per ounce over the life of the project, well below current world market prices, virtually ensuring that the project remains economically viable even in the event of a significant world price decline.

14. AngloGold (South Africa) and Iamgold (Canada) have recently formed a joint venture and announced plans to develop a mine at the Yatela deposit, with operations set to begin in 2001. This mine is located about 25 kilometers from Sadiola, and plans call for the Sadiola refining facilities to process ores mined at Yatela. Based on reserves estimated at about 80 tons, the mine will have an estimated life of about 12 years, assuming an annual production rate of about 6½ tons.

D. Potential Gold Mining Developments and Mineral Exploration

15. The Malian mining company SODINAF is reportedly developing an open cast gold mine in the Kodieran concession, which it expects to yield 3-5 tons of gold per year for approximately eight years. The Malian government is also actively seeking to privatize the Kalana mine, in light of foreign investor interest in redevelopment.10 Potential future developments include the following concessions, with estimated reserves in tons noted in brackets: Loulo (70-80); Segala (50-60); and Kalana (20-25).

16. Currently, mineral exploration activity in Mali is dominated by gold, but it also includes some exploration for diamonds, fossil fuels, and other minerals. In July 2000, more than 50 domestic and foreign companies were exploring under close to 90 permits, compared with only 12 exploration permits in 1990. However, it is unclear how many permits are actively being explored, as opposed to simply being held for speculative purposes. Worldwide gold exploration expenditures have dropped significantly since 1998, following the decline in the price of gold, and Mali, along with other African countries, has suffered some slowdown in active exploration.

17. Based on the production capacities of the two existing gold mines, the two mines currently under construction, and conservative estimates for artisanal production, Mali has the potential to export about 25-35 tons of gold annually over the medium term. On the assumption of world gold prices remaining near US$280 per ounce, this production level should be sufficient to maintain the value of gold exports in the range of CFAF 150-210 billion per year (approximately US$240-340 million, based on mid-2000 exchange rates). Over the longer run, and on the basis of conservative reserve estimates alone (abstracting from cost, price, and other considerations), firms operating in Mali should be able to maintain or exceed exports of 20-25 tons of gold annually until 2020. Thus, on the basis of known and proven gold reserves, current policies, and the assumption that world gold prices will remain near their current levels, Mali can reasonably be expected to remain an important African gold exporter for some time to come.

E. Sector Institutions

18. Overall responsibility for the mining sector lies with the Ministére des Mines, de l’Energie, et de I’Eau, which developed and implemented mining policies initially through the Société Nationale de Recherche et d’Exploitation Miniére (SONAREM) and subsequently through the Direction Nationale de la Géologie et des Mines (DNGM). SONAREM was created shortly after independence in 1960 and, reflecting Mali’s interventionist approach to development at that time, was given a monopoly on the exploration and development of the countries’ mineral resources. Between 1963 and 1969, it was active in exploring and mapping Malian territory, but limited development occurred. With the transfer of responsibility for the development of mining policy to the DNGM in 1967 and the promulgation of the 1970 Mining Code, SONAREM’s hegemony diminished.

19. Nevertheless, SONAREM continued to play a significant role in the sector. It was responsible for the development of the Kalana mine, as well as operations following commissioning in 1984; in 1985, however, ownership and operation of the mine were transferred to SOGEMORK. SONAREM also created a phosphate mining company, Marbres et Eaux Minéerales de Mali, which ceased operations in 1999. In January 2000, the government adopted a draft law authorizing SONAREM’s liquidation.

20. Today, the DNGM is responsible for formulating most aspects of mining policy,11 regulation of the sector, and the granting of exploration and mining permits. It also acts as the manager of the government’s participation in the financial capital of mining ventures. Finally, the DNGM is responsible for conducting Mali’s geological survey.

F. Legal and Mining Taxation Frameworks

21. Since 1970, mining in Mali has been regulated by legislation. Supported by the World Bank, this legislation was significantly reformed in 1991 and modified again in late 1999. The revisions introduced in 1999 reduced the number of mining titles and streamlined the permit issuance process. The revisions also substantially altered the taxation regime applicable to mining by shifting the tax burden from inputs and production toward profits. Thus, the royalty on gold production was reduced from 6 percent to 3 percent and customs duties were lowered, in line with the West African Economic and Monetary Union common external tariff. The tax holidays on corporate income and import duties during the initial years of production were eliminated and a dividend withholding tax applied. Regulations concerning government participation in the capital of the mining enterprises (back-in rights) were also modified. These policy changes were designed to foster the development of new gold deposits and, at the same time, increase government revenue from the sector.

