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Gold Fields navigating turbulent Ghanian environment - Mineweb

Friday, 10 June 2016

It looks as though Gold Field’s decision on whether or not to proceed with the recapitalisation at its Damang mine will be a positive one. The company has been considering whether to put the mine under care and maintenance, which would have meant pulling back on certain mining activities until gold prices recover, or to inject cash in order to access deeper lying higher quality ore.

With the gold price up 17.05% over the last six months to $1 259 per ounce, there’s little reason to shut down operations.

Gold Fields also entered an agreement with the Ghanaian government in March, which, among other things, allows for a reduction in the corporate tax rate to 32.5% from 35% previously, effective from March 17, and a change in the royalty rate from a flat 5% of revenue to a sliding scale royalty based on the gold price.

The terms of the agreement are effective for nine years at Damang, and 11 years at the nearby Tarkwa mine.

Gold Fields spokesperson Sven Lunsche says that with that agreement, and the fact that there is a really good core of high grade material underneath the original Damang pit – two million or three million ounces of high grade ores – puts the company in a very good position to go ahead with the expansion.

The final decision on whether to give the go-ahead will be made by month-end.

That said, there are still risks to operating in that region that will weigh into the final decision.

“The recent invasion of AngloGold Ashanti’s Obuasi mine in central Ghana – andllegal mining is becoming an increasing threat to gold miners there.

“Government seemingly does not have the resources – or the willingness – to intervene meaningfully so the threat is increasing exponentially. Indeed there are allegations that local political heavyweights are backers and beneficiaries of illegal mining.”

Although illegal mining is currently taking place on the company’s concession, such activities are not taking place at the company’s working mining area and do not interfere with its mining activities. But Lunsche says Gold Fields believes that it can avoid violent confrontations with illegal miners through ongoing engagement.

“Gold Fields plans to manage illegal mining on its concession through active, respectful and transparent engagement with all relevant stakeholders, including the illegal miners, traditional leaders, local authorities and the national security apparatus,” he says.

Speaking generally about other challenges for operating in West Africa, Lunsche believes increasing pressure from civil society, who demand more benefits from the mining sector to compensate for the damage done to the environment, can be problematic. This is despite Gold Fields having paid more than $87 million in dividends, $54 million in corporate taxes and $439 million in royalties to the Ghanian government over the past decade

That’s a total of $810 million, or R8.6 billion according to today’s dollar-rand exchange rate (1$ = R14.87).

The energy supply problem also remains an issue. In 2015 alone Gold Fields’ Ghana operation had their state supply cut to around two-thirds of required capacity with the remainder having been supplied through the use of expensive diesel generators

Because companies have been required to investigate alternative energy sources, Gold Fields Ghana has had to secure a power purchase agreement with an independent power producer using gas as the primary energy source. This is expected to be commissioned later this year.

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