Performance of the Mining Industry 2008
The growth of the global economy and the associated boom in demand for resources including
metals bode well for the mining industry. However, the advent of the financial crises which
spiraled into recession adversely affected the prices of commodities including most metals.
The price performance of gold, Ghana’s major mineral was largely influenced by the effects of
the causes of the economic crises. The investment community was gripped by inflation fears in
the wake of the food and crude oil crisis, as the prices of these items increased to
unprecedented levels. The price of crude oil in particular reached an all time high of US$147 per
barrel in July 2008. The traditional positive correlation between the price of crude oil and gold
kicked in with the price of gold reaching a peak of US$1,011.
The inflation fears and the subsequent expectation of reduced returns on alternative
investments put the shine on gold as a preferred investment.
The global financial crises resulted in the failure of major finance houses as well as bearish
sentiments on the major bourses. Therefore whilst the price of crude oil fell dramatically in
response to reduced global demand following from declining industrial output, the price of gold
remained relatively firm. In the circumstance, gold asserted its position as a safe haven. The
metal closed the year at a price of US$869.75 when crude oil had fallen to US$34.68 a barrel.
The year 2008 proved a difficult year for most mineral producing countries. Although China
recorded a 3% increase in its gold output to maintain its position as the world’s largest
producer of gold, global gold production dropped substantially in 2008 to reach its lowest level
since 1995.
According to the Gold Fields Mineral Survey (GFMS), global gold output dropped substantially
by 4%, year-on-year, from 2,473 tonnes in 2007 to 2,385 tonnes in 2008. Mine production
contracted by 88 tonnes in 2008, with a majority of the reduction taking place in the first half of
the year. Losses were concentrated in Indonesia whose output dropped 37%. Australia’s
outturn declined by 14% and South Africa’s plummeted by 14%, the sharpest percentage fall
since 1901; relegating the country to the world’s number 3 producer, behind the United States.
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World Gold Production 2008
Ghana
3%
Indonesia
4%
Canada
4%
United States
10%
China
12%
Other
33%
Peru
7%
Russia
8%
Australia
9%
South Africa
10%
It is noteworthy that since 2007, South Africa has lost her position as the world’s number 1 gold
producer; a position it has held for several years. South Africa’s dwindling output has been
attributed to technical constraints, power issues, skills shortages and the global financial crisis.
For the first time in about a decade, Ghana moved up to become the 9th highest gold producing
country according to the GFMS log.
The mining industry accounted for about 43.7% of gross export revenue, reinforcing its position
as the country’s leading export earner and a major contributor to the country’s balance of
payment position in 2008.
The mining and quarrying sector contributed GH¢ 179,978,382 to the IRS’s collections in 2008.
This represents 14.72% of total IRS Collections in 2008; making the industry, the 3rd highest
contributor to IRS’s collections, behind the Public Administration & Defence and Financial
Intermediation sectors.
The GH¢ 73,554,696.84 the mining and quarrying sector paid to the IRS for corporate tax was
13.25% of the total company tax, withholding tax and levies the IRS collected in 2008. By that
performance, the sector became the third highest payer of corporate tax in 2008; the
Communication and Financial Intermediation sectors leading the pack in that order.
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REVENUE BY MINERALS IN US DOLLARS
2007 vs 2008
Manganese
62,348,266
36,831,651
Bauxite
19,810,287
19,686,731
Diamond
18,892,292
26,366,914
2,202,976,546
1,711,511,381
Gold
2008
2007
Total mineral revenue rose from US$1,794,396,677 in 2007 to US$2,303,928,866 in 2008,
representing an increase of 28%. Gold revenue was up 29% from US$1,711,511,381 to
US$2,202,878,021 in the same period. The rise was as a result of the appreciation in gold
output by 4% from 2,486,821 ounces in 2007 to 2,585,913 ounces in 2008 as well as an increase
in average realized price of gold by 23.78% from US$ 688 per ounce in 2007 to US$852 in 2008.