22. Since 1991, Mali has made use of a model investment agreement to accelerate the process of negotiating and awarding permits for mining exploration. The standard agreement serves as a point of departure for negotiations with foreign and private operators and fixes fiscal obligations such as income taxes, tax exemptions, depreciation allowances, and royalties. While actual mining agreements are negotiated and could vary substantially, key features of the current model agreement are as follows:

  • Permits. Exploration permits are issued by the Minister of Mines for a period of three years, with a 50 percent reduction on the surface area at the discretion of the holder at the end of the second year of the first tenure. Exploration permits are twice renewable for three-year periods over a certain area, which again are reduced by half each time. Mining permits are granted by decree for a maximum of 30 years, including renewals, to applicants with provable, bona fide ore bodies.

  • Capital. Earnings are freely repatriated.

  • Taxes. Mining ventures are subject to the 35 percent corporate income tax (the previous law provided a corporate income tax holiday for the first five years of production). Depletion allowances are set at 27½ percent of gross sales proceeds. Imports used for exploration are taxed at a zero rate, while imports used for production are subject to normal duties (the 1991 code granted duty exemptions to cover the first three years of production). Gold production attracts a 3 percent ad valorem tax (under the 1991 law, gold production attracted a 3 percent royalty and a 3 percent production tax).

  • Rights to government participation. The government’s “back-in rights” were also modified in 1999. The government of Mali now reserves the right to participate as a shareholder in the capital of a mining company to the extent of a maximum carried interest of 10 percent, free of financial obligations, but with the right to preferential dividends, and the option to acquire an additional 10 percent working interest through a contribution to the financial capital of the venture. Under the 1991 mining law, the government retained rights to a maximum 20 percent participation through a combination of a 15 percent carried interest and 5 percent working interest.

G. The Impact of Gold Mining on the Malian Economy

23. In 1984, the first year of operations at the Kalana mine, the mining sector accounted for an estimated 1½ percent of Mali’s GDP. In 1990, the first year of operation of the Syama mine and the final year of production at Kalana, gold mining accounted for just over 2 percent of GDP, and about 14 percent of total export receipts. During the period 1992-99, the share of gold mining in GDP more than doubled, from 2¼ percent to 5¾ percent, and the value of gold exports rose from 16 percent of goods exports to more than 40 percent. Tax receipts from the sector increased from 3½ percent of total government revenue in 1995 to 7¼ percent by 1999 (Box 1). In the future, tax receipts from the sector will likely increase further as existing tax holidays expire, new mines come onstream, and the tax measures contained in the 1999 Mining Code begin to take effect. Additionally, the Malian government could benefit from dividends from its ownership position in mining ventures, as it did in 1999 when SEMOS paid the government a dividend of close to CFAF 1 billion (approximately US$1.5 million).

Mali: Key Gold and Mining Sector Indicators, 1992-2002

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Sources: Malian authorities; SEMOS; SOMISY, and staff estimates and projections.

In tons.

Value of gold exports as a percentage of the value of all exports.

Percent of GDP,

SEMOS and SOMISY direct and indirect tax payments as percent of total government revenue.

As a share of modem sector employment, which, in tum, accounts for about 10 percent of the labor force.

24. Employment in the industrial mining sector increased from fewer than 500 persons in 1992 to over 1,900 in 1999. Most employees are involved in gold exploration and production activities, half of whom at the Sadiola and Syama mines. Between 1992 and 1999, mining sector employment, measured as a share of formal sector employment, varied substantially, from a low of about 1 percent in 1992 to a high of almost 12 percent in 1995. With the formal sector employing an estimated 10 percent of the Malian labor force in 1999, about ½ of 1 percent of the labor force was employed in the mining sector. Figure 2 presents mining sector employment by type of activity and illustrates the rapid increase of employment since 1992, as well as the volatile nature of employment in exploration activities. During 1999, average employment levels at SOMISY were as follows: 728 Malians and about 70 expatriates were employed on a full-time basis, as well as over 300 Malians on a temporary basis. Total employment at SEMOS, operator of the Sadiola mine, was about 1,250, comprising almost 1,100 Malians and 150 expatriates (with about 875 employed at the mine site). As mentioned above, artisanal gold mining accounts for the seasonal employment of up to 150,000 people.

