Despite huge political risk and many other obstacles, mining companies are still drawn to the incredible mineral riches of the Democratic Republic of Congo (DRC).
Thursday, African miner Randgold Resources Ltd. teamed up with AngloGold Ashanti Ltd. to make a hostile offer for Toronto-listed Moto Goldmines Ltd., a company with a rich but very remote gold project in the DRC. The $546-million cash-and-stock bid trumps a friendly all-stock proposal from Vancouver-based Red Back Mining Inc. worth $485-million.
Randgold chief executive Mark Bristow has coveted this asset for a long time, and tried to buy it earlier this year. In an interview Thursday, he said he is confident that Randgold can handle the political risk in the highly turbulent company, and that what the DRC really needs is mine development.
"I always say to the government that you are completely aligned with my shareholders. If you force me to run profitable operations, you all win," he said.
In the past several years, foreign miners have poured billions of dollars into the DRC, and many of them, such as Anvil Mining Ltd. and Katanga Mining Ltd., lost the confidence of investors and have very little to show for it. They had liquidity issues and were caught up in a very long mining "contract review" undertaken by the government that raised ownership worries.
Mr. Bristow is unconcerned. He criticized many of the companies in the DRC, saying they are more interested in promotion than mine development. He vowed that Randgold can deliver a project that will be good for the country, and noted that his company has "written support" for the transaction from the government.
The focus has now shifted to whether Red Back, part of the Lundin Group of Companies, will return with a counter-bid.
Jim Taylor, an analyst at Canaccord Adams, put the odds at 30% to 50% that Red Back will make another bid, and other analysts agreed it is possible.
"A sightly higher bid from Red Back is a distinct possibility; however, Red Back currently has about US$150-million in cash and would need to raise funds [likely through debt] in order to ‘sweeten' the cash component of a higher bid," Haywood Securities analyst Kerry Smith wrote in a note to clients.
Randgold and AngloGold have an edge because they have more financial heft and more operating experience in Africa.
But Red Back has established itself as a top-notch African gold miner in recent years, and its chairman Lukas Lundin is very familiar with the DRC. Another of his companies, Lundin Mining Corp., brought the DRC-based Tenke mine into production earlier this year.
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