Allied Gold (OTC:AAUCF) has reached a preliminary agreement with Mali's government for a 10-year permit on the Sadiola gold mine and permission to exploit the nearby Diba deposit.

The military-led African country rich in gold and other valuable metals has recently overhauled its mining laws, targeting higher state revenues through increased royalties and state ownership.

The Sadiola gold mine in Mali's Kayes region has been Allied Gold's key asset since its acquisition from Iamgold Corp (NYSE:IAG) in 2020. The mine is operated through Société d'Exploitation des Mines d'Or de Sadiola SA (SEMOS), of which Allied holds an 80% stake, while the Malian government retains 20%.

The mine boasts significant gold reserves and is undergoing an ambitious expansion project. The new agreement with the Malian junta includes plans to develop the nearby Korali-Sud (Diba) deposit.

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Allied Gold's expansion plans for Sadiola are divided into two phases. The first phase focuses on maintaining steady production, improving infrastructure, and modifying the existing processing plant.

This phase is projected to cost $65 million and aims to increase gold production to between 200,000 and 230,000 ounces annually for at least four years. Key improvements include upgrades to the plant's milling and crushing capabilities to handle more fresh ore. Additionally, $5 million will be invested in cyanide detoxification, accelerating environmental compliance.

The second phase, expected to begin in 2026 and conclude by 2028, involves constructing a new processing plant specifically designed for fresh ore. Allied has planned $400 million for this phase, which could elevate the mine into a top-tier, low-cost gold producer.

The new plant and infrastructure will increase production, potentially reaching 400,000 ounces per year, making Sadiola a generational asset for the company.

However, the ongoing geopolitical situation, with multiple ongoing armed conflicts and increasing de-globalization, made mining outside top-tier jurisdictions riskier. Following the news, Allied stock closed the day at CA$2.79, falling 3.8%.

The presence of the Wagner Group, a Russian paramilitary organization, and the jihadist group JNIM, aligned with Al-Qa'ida, pose additional threats to the country's long-term stability.

Barrick Gold (NYSE:GOLD), another major mining company, has been closely monitoring the situation as it operates a tier 1 Loulo-Gounkoto mine with over 7 million gold ounces of reserves.

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