Higher commodity prices, growing global demand and government policy push up Ghana's mining production figures

Rising commodity prices and the promise of vast untapped reserves have led to increased interest in Ghana’s mining sector. As production continues along an upward trajectory, government policy aims to leverage the country’s mineral wealth by building up its refining capacity, introducing new legal frameworks, and attracting private sector partners to support the development of infrastructure and local industry.

Structure & Oversight

Gold production remains the core of Ghana’s mining and quarrying activities, with over 90% of sector revenue generated by gold mining activities. The country also produces commercial quantities of the minerals manganese, diamonds, bauxite and iron ore. The sector is divided into large-scale mining, which has attracted global mining majors and minors alike, and small-scale mining activities reserved for local companies and communities. Illegal mining, or galamsey, remains an issue in the country, although recent efforts have seen the government push to incorporate such activities under small-scale regulations.

Ghana’s mining sector is overseen by the Ministry of Lands and Natural Resources (MLNR) as well as key support agencies and institutions. The Minerals Commission is the primary regulatory and promotional body. It coordinates and implements policies related to mining, monitors mining operations and advises the MLNR on matters related to mineral production.

The purchase and marketing of diamonds and gold are the remit of the Precious Minerals Marketing Company (PMMC), which serves as the national assayer for all gold and precious mineral exports. To stimulate local industry, in 2019 the PMMC confirmed the state’s intention to retain 30% of mined gold ore for local refining. Although the law has yet to be implemented, the legislation is in line with the broader goal of establishing Ghana’s first state-owned gold refinery, which is set to open in 2020 (see analysis).

Performance

Mining and quarrying was the fourth-largest economic activity in Ghana in 2018. That year the sector contributed 9.8% to GDP, up from 7.3% in 2017. This is in line with a steady expansion of GDP in constant prices for mining and quarrying, up from GHS15.4bn ($3bn) in 2016 to GHS20.1bn ($3.9bn) in 2017 and GHS24.8bn ($4.8bn) in 2018, according to the Ghana Statistical Service (GSS). In the first three quarters of 2019 mining and quarrying contributed GHS21.6bn ($4.2bn) to GDP, a 13.3% year-on-year increase on GHS18.9bn ($3.7bn) for the same period in 2018. The rebasing of national accounts, which saw the reference year adjusted from 2006 to 2013 as well as the inclusion of some mining support services under mining and quarrying activities, resulted in an uptick in GDP growth figures; however, even with the adjustment, higher global demand and elevated gold and mineral prices have driven performance. The positive performance of the mining industry has remained steady, demonstrated by a compounded annual growth rate of 10.2% between 2014 and 2018.

GSS figures show that annual growth of the mining industry moderated from 30.8% in 2017 to 23.3% in 2018. Despite the slowdown, mining and quarrying was Ghana’s fastest-growing sector in 2018, outstripping broader GDP growth of 5.6%. To compare, figures for agriculture, manufacturing, and trade and services were recorded at 4.8%, 4.1% and 2.9%, respectively.

Fiscal Contribution

According to the Ghana Revenue Authority, the mining sector comprised 14% of direct domestic revenue in 2018. Under the current regulations, the government holds a 10% carried interest in all mining companies, generating dividends for the state in addition to a mineral royalties. Total revenue from the mining sector was recorded at some GHS2.36bn ($457.1m) in 2018, up 9.3% from GHS2.16bn ($418.4m) in 2017. Income tax receipts and royalties from mining operations came in at GHS1.2bn ($232.4m) and GHS705m ($136.6m), respectively. According to the Ghana Chamber of Mines, corporate income tax from mining increased by 23.7% in 2018, due in part to a shift from loss- to profit-making operations at Adamus Resources, which operates the Nzema Gold Mine in the Western Region.

Production

Ghana is among the world’s top-10 gold producers, having generated 3% of global production in 2018. That same year the country overtook South Africa as the continent’s largest gold producer. Domestically, gold production was up 11.9% from approximately 4.29m oz in 2017 to 4.79m oz in 2018, driven by a 34.4% increase in output at small-scale mines. Production of small-scale mines increased from 1.48m oz to 1.99m oz in 2018, measured as total gold assayed by the PMMC for small-scale gold exporters. During this period, large-scale mining output remained steady, dipping marginally from 2.808m oz to 2.807m oz.

Exports

The total value of gold ore exports grew from $5.9bn in 2017 to $6.1bn in 2018, accounting for 36% of the country’s total export revenue. Meanwhile, on the back of higher global demand and increased production, exports of manganese rose by 52%, from 3m tonnes to 4.5m tonnes over the same period. As a result, the value of manganese shipments was up 79.8%, from $165m in 2017 to $297m in 2018.

Despite an increase in activity around bauxite and aluminium production, exports of aluminium ore fell by 31% in 2018, from 1.47m tonnes to 1.01m tonnes. However, as a result of higher global aluminium prices, the segment’s export revenue more than doubled from $20m in 2017 to $53m in 2018. China and India accounted for the lion’s share of aluminium exports, purchasing $33m and $10m from Ghana, respectively.

Diamond shipments fell by 33.8% from 86,925 carats exported in 2017 to 57,531 carats in 2018. By value, diamond exports have failed to rebound since 2016, when diamond shipments totalled $4m. Exports by value were recorded at $3m in 2017 and $2m in 2018.

