Ghana explores the minerals on offer beyond its crowing resource
It has been a difficult year for the world’s gold producers and nowhere has the new lower price environment been felt more acutely than in markets such as Ghana, where over 90% of its mining sector is dedicated to gold. As Ghana is a hub for mining in the region, its many mining service providers have found refuge in the growing mining activities of neighboring countries such as Burkina Faso, Liberia, Sierra Leone and Côte d’Ivoire. Back at home in Ghana, the miners themselves are carrying on with business as usual, yet at narrower margins and under greater budget constraint. With a large role to play in the Ghanaian economy, the mining industry’s dependence on gold is prompting the government to call for more mineral diversification.
Just a year ago, fueled by the increasing price of gold and a marginal boost in output, Ghana’s mining sector saw a record year for gold ounces produced in 2012. That same year, Ghana regained its position from 2010 as the eighth largest gold producer in the world as output ounces hit 4.3 million oz, compared to 3.7 million oz in 2011. According to data from the Ghana Statistical Service, the mining subsector grew by 23.5% last year.
The rosy year review is a stark contrast to the industry’s current climate, just 10 months later. March’s drop in gold price has pushed marginal projects to the brink. Already one of Ghana’s 14 mines, Noble Mineral Resources’ Bibiani mine, has gone into care and maintenance as gold production across the sector has declined. Some gold mines are estimated to see declines in production up to 17%, leading to an overall forecast for 2013 of a 10% decline in gold output for the sector.
Gold Fields’ Tarkwa mine remains the largest gold producer in Ghana, while AngloGold Ashanti’s Obuasi mine aims to dramatically revamp its operations, which have declined in recent years. While miners such as Golden Star Resources, which operates the Bogoso Prestea and Wassa mines, and Newmont, owner of the Ahafo mine, have seen overall decreases, a few miners have seen positive growth. Perseus Mining began commercial production at its Edikan mine in 2012, while Chirano Gold Mines saw a 14% increase in output due to improved head grades and process recoveries. Far from discouraged, companies like Golden Star Resources are continuing with their plans to go underground at the Prestea mine in Western Ghana, while the up and coming Asanko Gold is aiming to begin construction at its Esaase gold project in Ghana’s Asankrangwa gold belt by January 2014.
Yet the woes created by the gold price have been a poignant demonstration of the challenges of mono-mineralization. Mining plays a key role in the national economy, and the government is keen to diffuse the impact of any one commodity price by achieving a greater variety of metals and minerals mined. While mining’s economic dominance has waned slightly as revenues from the oil and gas sector have begun to increase, mining continues to be one of Ghana’s chief export earners along with cocoa. Over the last decade, gold has contributed an average of 40% to overall merchandise export earnings. The Ghana Revenue Authority, in turn, has seen roughly 27% to 28% of its revenues collected from domestic tax units come from mining.
With mineral diversification at the top of its agenda, the government is first looking at how to expand the output of the minerals they already have in production. Beyond gold, Ghana also produces bauxite, manganese and a small amount of diamond. While manganese production declined in 2012, the dip was due to Ghana Manganese Company’s decision to focus on mine development and position itself for higher export levels in future. Ghana Bauxite Company, on the other hand, saw a dramatic rise in shipments from 2011 to 2012, increasing by 88% due to the company’s switch to road haulage instead of rail transport. While less cost efficient, road haulage is allowing for the transport of much higher volumes.
The insufficient rail infrastructure affects both the volume-intensive commodities bauxite and manganese; however bauxite’s greater distance from ports has made haulage a particular constraint. The government has touted hopes for Chinese backing in a western rail development project, however concrete action on the government’s part remains forthcoming.
Huge bauxite deposits remain open to investors, although with the caveat that the government is seeking developers with the capacity to add value in country. With an aluminum smelter already in place in the country, increased bauxite production would open up potential for further vertical integration of the aluminum industry.
In new commodities for the country, iron ore deposits have been identified in Ghana’s northeastern and central regions. There exists also considerable potential for limestone, kaolin and solar salt. Limestone mining could again spur vertical integration by adding to the country’s cement manufacturing value chain, while kaolin deposits are under consideration for pharmaceutical applications. Oil and gas exploration has led to the identification of solar salt potential along the country’s 500 km coastline.
What could perhaps be the biggest game changer yet for mineral diversification in Ghana is the discovery of base metal showings. The first indications of base metals came two years ago after an airborne geophysical survey found copper, lead and zinc mineralization in the eastern part of the country. The government has said they will prefer to execute drill campaigns themselves, so as to discourage prospectors and expedite the exploration process.
While efforts to diversify can mitigate risk in the industry, gold mining in Ghana is unquestionably here to stay. Dips in the gold price are not enough to scare off an industry with a centuries-rich history, a strong base of technical expertise and a growing market of service providers. While exploration interest in the country has waned, particularly as greenfields in frontier markets of West Africa grow more competitive, Ghana remains an attractive mining investment destination due its stability and relative infrastructure advantage. For further growth of West Africa’s mining hub, Ghana must look to commodity diversification and government-led infrastructure development that can facilitate the tapping of its remaining potential.
This article was written as part of the research conducted on African mining jurisdictions by Global Business Reports (GBR) as part of our partnership with African Mining Indaba LLC. The aim of this partnership is the production of the single most comprehensive intelligence report on the continent’s mineral sector. The Official Mining in Africa Country Investment Guide, will be launched next February 2014, as the only official publication providing country-specific information at Africa’s top mining event, the 2014 Investing in Africa Mining Indaba™ held in Cape Town, South Africa.