Manganese revenue contributed albeit marginally to the total mineral revenue increase, the
mineral having realized an appreciation in revenue by 69% in 2008 compared to 2007.
3,000,000
MINERALPRODUCTION COMPARISON
2007 vs 2008
2,500,000
2,000,000
1,500,000
1,000,000
500,000
Gold (ounces)
Diamond (carats) Bauxite (tonnes)
2007 2008
Manganese
(tonnes)
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The rise in gold production was on account of increased production at Golden Star Bogoso,
Newmont Ahafo, Gold Fields Damang, Central African Gold, AGA Iduapriem and Gold Fields
Tarkwa which more than made up for the dips at the other gold producing mines. PMMC’s
purchases from small-scale miners fell by 15.37% whilst Chirano Gold Mines recorded a 12.26%
decline in production within the same period.
GOLD PRODUCTION BY COMPANY IN OUNCES
FOR 2007 & 2008
Central African Gold
Chirano Gold Mines
Golden Star Wassa
Golden Star Prestea/Bogoso
Gold Fields Ghana - Damang
AngloGold Ashanti Iduapriem
PMMC (Small-Scale)
AngloGold Ashanti Obuasi
Newmont Ghana Gold-Ahafo
Gold Fields Ghana - Tarkwa
-
100,000 200,000 300,000 400,000 500,000 600,000 700,000
2008
2007
GOLD REVENUE BY COMPANY IN US DOLLARS
Central African Gold
Chirano Gold Mines
Golden Star Wassa
Golden Star Prestea/Bogoso
Gold Fields Ghana - Damang
AngloGold Ashanti Iduapriem
PMMC (Small-Scale)
AngloGold Ashanti Obuasi
Newmont Ghana Gold-Ahafo
Gold Fields Ghana - Tarkwa
-
100
200
300
2008
400
500
600
Millions
2007
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The Iduapriem mine of AngloGold produced 200,139 ounces of gold in 2008 compared to the
185,158 ounces output in 2007, an increase of 8%.
Despite the challenges of mill gearbox and crusher component failures, increased throughput
helped by the newly commissioned scats crusher as well as improved blast fragmentation
accounted for the increased gold output at the mine. AngloGold Ashanti Obuasi’s output was
down 1% from 359,961 ounces in 2007 to 357,102 ounces in 2008.
The marginal decline of 1% was on account of a decrease in underground volumes and the
grade mined. This was compounded by unscheduled work stoppages at the plant for repairs as
well as maintenance at the ball mill.
Cumulatively, the AngloGold Group produced a total of 557,241 ounces of gold representing a
2% increase above the 545,119 ounces produced in 2007.
Gold production at Golden Star Bogoso Prestea increased sharply by 33.2% from 127,994
ounces in 2007 to 170,485 ounces in 2008.
Golden Star Bogoso Prestea increased its gold output mainly due to improved recovery rates at
the BIOX plant. The company’s BIOX plant having had its first full year of production in 2008
since the sulfide processing plant was put into production in 2007.
Golden Star Wassa however recorded a marginal drop in production of 0.5% from 126,045
ounces in 2007 to 125,438 ounces in 2008.
Together, the Golden Star Group produced 295,923 ounces of gold in 2008, a 16.5% increase on
that of 2007.
Chirano Gold Mine’s production of 119,776 ounces was a decline of 12% on the 136,414 ounces
it produced in 2007.
The lower gold production at Chirano Gold Mines was on account of lower grade ore mined,
following a pit wall failure at the higher grade Tano Pit.
Gold Fields Tarkwa’s gold production was up from 654,352 ounces in 2007 to 659,308 ounces in
2008, a marginal increase of 1%.
Gold Fields’ Damang mine on the other hand recorded an increase in output of 10% from
179,439 ounces in 2007 to 197,025 ounces in 2008.
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The company’s increased production was due to the mining of higher grade ore as well as the
addition of an extra leach tank to the processing circuit.
The total output of the Gold Fields Group was therefore up by 3% to 856,333 ounces in 2008
compared with the 833,791 ounces produced in 2007.
