Kodal Minerals Has a Political Problem In Mali – What Next?

Kodal Minerals (LON: KOD) shares face two separate problems concerning activities in Mali. The first concerns drilling problems at Fatou and this is, to be honest, just the sort of thing that happens. Certain drill holes could not be completed given weather conditions. Ah well, into each life some rain must fall etc and what matters is the – possibly minor – effect upon cash flow and how long it takes to correct the problem.

The other problem is potentially more serious. It’s a political problem and one that it’s not really possible to determine fully. At this stage, it simply adds to the risk, perceived risk perhaps.

The problem is that the state of Mali itself has been rather held together by French armed forces. This is common enough in those remnants of the French West African empire. France is still the guarantor of some part of the political order. Sure, there are coups and so on that happen. But the underlying commercial order tends to remain. Who is on top might change, but not the basic legal settlement.

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France is said to be removing its troops from Mali. Quite what happens next is anyone’s guess but there’s a possibility that the al-Qaeda and ISIS-linked jihadis could gain some to more power. This is a change of power – if it comes to pass of course – of a different kind. For it’s possible then that that extant commercial order will be overturned.

Instead of it being who gains the tax revenues from mining operations it could be possible that there is a re-ordering of who owns the mining operations. That’s clearly a risk to a company like Kodal Minerals that owns prospecting rights to gold and lithium projects within Mali. A new government collecting the taxes from success isn’t a problem to a mine. A new government disputing the licence allocations of the last government is.

Yes, of course, that risk is a little remote. For anything to happen requires not just that France leaves – which is what is being suggested will happen – but also that so do others, also that the jihadis win and then that they decide to tear up previous licences and agreements. But if even remote but catastrophic risks increase in probability then that changes valuations.

Quite how this will all play out is of course the question. A useful guide here is that at this stage it’s merely that risk has risen. France leaving just does raise that risk, nothing more. Triumphant jihadis marching into the capital would raise the risk once more and so on. This is not so much something to worry about directly as something to monitor.

This just is one of the problems of going mining in places without the very strong rule of law and political stability. You can’t move the mines out of the country but the government of the country can change.