Can a joint venture with Randgold reinvigorate AngloGold Ashanti’s Obuasi mine?
AngloGold Ashanti’s Obuasi operation is emblematic of the Ghanaian gold mining industry but recently it has fallen on hard times. How is AGA looking to revamp the mine and make it economically viable once again?
Frederick Kwesi Attakumah (FKA): A number of factors, including the recent slump in gold prices left the Obuasi mine in quite dire straits. The operation has had to rely on support from Johannesburg to keep going, which is clearly not sustainable. Last year the company took the decision to ramp down activity and run the mine in limited operations mode, giving us space to address some of the outstanding historical issues. Obuasi previously made use of a highly inefficient labor model so the company spent $200 million retrenching the entire workforce and re-engaging a smaller number of staff. Over the past two years, the mine’s footprint has shrunk from a radius of nearly 8 kilometers (km), down to just 2 km. In parallel, we have been busy constructing the new decline into the mine, which will allow for much greater operational flexibility and improved access to deeper levels. We then conducted a feasibility study to re-evaluate the business case for the operation. The clear message from the study was that Obuasi needs a lot of new investment to remain profitable. The deposit has been mined for nearly a century and the current operation inherited antiquated infrastructure that is in serious need of modernization. Given the prevailing market conditions, tapping into this type of capital is quite challenging so we began looking for potential partners.
The most recent news is that AGA will be joining forces with Randgold to run Obuasi as a joint venture. What form will this partnership eventually take?
FKA: In October 2015, we announced an investment agreement with Randgold, which will lead to the mine being run as a joint venture. The agreement is still subject to various government approvals and permits, as well as ratification by the boards of both companies. This is expected to take place at some point in February 2016. We envision a similar model to that which is employed at the Kibali mine in DRC. The intent is for joint ownership of the operation, but with Randgold as the operating partner. We are not in a position to give any numbers, but we foresee a very lean, highly mechanized operational model coming into play.
The Chamber of Mines recently published a report in association with the International Council on Mining and Metals, which highlighted the need to create linkages between mining and other industries. How can large miners such as AGA integrate more local producers into their supply chain?
FKA: We see a lot of opportunities to boost local participation within our supply chain. We are of the opinion that corporate social responsibility (CSR) initiatives, while important, are not the solution to sustainable development. Ultimately, it is necessary to create linkages within different sectors of the local economy and spur on growth. Mining can create a lot of wealth, but it is also finite. It is important for the country to leverage its natural resources endowment and substantial mining industry to promote other sectors. Local manufacturing can certainly be advantageous to Ghanaian businesses and international mining houses but the quality of the products and consistency of supply must be assured before any contracts can be signed. AngloGold has entered into conversations with a local enterprise development center in Takoradi to boost local content in our supply base.
One area where Ghana has a natural competitive advantage is in the production of activated carbon, a crucial ingredient for gold processing. The country currently imports all its activated carbon, but the main raw material is coconut shells, which are in abundance along the coast. If we can build up this industry there is enormous potential to fulfill domestic supply and even to export into landlocked gold producing countries such as Mali and Burkina Faso.
AGA has been praised for its extensive community work. Could you bring us up to date on some of the more recent initiatives that the company has launched in Ghana?
FKA: AngloGold Ashanti looks at CSR projects with a critical eye. It is not just philanthropy; it is about creating shared value. From the mine’s perspective, once the community stakeholders benefit from our being there, we are able to attain a social license to operate and instill a sense of ownership among the local communities.
We are very keen on promoting sport and own one of Ghana’s most successful football teams; approximately 50% of the national team comes from our club.
In terms of health, we are integral to local healthcare delivery – the mine hospital is the second largest in the Ashanti region, serving the entire community, not just our workers. In 2012, the company set up a trust fund, which receives 1% of the mine’s total profits. The fund is managed by a steering committee, with representatives from a wide range of local stakeholders. The various members work together to identify priority projects that they believe are most deserving of funding.