The outturn at Central African Gold was 30,186 ounces in 2008. This was 26% more than the
23,915 ounces produced in 2007.
Production at Newmont Ahafo’s mine in 2008 was 524,000 ounces. This was 15% above the
454,212 ounces produced in 2007.
The increase in production was due to a 25% increase in mill ore grade and higher throughput.
The total tons mined rose from 44.2 million tons in 2007 to 50.6million tons in 2008. This was
facilitated by the installation of additional equipment, increased mining efficiencies and the
operation of a third pit.
The Precious Minerals Marketing Co’s. (PMMC’s) total purchases and export of gold from smallscale miners decreased by 15% from 239,331 ounces in 2007 to 202,535 ounces in 2008. The
2008 purchases of 202,535 ounces representing about 8% of gold exports exceeded the
individual production at Central African Gold, Chirano Gold Mines, Golden Star Wassa, Golden
Star Bogoso/Prestea, Gold Fields Damang and AngloGold Ashanti Iduapriem.
PERCENTAGE SHARE OF GOLD PRODUCTION IN 2008
1%
6%
5%
5%
8%
25%
8%
8%
14%
Gold Fields Ghana - Tarkwa
AngloGold Ashanti Obuasi
AngloGold Ashanti Iduapriem
Golden Star Prestea/Bogoso
Chirano Gold Mines
20%
Newmont Ghana Gold-Ahafo
PMMC (Small-Scale)
Gold Fields Ghana - Damang
Golden Star Wassa
Central African Gold
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PMMC’s purchases and export of diamond from small-scale miners were down 28% from
837,586 carats in 2007 to 598,042 carats in 2008.
Manganese shipments declined from 1,172,555 tons in 2007 to 1,089,024 tons in 2008, a
decrease of 7%. However manganese revenue rose by an outstanding 69% from US$36,831,651
in 2007 to US$62,348,266 in 2008.
The exceptional performance of manganese was on account of a strategic decision of the
Ghana Manganese Company Limited to revise its marketing and operational targets, resulting in
on average, lower volumes and grades of exports, better pricing, more efficiency and longer life
of mine.
Bauxite shipments from Ghana Bauxite Company was down 7.25% from 748,232 tons in 2007 to
693,991 tons in 2008; conversely, bauxite revenue increased from US$19,686,731 to US$
19,810,287, an increase of 1%.
It is noteworthy that the shipment of bulk minerals; manganese and bauxite was adversely
impacted by the 2-month strike action of the Ghana Railway Company. The subsequent
accident on the rail near Damang did not help the situation. In the event, the companies had to
use a lot more of the more expensive road option to transport their ore to the Takoradi
harbour; a distance of 64km from Nsuta for manganese and 240km from Awaso for bauxite.
The Mining Industry and Local Impact
The large-scale mines returned about sixty three percent (63%) of the US$2,124,530,407 they
realized in 2008 to the country through the Bank of Ghana as well as the commercial banks.
They deployed eighteen percent (18%) of their mineral revenue to procure imported
consumables.
The industry deployed twenty two percent (22%) of its revenue to procure inputs locally. This
was besides the thirteen percent (13%) and eight percent (8%) which the producing member
companies used to procure diesel and electric power locally. Overall, the producing mining
companies procured forty seven percent (47%) of all their inputs and seventy one percent
(71%) of their consumables locally in 2008.
Member companies acknowledge the importance of increasing the local content of their
operations and will continue to look for ways to enhance their impact on the local economy. In
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doing this the mining companies will count on the support and collaboration of the government
and entrepreneurs.
In their ongoing efforts to improve the livelihoods of their host communities, the producing
member companies voluntarily contributed about US$12.4 million to their host communities
through the support of projects in education, health, water, electricity, alternative livelihood
projects among others.
Challenges
The price of inputs to the mining industry appreciated in 2008 relative to 2007. This was
especially reflected in the cash cost of gold producing members. Aggregated average cash cost
of gold producers rose from $489 per ounce in 2007 to $651 per ounce in 2008, an increase of
33.13%.
