OBG talks to Peter Anderton, Senior Vice-President, AngloGold Ashanti; and Daniel Owiredu, Senior Vice-President of Operations, Golden Star Resources

Interview: Peter Anderton, Daniel Owiredu

What impact have increasing gold prices had on production plans for Ghana?

PETER ANDERTON: A rise in the price of gold will normally extend the mine life. In effect, what is happening is the higher price is allowing you to exploit the resource to a much greater degree. There are two ways to do it. You can take advantage of very high prices and high grade, or you can be responsible and extend the overall resource.

The high price of gold is directly related to the low dollar, so there is an artificial increase in the price of gold. In this respect gold is still very closely related to currency. There are still people that will invest in the physical metal and not the production companies. As the fluctuations are more severe, the investment will increase. On the other side, demand for gold has expanded significantly. With the growth of the middle class, particularly in China and India, there are huge opportunities.

DANIEL OWIREDU : Rising gold prices have an impact to the extent that there are more people coming to look for gold. Input costs such as labour and energy costs have gone up. If the increase in gold price does not significantly exceed input costs, then the benefit of the price increase is not great. It depends on the ore body, but it does not necessarily mean that you are making a lot more money. People think that when gold prices rise, so do the margins, but there are many changes of the fiscal regime; taxes, royalties, salaries, diesel and power costs have also gone up.

How big of a concern is illegal mining and what could be done to help combat it?

OWIREDU: It is a concern because they are encroaching on legal properties belonging to the mines. Illegal miners are creating an environmental liability by destroying lands and taking money away and not reclaiming it. Some of them are using very bad practices such as cyanide and other chemicals that have a large environmental impact. They are polluting ore bodies and the result is the main mines will be blamed even though they did not cause the problems.

The government has been pushing for registration, so it is easier to regulate the sector. You have many foreigners coming to Ghana to participate in illegal mining, which means the government is losing revenues. They are not paying any taxes. If it were a registered mining company, Ghana would benefit from royalties and taxes. It is also a security risk, the main issue being that too many foreigners are becoming illegally involved in the sector.

ANDERTON: Illegal mining is a problem socially, environmentally and from an immigration standpoint. For the regulators it is a huge issue. Recent figures show that about 28% of gold is produced in a way that causes severe environmental problems. The fatalities that are associated with it are largely unrecorded, but they are significant.

It also causes a flow of a very important resource out of the country without there being any benefit tax-wise. Additionally, there is a sense of lawlessness in those communities where illegal operations are present. This further harms legitimate efforts.

What sort of opportunities are there for the production of deposits outside of gold, diamonds, bauxite and manganese?

ANDERTON: There are significant opportunities in other markets. But contrary to gold, bulk materials require better infrastructure. The roads and railways to the ports must be good, which is the most significant issues here. Availability, reliability and cost of power all continue to be challenges as well.

Ghana is a rapidly expanding economy, and the first thing you see in this situation is stress on the infrastructure in information technology, housing, roads, power and energy. Conditions for investment in lower-value minerals have to be enhanced.

OWIREDU: Promoting other mineable resource options is a very good idea. The government really needs to push these because people often are not aware of the diversity of resources the country has access to. Ghana has a rich variety of minerals that could really be used in its development. This might also take some of the pressure and focus off gold mining. The government needs to champion diversification and invite other companies to come in and take part in mineral exploration.

What sort of scope do you see for increased mineral processing within Ghana, as opposed to exporting the refining work?

OWIREDU: Anything that adds value is positive to the economy. For gold refineries, there are many things that are needed in order to achieve added value. But the volumes needed must be taken into consideration. The licences for refining are currently hard to acquire. Despite those realities, the concepts behind value addition are a good thing.

ANDERTON: There is talk about a gold refinery here in Ghana, but gold refining is not a huge employer or money maker. Our gold is sent to South Africa and is refined to 99.99, which is not a complex process that produces a lot of jobs or opportunities; therefore refining is not something that is going to benefit the country a great deal.

Many years ago when power was cheap and competitive and available, there was an aluminium refinery put in place in Tema. That facility is under a good bit of stress now. The government’s power philosophy is that the cheaper power should go to the communities while the industry pays a thermal price. This, of course, is an additional challenge for any company’s processing plans in the country.

What impact will Ghana’s plans to raise mining royalties have on investor confidence?

ANDERTON: Any change in legislation has an effect, making investors reassess their position. This will affect the traditional financiers and investors to the extent that projects will not proceed or not be able to proceed. A few companies have stability agreements written into their contracts, which map out the royalties, tax, and ownership. Changes to this will certainly have a noticeable effect upon the confidence of investors interested in the country.

OWIREDU: This process is already under way, with government and industry discussions. There obviously needs to be a level playing field. In some instances, some of the mining companies have various concessions, and taxes should reflect that.

If there are opportunities where the government can gain more out of these agreements, they will do so and also work to create amore level and balanced market overall. A number of committees have been set up to sit down with these companies to talk about such possibilities.

How would you rate the overall stability and appeal of the regulatory framework that currently exists within the mining sector?

OWIREDU: Ghana has been a leader in the sub-region in Africa as far as regulation goes. It is time to have a second look at some of the issues that the mining companies are concerned about to see if we can enhance some of the rules.

There is enough regulation on the ground to do what we’re doing, but there obviously still needs to be a balance between promoting investment in the country’s resources and making sure those resources benefit the country’s economy.

ANDERTON: Since Ghana gained its independence in a peaceful way, the transition of government and regulation has grown peacefully over the decades. The mining sector here is well regulated and balanced, which makes it an attractive investment for foreign firms looking to take advantage of its resources. Companies are able to mine, as long as they are sure to follow environmental and social procedures, so Ghana is very attractive compared to other markets.