Small-Scale Mining

Small-scale gold mining plays a significant role in Ghana, contributing two-thirds of the country’s output in 2016. Such activities are regulated by the Small-Scale Mining Law of 1989. However, a surge in illegal operations has led to significant environmental degradation, forest destruction and water contamination, causing the government to ban smaller operations in 2017 and throughout most of 2018. The ban provided a window to ensure that all small-scale and artisanal miners were accredited and registered with the government to prevent illegal exports. Notwithstanding the ban, however, output from small-scale was up by 34.4% in 2018, driving overall gold production despite stagnant growth from larger producers.

To prevent further environmental harm, members of the Ghana National Association of Small-Scale Miners were invited to attend seminars on sustainable mining. Meanwhile, the Ministerial Small Scale Office set up a training facility at the University of Mines and Technology in Tarkwa in August 2019 to promote sustainable mining practices. The programme targeted 1000 miners and was supported by a GHS500,000 ($96,900) public grant. In addition, a 62-member task force was set up in March 2019 to support Operation Vanguard, aimed at protecting the mineral-rich Birim River in the Eastern Region from illegal mining activities. The operation will also ensure that the river recovers from damage inflicted by past mining activities.

Following the repeal of the ban in December 2018, an Inter-Ministerial Committee on Illegal Mining (IMCIM) began implementing a Community Mining Programme in 2019 to help create employment opportunities for residents in mining communities. The measure is supported by a World Bank grant and loan package totalling $19.4m, to be allocated for reclaiming areas destroyed by illegal activities and supporting artisanal mining.

Bauxite

In 2017 the government signed a memorandum of understanding with China to construct critical infrastructure to support the mining industry in exchange for the proceeds of refined bauxite. In July 2018 Ghana’s Parliament approved a Master Project Support Agreement (MPSA) with Chinese state-owned Sinohydro to construct $2bn in infrastructure projects that include roads, bridges, hospitals and housing. The following November the Parliament approved 10 projects worth $646m as part of the first phase of the MPSA. This included a project dedicated to refurbishing 68 km of feeder roads to the bauxite-rich Ashanti and Western Regions. Under the agreement, Sinohydro will be reimbursed for the construction by way of deferred payments made by the newly established Ghana Integrated Aluminium Development Corporation (GIADC), a special purpose vehicle responsible for developing and managing local bauxite reserves. Ghana will be afforded a three-year grace period to service its financial obligations. In an effort to build up its capability within the time frame required, the government announced in 2018 that the country would partner with private players to develop a refinery by 2021. In early 2019 the GIADC invited investors to provide proposals to tap Ghana’s bauxite reserves which, according to government estimates, could produce $460bn in export revenue if refined. Three rounds of bids were planned, with the first closed in May 2019. Upon conclusion of the third bidding round, the country aims to raise annual output of bauxite from 1.4m tonnes to 5m tonnes.

Ghana holds an estimated bauxite reserve base of at least 554m tonnes, including deposits located in the Awaso, Nyinahin, Ejuamena and Kyebi Regions. Current production is centred around the Ghana Bauxite Company (GBC), in which private Chinese company Bosai Group is an 80% shareholder. GBC’s mine in Awaso was the country’s only bauxite-producing operation as of end-2019 and was responsible for the export of 772,000 tonnes of product to China in 2017.

Localisation of Downstream Activities

On the back of government plans to partner with the private sector, the Bosai Group entered into talks with the government to invest some $1.2bn in a Bauxite refinery. The facility is expected generate around 1000 job opportunities, help establish an integrated aluminium industry. As part of government plans to tap into unexploited mineral commodities, in March 2019 the Iron and Steel Development Authority Bill was presented to the Parliament to establish the Ghana Iron and Steel Development Authority (GISDA). Once enacted into law, the GISDA will have a mandate to develop and promote an integrated iron and steel industry, to be supported by regulations aimed at attracting investment in extraction and refining. However, in May 2019 the Parliament’s Select Committee on Mines and Energy was tasked with reviewing the bill to ensure its mandate does not conflict with that of the Minerals Commission. “Local content regulations are being reviewed, and in the process government must engage with the industry proactively,” Eric Asubonteng, general manager of AngloGold Ashanti, told OBG. “It is important to ensure that regulation also provides for a developed manufacturing base in-country.”

Manganese

The manganese sector underwent a tumultuous period in 2019, which culminated in a ban on operations at the Ghana Manganese Company (GMC) in August 2019. GMC, which holds a monopoly over manganese production in the country, was temporarily shut down following the conclusion of a technical and financial audit initiated by the MLNR. The audit found that the company had failed to pay over $97m in dividends, royalties and corporate taxes that were due to the government between 2010 and 2017. A further $259m in state revenue residing offshore was also reportedly withheld. In addition to tax issues, the audit highlighted the need for mining firms to ensure the provision and maintenance of critical infrastructure necessary to sustain operations. Value addition through the establishment of a local smelter was also noted as an essential goal for the manganese sector.

Outlook

Mining has grown steadily over the past years, driven by stable commodity prices and increased global demand. As output improves, the government looks set to continue attracting private sector partners to build refining capacity for the country’s large bauxite and gold reserves. New legal frameworks and institutions have been set in motion to support the sector and tighter government regulations are boosting revenue. Such initiatives are creating an attractive investment environment, promoting long-term growth and supporting the establishment of value-added industries.