The major cost drivers of the mining industry were diesel fuel, electric power and labour. Whilst
the cost of diesel to the mines largely mirrored international prices, the mines had to pay
significant premium on power, even in the period when the price of light crude oil had fallen
sharply and the hydro component of the power generation mix had increased appreciably.
Thus, whilst the realized price of gold increased by 23%, the cash cost of gold producers
appreciated by 33.13%.
Illegal mining and theft of items at the Mines
The general state of insecurity and the spate of illegal mining were rather high during the year.
Several cases of illegal mining were reported at Golden Star Bogoso/Prestea Mines, Gold Fields
Damang mines as well as AngloGold Ashanti Obuasi mine.
However in the last quarter of the year, the Minerals Commission announced that it had
blocked out areas for small scale mining across the country. The government subsequently
sponsored a group of 25 small scale miners drawn from the Western, Eastern and Upper
regions of Ghana on a two-week study tour to China to learn about improved mining methods.
Besides illegal mining, several theft cases plagued the mining industry in 2008. Fuel, vehicle and
equipment spare parts, computers and accessories, cables, scrap materials and pipes were
among the items stolen. This required member companies to redeploy resources to address
these challenges on the mines.
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Power cost
The upsurge in the price of crude oil necessitated a corresponding increase in electric tariffs,
due to the use of light crude oil for the generation of thermal electric power. However, the
tariff the Public Utilities Regulatory Commission (PURC) gazetted effective 1st July 2008, for
special load tariff customers essentially affected mining companies and the steel manufacturing
firms only. The mining industry was of the opinion that the tariff was inordinately high given the
prevailing parameters that determined the tariffs.
Although the price of crude oil fell drastically in the fourth quarter of 2008 and the hydro
component of the energy mix increased during the same period, the authorities did not reduce
the power tariffs as expected. The high cost of power for that period when the price of gold had
declined to about $750 per ounce adversely affected the viability of most of the mining
companies.
Rail Transport
The poor services rendered by the Ghana Railways Corporation in hauling manganese and
bauxite ore from their respective mines to the Takoradi Port continued in 2008. This was
compounded by the 2 months strike action of the Railways Corporation that curtailed services
to the two bulk mining companies. To be able to meet their contractual obligations, the bulk
mining companies contracted road haulage companies to transport their ore by road, a much
less cost-effective option. In the main therefore the performance of the bulk mining companies
were negatively impacted by their inability to use an appropriate transportation method.
Outlook
The industry’s prospects look in 2009 largely mixed, with the gold subsector expected to do
well. On the other hand, manganese, bauxite and diamonds are expected to be impacted by
structural challenges as well as the impact of the global financial crisis.
For gold, the coming on-stream of expansion projects as well as the expected firming of the
metal appears to bode well.
Specifically, the Chirano Gold Mine has commenced mining underground and other
underground projects are at various stages of consideration. The company’s new crushing
facility and plant expansion which are on schedule for commissioning in the 1 st and 3rd quarters
of 2009 are expected to result in increased production in 2009
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Expansion in mining and processing plant capacities at Gold Fields Tarkwa, the leading gold
producer as well as the enhanced optimization of the BIOX plant at Golden Star Bogoso/Prestea
portend well for gold output in 2009. Production at AngloGold Ashanti’s Obuasi mine is
expected to increase marginally above that of 2008 with an estimated capital expenditure of
about $216 million. However output at AngloGold Ashanti’s Iduapriem mine is expected to
remain relatively flat although the company is expected to complete its expansion project and
the establishment of the Ajopa pit in 2009.
On the other hand, manganese shipments are expected to decline sharply in response to
dampened demand arising out of the downturn in the global construction and car
manufacturing industries; manganese being a component in manufacturing of steel used in
both industries. Bauxite shipments are not expected to improve given the state of the western
rail network as well as the relatively long distance the bauxite ore has to travel from Awaso to
Takoradi. These constraining forces do not provide the Ghana Bauxite Company with viable
options.
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