Perhaps our most well known CSR initiative is our malaria-reduction program. Back in 2004 when AngloGold and Ashanti merged, it was clear that malaria was having a severe detrimental effect on our workforce. We were recording around 6,800 cases per month in our hospital. Of this total, around 2,500 were our employees or their dependents. Aside from the great hazard to public health, this prevalence led to a loss in productivity at the mine, as each employee that contracts the disease loses about one week of work. The strategy we chose to adopt was to spray the internal walls of all structures in the municipality with insecticide. We then broadened the scope to surrounding municipalities. The initial objective was to reduce the incidence of malaria by 50% in two years; we managed to reduce it by 75%. This was such a remarkable outcome that the Ghana National Malaria Program put our case to the Global Fund and secured funding of $130 million to roll the scheme out across 40 more districts across the country.
AngloGold Ashanti will always be associated with Ghana, but given the company’s extensive operations in other jurisdictions, how important is the country to your overall strategy today?
FKA: Ghana remains an important global mining jurisdiction; it is still the second largest gold producer in Africa. It is a highly important hub for AngloGold Ashanti as we run two mines in the country. In spite of its turbulent recent history, Obuasi is still important to us as it holds around 6 million Oz reserves and 20 million Oz in resources. You cannot find deposits like this in many other countries. Furthermore, Ghana’s political stability and highly educated workforce are unrivalled in any neighboring countries. Nevertheless, other West African mining jurisdictions are catching up, and Ghana is no longer the only option for exploration dollars.
Many stakeholders in Ghana have identified the inconsistent and insufficient power supply as the main setback to growth. What kind of impact has AngloGold felt from the electricity crunch?
Eric Asubonteng (EA): As the Obuasi mine has been running in limited operations mode since the beginning of the year, we have not been hit as hard as other mines by the ongoing power crisis. Our underground production has stopped and our processing during the current year has been limited to tailings. The result is that our power requirements have dropped significantly. Nevertheless, on a general level, there is a mismatch between the supply of energy and the increasing demand for power. The government is working on plans to increase total generation capacity so as to support the country’s continuing economic growth. However, many observers will become more comfortable when they see concrete results that ease the pressure on industry.
Given the level of uncertainty over how the situation will resolve, some private sector participants are looking at alternatives. The popularity of in-house generation at large industrial operations and mines may well grow. At Obuasi, we are also examining the situation and thinking through possibilities of securing our ongoing energy supply. That being said, it is always preferable to take electricity from the grid, as any investment in our own power plants would divert scarce capital away from improving our operations.
Given the quality of the deposit, what would you identify as the main reasons behind the sustained difficulties in making Obuasi economically viable?
EA: Obuasi was not unique in facing unsustainable costs and declining profitability. The entire industry was caught on the back foot by the sudden slump in gold price after so many years of constant increase. Up until 2012, miners were more concerned with boosting volumes than with chasing value. Across the industry, costs were not managed effectively. The situation with Obuasi was perhaps more acute because of the mine’s advanced age and outdated infrastructure.
Looking to the future, do you have a final message regarding the potential of the Obuasi mine?
EA: Obuasi boasts huge potential. Even though the deposit has been mined for over 100 years it still holds so much opportunity. The conditional joint venture with Randgold, if it does go ahead, should allow for us to overcome the substantial challenges that exist and implement the necessary measures to return it to its former glory. Some of the tough decisions, such as retrenching the workforce and reducing the operational foot print area, have already been taken. What is required now is delivery on the conditions that will enable the conditional joint venture to be consummated. These include gaining government approval for an investment and development agreement, as well as environmental permitting and certification.
This interview was part of research being conducted by GBR for its upcoming Mining in Africa Country Investment Guide (MACIG) 2016. A pre-release report on the Central African Copperbelt was released in October 2015 and can be accessed here. To participate in this report, please contact Amal Lahraichi at email@example.com