Business News of Tuesday, 10 March 2015
Source: Graphic Online
Currently, all the mining companies are made to shed off 33 per cent of their individual power consumption in the wake of the ongoing energy crisis and that has forced most of them to operate only three days out of the seven days in a week.
“Initially, the companies were made to shed off about 25 per cent towards the end of last year but early this year, the government said the energy situation had worsened and because of that they should shed off 33 per cent,” Mr Suleman Koney, the Chief Executive Officer (CEO) of the umbrella body of the mining companies, the Ghana Chamber of Mines (GCM), confirmed in an interview.
The mining sector’s total consumption currently stands at about 235 megawatt (MW) and the decision to shed off 33 per cent of its consumption is in spite of the availability of the 80MW Mine Reserve Plant, a US$45 million investment that was financed by four mining companies in 2007.
Although the development is understandable, the Executive Vice President (EVP) and Head of Gold Fields West Africa, Mr Alfred Baku, said in a separate interview that it was depressing to the mining industry, especially given the rationale behind the establishment of the mine reserve plant eight years ago.
“The whole idea of spending that money (the US$45 million) was to say that we give you this much so that we can be exempted from load shedding. However, this time round, the government came around to say that the situation is worse and so shed off 33 per cent and that is quite a tough blow to our operations,” he said.
Consequently, it is projected that mineral output and revenues from the mining industry could take a nose-dive in 2015 if the situation does not normalise soon.
“Clearly, if you have to cut off production by 33 per cent, then it means the industry’s output and revenues will be short of 33 per cent and that will have direct effect on government earnings,” Mr Koney said.
Gold Fields Ghana, which produced 73,500 ounces of gold in 2014 is now aiming at 750,000 ounces of the metal this year.
“That forecast is on the back of full production but if we have been asked to lose 33 per cent of our production, then you can imagine the impact,” Mr Baku said.
The industry’s woes are further compounded by the global dip in gold prices in recent months. Prices of the metal dropped from a two-year high of US$1,900 per ounce to currently trade around US$1,250, the lowest since the 2008 financial meltdown pulled prices to a little above US$1,000 in 2009.
All these developments point to a dim year for mines in Ghana in 2015, Mr Baku, whose company is the biggest gold producer in the country said.
“Already, total revenues of the industry has been sliding and if all these are coming to play at this time, then it tells you 2015 will be a tough one for us the operators,” he said, pointing to a drop in total income from mining sector from US$1.46 billion in 2012 to US$1.1 billion in 2013
A decline in revenues from the mining sector, which was the highest contributor in 2013, will have dire consequences for the country in 2015, the year the government is chasing the International Monetary Fund (IMF) for a US$940 million programme.
Already, the country is struggling to plug a widening fiscal deficit which spiralled to 10.1 per cent of GDP in 2013 before easing to 9.5 per cent last year, estimates from the 2015 budget showed.
This year’s budget now aims to narrow the deficit to 6.5 per cent through series of interventions that include a 24 per cent growth in total revenues and another 4.8 per cent growth in loans and grants from development partners.
However, with the mining sector, which brought in US$1.5 billion and US$1.1 billion in export earnings in 2012 and 2013 respectively undergoing the current depression, fears are that government’s expectations from the industry could be dashed and that would have rippling effects on budget targets.
An Economist and Lecturer at the University of Cape Coast, Dr John Gatsi, admitted that the impact of the mining sector’s challenges on fiscal targets was easily predictable.
“It is very clear already because if the companies are not getting the power to fire the machines to produce and gold prices are not also going up, then it means that the targets you set in terms of revenues from the sector will not be realistic and that will have rippling effects on the budget targets,” he explained.
While dismissing concerns that the situation had caused mining companies to contemplate halting productions, Mr Baku said it had rather slowed down exploration works which was needed to raise total output in the sector.
“I do not think any mining company will say it is going to stop production simply because of the challenges. What I know is that both problems (power crisis and sliding gold prices) facing the industry have slowed down a lot of exploration activities in the country,” he said.
“For Gold Fields, we are not as aggressive as we would have wished to be. For a mine like Gold Fields, we should be doing 50 per cent more than we are doing now.
“For Damang, we needed to put in nothing less than US$10 million but as we speak now, we doing half of that range. The same applies to our Tarkwa mine and it is all because of the challenges we are facing,” he said