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September 01, 2014 at 09:20 PM
For investors keeping tabs on frontier markets, the development of the new Merian gold mine, by Newmont Mining Corporation in Suriname, may signal the start of yet another potential investment opportunity.
Not only does the mine bode well for Suriname’s economy in the medium-term (the $1 billion investment is likely to double the country’s industrial gold output by 2016, at a time when production is expected to tail off as existing mines reportedly reach maturity), it’s also likely that the South American nation’s government will finance the 25% stake it can take in Merian through a potential $200 million syndicated loan.
The issue would be Suriname’s first commercial sovereign borrowing and would be backed by revenue streams from the mine.
Details for the potential syndicated loan are not yet finalized but the issue could prove interesting to frontier market investors looking for new opportunities, particularly since the political commitment to the Merian project is strong and significant preparatory work has been undertaken by Newmont to ensure that the mining project takes off, said Cesar Arias, associate director for Latin America at Fitch Ratings.
If Suriname plays its cards right, then, the Merian gold project may well secure the country the footing it needs to continue along the path of becoming a market economy.
Here’s how things look for now:
Gold Production will Spur Economic Growth
Suriname’s economy has been funded to a large degree by exports of the mineral bauxite but the government has been slowly making moves to take advantage of its other commodity reserves, namely oil and gold. The shift toward gold mining and the Merian mine’s role in that are particularly important. Not only will the result in new gold supply, it will also help to bring about a better balance between industrial mining and informal mining in Suriname, Arias said, and this will benefit both Suriname’s mining sector as well as the economy overall.
“Informal mining doesn’t give a lot of royalties – it isn’t very efficient and it has an impact on the environment,” Arias said. “Suriname has been trying to have a more balanced distribution between informal mining and industrial mining for years. Of course, these things take time, but Newmont is coming in at a good time and it’s one of the top mining companies in the world, so this seems like a win-win situation.” Prior to its association with Newmont, Suriname’s industrial production relied exclusively on Canadian company IAMGOLD, “but the government knew their mines were going into maturity and they needed a plan to develop new gold reserves,” Arias said.
