Economic Update

Confronting gold mining challenges in Ghana

Ghana | 20 Jun 2014

Although lower prices and higher costs are a concern for Ghana’s mining industry, the Mining Commission’s re-evaluation of prospecting licences could add some momentum and set the scene for a welcome revival and new lease of life for private operators.

Ghana is the continent’s second biggest gold miner after South Africa, producing 4.29m ounces (122 tonnes) of the precious metal in 2013, according to official figures, and even in the wake of the country’s nascent oil boom, mineral exports continue to provide the largest chunk of export revenues, bringing in roughly $1.25bn in Q4 alone.

However, the drop in gold prices – albeit from previously dizzying heights – over the course of 2013 slowed expansion plans, while both rising costs and a hike in corporate tax rates have also put pressure on the balance sheets in the West African state in recent years. Clean up the system In a bid to improve transparency in the sector, Ghana’s Minerals Commission announced on May 22 an audit of current licences with a view to re-tendering unused concessions to new investors. This will be carried out at the same time as a 90-day moratorium on new gold prospecting permits.

“There is a need to clean up the system because we have realised that many companies are holding on to vast concessions granted to them several years ago without undertaking any prospecting work on them,” Minerals Commission chairman Tony Aubynn told Reuters, adding that the moratorium period may be extended if necessary.

Figures show that the number of prospecting licences issued to foreign and local companies, and registered as still current, stood at 235 at the end of 2013. Under current regulations, companies are allowed to hold prospecting licences for three years, after which they should apply for a lease to mine the area in question. However, some land has remained inactive under prospecting permits for over a decade, said Aubynn.

If some concessions are indeed re-issued, new investors could have the opportunity to enter the Ghanaian market just as it begins to pick up from its recent slump.

Global spot gold prices have fallen from an all-time peak of nearly $1900 an ounce in September 2011 to a more than three-year low of about $1200 in December 2013 as prices remain weak this year.

The international gold market is notoriously difficult to call, but many analysts expect that by 2016, a recovery will be in full swing and prices on the rise again.

A rebound by 2016 would be fortuitous timing for Ghana, particularly given the spate of new operators who have recently entered the market. 2012 saw Australia’s Perseus Mining and Canada’s Endeavour Mining begin operations, while two new mines run by Australia-based Azumah Resources and Canada's AsankoGold, are set to come onstream in the near future. Newmont – a US-based outfit who together with AngloGold, Golden Star and Gold Fields comprises more than three-quarters of total output – also poured first gold from its second mine in Ghana last October.  

Mistrust in mining

Ghana is looking to roll out a number of measures to improve the competitiveness of the sector, concentrating on, among other things, closer cooperation with stakeholders, more diversification of mining (which currently focuses on a few key minerals), the development of a laboratory which will improve monitoring of the quality and purity of Ghanaian gold and the encouragement of community-based mining initiatives.

However, as is the case in producing countries across the continent, from South Africa to Kenya to Gabon, operators have to navigate a tricky combination of lower prices and higher costs.

Part of this is the result of a revised fiscal framework. In 2011, Ghana overhauled its mining regulatory framework – which a World Bank study suggested was overly generous – by introducing a new competitive bidding system, raising royalties from 3% to 5% and increasing corporate taxes from 25% to 35%. Although a number of existing producers are buffered from the changes thanks to long-term stability agreements, the revisions are nonetheless significant.

“There is a lingering misconception about the mining industry that foreign companies are here exploiting the country,” Desmond Tamaklo, company secretary of Perseus Mining, told OBG. “This has led to mistrust in the communities surrounding mining activity. There have been some delays in the release of mining royalties to the mining communities by the central government, but these communities rather direct their anger at miners.”  

Leaner models

Although Ghana has managed to avoid a significant decline in activity, the challenging conditions have prompted some mining companies to trim their operations. In May, AngloGold announced plans to temporarily close and re-structure its loss-making Obuasi mine in Ashanti, triggered by the fall in gold prices.

However, there are potential benefits to the challenging environment and the squeeze in the mining sector has led to outfits adopting a leaner, more efficient model.

“The downturn in the market has brought in its wake a period of reexamination for mining companies, a period during which they sought to become slimmer and fitter; for example, being less speculative and holding less inventory,” Aubynn told OBG in March, when he was head of the Ghana Chamber of Mines. “This critical examination also includes a review of technology in use and a switch to more cost-effective and efficient technology.”

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