Mayhem In Madagascar

Madagascar is in a state of upheaval, and while foreign miners with operations there deny being affected, no one knows how it will play out in the end.

Elected president Mark Ravalomanana was forced out of office by the military in mid-March, and opposition leader Andry Rajoelina was installed in his place. Both the European Union and the African Union (AU) have labelled the affair a coup.

Rajoelina’s ascension came after he stirred and then rode a wave of populist sentiment all the way to the president’s office, but it is still unclear exactly what the 34-year-old stands for.

With the support of much of the country’s poor and the military, there have been rumblings that contracts with foreign companies deemed unfair to the country could be renegotiated, but at the same time, Rajoelina has said he is in favour of free markets.

What this means for large miners in the country such as Sherritt International (S-T, SHERF-O) and Rio Tinto (RTP-N, RIO-L) is unclear at this point, and the companies are keeping their thoughts on the matter largely to themselves.

“We will not speculate on the political situation in Madagascar,” a spokesperson for Sherritt said via email. “We are monitoring it closely. To date, the project has not been affected.”

Things began to unravel for former president Ravalomanana at the beginning of the year when protestors began congregating in the centre of the capital, Antananarivo.

Despite Ravalomanana’s efforts to attract foreign direct investment as a means of fostering economic growth and eventual prosperity, the process hadn’t adequately addressed the rampant poverty in the country by the protestors’ — chief among them Rajoelina’s — estimation.

The situation went critical for Ravalomanana on March 10, when an army colonel sympathetic to Rajoelina took over the reins of the army and shortly thereafter moved on the presidential palace and the central bank, before finally ousting Ravalomanana. The whereabouts of the former president were unknown at presstime.

In all, the unrest in the country has left some 135 dead.

Much of the death came at the hands of the army, which was ordered by the government to clamp down on protesters. Ravalomanana is likely regretting such heavy-handed tactics now, as they not only galvanized protesters, but also turned much of the army against him.

Ravalomanana, 59, is a self-made millionaire who had ruled as president since Senegal brokered a peace agreement between the country’s feuding factions in 2002. He won re-election in 1996.

Rajoelina, meanwhile, is a former disc jockey and mayor of the capital Antananarivo. His ire for Ravalomanana was ignited when the state closed down a TV station he owned after it aired a politically contentious interview with a former president.

He says the country will hold elections in 18 to 24 months.

In the mid-1990s, Madagascar shed its former socialist ways in favour of an economic policy of privatization and liberalization led by the World Bank and International Monetary Fund. And while it has shown some steady economic growth since then, many still languish in poverty with some 70% of the population living off less than US$2 a day.

Sherritt’s presence in the country is via the massive Ambatovy nickel laterite project, which sits about 80 km east of the capital. Ambatovy is slated to produce 60,000 tonnes of nickel annually for 27 years starting in 2010.

Sherritt owns 40% of the project with Japan’s Sumitomo Corp. and South Korea’s state-run Korea Resources, each holding 27.5%, and SNC-Lavalin Group (SNC-T, SNCAF-O) holding the remaining 5%.

The cost for building the project is pegged at US$4.5 billion, with Sherritt currently exploring options for raising its required cash commitment.

Rio Tinto, which operates an ilmenite mine in the country, also says it hasn’t been affected by the unrest.

Rio began producing ilmenite at its QMM mineral sands project in January this year and plans to ramp up production to 750,000 tonnes annually in 2011. The mine is in the southern Fort-Dauphin region.

Rio owns 80% of the project with the Madagascar government owning the rest.

Ilmenite is used in the manufacture of paint pigments and plastics.