Business News of 2014-02-10

Obuasi Mine considers two-year mine closure

AngloGold Ashanti, the third-largest gold producer, is considering closing its Obuasi gold mine in the country for two years to upgrade the site.

The Obuasi Mine has been struggling with overage equipment, poor security, inadequate power supply, and the activities of illegal miners.

The mine also needs massive capital injection to renew its antiquated infrastructure, improve underground transport and sharpen the skills of its employee.

Once the biggest gold mine in the country and the leading employer in the industry -- with about 8,500 workers -- Obuasi Mine has in recent years become a high-cost producer and not produced above 400,000 ounces since 2004. It has over 20 years of mine-life with 9 million ounces of gold reserves.

Already, with the persistent drops in gold price, mining companies are struggling to keep the cap on rising cost of operations.

The metal lost 25 percent of its value last year, and this came on the back of an increase in the mining sector’s corporate tax rate from 25 percent to 35 percent.

The company has been in talks with government about issues focusing on the redundancy strategy, stability agreement, high tax regime and poor power supply among others -- as well as on the future and survival of the mine.

Alhaji Inusah Fuseini, Minister for lands and Natural Resources, confirming the temporal closure of the mine said: “AngloGold Ashanti thinks Obuasi has huge potential, and will only realise this potential if it is taken through this major transformation.

“They have a strategy to close down the mine for between 18 and 24 months,” Fuseini said.

“We need to see how we can mitigate the impact of the closure on the workers and on the community.”

The local area’s economy depends on the mine, which employs about 4,800 workers, said the minister. The plan is not final, he said.

Approximately 430 miners at the mine lost their jobs last year as part of the mine’s broader revival strategy. The cost of mining gold from Obuasi exceeds bullion prices, making the operation unprofitable.

The weakening market for gold forced the company to withhold its dividend in August and cut costs.

AngloGold said last year it cost US$1,560 an ounce to produce gold from the mine in the second quarter. That is 23 percent higher than the current price of bullion.