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There has been recent news that conflict has reached a boiling point between Islamist rebel forces and government forces in the West African nation of Mali. The nation is a notable producer of gold, with roughly 1% or so of world gold production in 2011 coming from Mali.

So what could this mean for miners with a significant amount of their operations in Mali? One such miner is Randglold Resources (NASDAQ:GOLD), with reports indicating over 60% of its production coming from Mali. The main gold production sites it is operating are the Luolo and Morila mines.

We will therefore focus on Randgold in this analysis. Shares of Randgold have already moved down on news of the outbreak of fighting. With such a large amount of Randgold's production coming from Mali, this could see the share price more than halve in value if the conflict severely affects operations.

Our analysis will therefore focus on the current conflict and the likelihood of it affecting Randgold's operations. Below is a map of the current Mali conflict, and where the Luolo and Morila mines of Randgold are situated.

Click to enlarge images.

Mali Conflict Map

Source: France24 News International.

Loulo Mine

The Luolo mine, Randgold's largest operation, is situated in the very west of the country, near the border with Senegal. As can be seen above, it appears to be quite far away from the fighting. Furthermore, the city of Bamako, where roughly 750 French troops have been deployed and with another 1,750 set to arrive, separates the conflict area from the fighting.

Based on the above, the distance of the Loulo mine from the current conflict and the French troops and fighter planes deployed in an advantageous area (in that it creates a barrier preventing rebel forces from entering the area with ease), the Loulo operations look fairly safe from the conflict. Therefore, it can be expected they will continue to operate without too many likely problems.

Morila Mine

Randgold's Morila gold mine operates about 280 kilometers southeast of Bamako, in the south of the country. As can be seen, it is quite far from the fighting, but not as far as the Loulo mine. In addition, the aforementioned French troops are quite near the mine. However, this mine is more exposed to conflict than the Loulo mine. Though it should be noted the production at this mine is significantly smaller than the Loulo mine for Randgold.

Based on the above, the risk of the conflict affecting the Morila mine is relatively higher than the Loulo mine, although still not very high due to the proximity of deployed French troops. Additionally, the site is some distance from the fighting.

Other Factors to Consider

Several African nations have promised some 3,000 troops to assist in the conflict, which should help in quelling the conflict. The number of rebel fighters could be far larger than what some Western governments realize, which creates a higher risk that the fighting won't be quelled - or rather with great difficulty.

There is a risk after the fighting has ended that the rebels undertake retaliatory attacks on Western targets, such as Randgold, through terrorist-type activities. This would clearly affect the mining operations of Randgold.

The Mali government has a 20% interest in the Randgold mines. This does somewhat increase the chances of the government providing assistance to protect the mines, should there be a direct need.

Randgold Analysis

Randgold closed yesterday at $93.52, with a forward-looking P/E ratio of 11.86 based on consensus estimates. This looks about in line with the industry average of around 11. As seen in the chart below, before the heating up of the conflict, the price of shares has moved mostly in line with the price of gold.

Of additional note is analyst opinions, according to Yahoo, which place a median target on the stock of $130 and a low target of $110. This makes the stock look attractive at current levels.

Source: Google Finance.

Conclusion

Overall, many are confident the French will be able to stop the rebels through air strikes and their troop deployment. This coupled with the location of the mines, the proximity of the French troops, and further deployment of African troops indicates the risk of Randgold operations being disrupted appears quite low. This means that those wanting to make a long play on gold should not be afraid of Randgold, and those already holding should continue to hold.

Furthermore, for those interested in a shorter-term/higher-risk trade, there could be the opportunity to take a long position and expect a small jump in shares on market sentiment as good news is released regarding the quelling of conflict in Mali. Holders of Randgold should continue to monitor the news regarding the conflict and the progression of international and rebel forces.

Source: Mali Conflict: What It Means For Randgold Resources