25. The growing importance of gold mining and the prospects for future development point to a growing need for more detailed information on the sector to assist in the assessment of the sector’s contribution to the economy and the formulation of appropriate mining policies. Currently, there is scant evidence about the impact of gold mining on the Malian economy. Some estimates suggest that in 1997 about CFAF 9 billion (about ½ of 1 percentage point of GDP) in salaries were paid to the employees of SEMOS and SOMISY, with over 75 percent paid to Malian nationals. In addition, local purchases made by mining companies involved in both production and exploration have been estimated at about CFAF 43 billion (3 percent of GDP). Mining companies contribute to social infrastructure, by building roads, bridges, wells, schools, hospitals, and dispensaries, and contribute to villages in various ways. However, in the absence of more detailed information, the impact on the economy cannot be adequately assessed.

H. Conclusion

26. The adoption of an internationally competitive Mining Code in 1991 served to foster the rapid development of industrial gold mining in Mali. Indeed, gold has become Mali’s second principal export commodity, substantially increased the mining industry’s contribution to the public finances, and, to a more limited extent, fostered modern sector employment.

27. The development of industrial gold mining has also served to diversify the fragile Malian economy somewhat and to increase private sector activity. Nevertheless, the concentration in exports on the three principal commodities of cotton, gold, and livestock remains extremely high at over 94 percent in 1999. In this regard, it must be borne in mind that gold is a nonrenewable resource and that, when endowments are exhausted, other activities must replace gold mining, so as to avert a costly and difficult adjustment. With the success of gold mining serving as an example, the Malian government, therefore, continues to liberalize other important sectors of the economy.

28. On a global scale, Mali still ranks as a relatively small producer. The existence of alternative gold deposits in other countries, in combination with the mobility of foreign mining companies, underscores the importance of maintaining competitive mining legislation and ensuring a stable business regulation and taxation regime. Mali has sufficient gold reserves to remain a gold exporter for several decades to come, and it would do well to continue to implement sound and stable mining policies.

Table 1.

Mali: Gross Domestic Product at Constant 1987 Prices, 1994-991

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Sources: Malian authorities; and Fund staff estimates.

Data may not add up because of rounding.

Includes cotton, groundnuts, tobacco, fruits, vegetables, and others. Cotton accounted for approximately 85 percent of the total over the period 1993-98.

Annual percentage change.

In billions of CFA francs.

Table 2.

Mali: Origin and Use of Resources, 1994-991

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Sources: Malian authorities; and Fund staff estimates.

Data may not add up because of rounding.

Table 3.

Mali: Agricultural Production and Average Producer Prices, 1994/95-1998/99 1

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Sources: Malian authorities; and Fund staff estimates.

The crop year is April/March; the marketing year is November/October.

Except for cotton, the marketing of agricultural products by official agencies was discontinued in 1995.

Actual price for first-quality cotton, including rebate based on profit of the cotton company (CMDT).

Table 4.

Mali: Cereals - Cultivated Area and Rainfall 1994/95-1998/99 1

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Sources: Malian authorities; and Fund staff estimates.

The crop year is April/March; the marketing year is November/October.

Deviation in percent from the annual average of the 1960-90 period.

Rainfall is measured for the specific area where each cereal is grown.

Table 5.

Mali: Quarterly Retail Prices for Cereals, 1994-1999

(In CFA francs per kilogram)

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Sources: Malian authorities; and Fund staff estimates.

Free market prices represent the average of prices prevailing in 13 Bamako markets.

Estimates.

Table 6.

Mali: Office du Niger - Indicators of Activity, 1994/95-1998/99 1

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Source: Malian authorities.

The crop year is April/March.

Table 7.

Mali: Implementation of the Public Investment Program, 1994-991

(In billions of CFA francs)

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Source: Malian authorities.

Data may not add up because of rounding.

Table 8.

Mali: lnvestment Budget for 1994-99 and Existing Commitments for Public Investment, 2000-0212

(In billions of CFA francs)

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Source: Malian authorities.

Data differ from those included in Table 15, Consolidated Government Operations, as an implementation rate of less than 100 percent is assumed in the projections.

Data may not add up because of rounding.

Table 9.

Mali: Livestock Exports, Slaughtering, and Herd Size, 1994-99

(In thousands of head, unless otherwise indicated)

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Source: Malian authorities.

Provisional data.