Business News of 2014-06-01

Miners cancel new projects - Gold Fields

Alfred Baku, Executive Vice President of Gold Fields West Africa Operations, says mining investments are under threat as miners are cancelling new projects and closing mines due to pressure from price-dips, cost increases and higher taxes.

Equity investors have become frustrated as miners have spent their money with little to show for it: “Returns just do not warrant the risk. In reality, margins and returns from mining are in decline; operating cash flows are not sufficient to cover investments”.

Bullion has dropped 25 percent since the beginning of 2013, including a 2.7 percent drop last week to US$1,257 an ounce.

Mr. Baku was speaking under the topic ‘Resource Nationalism’ at the West Africa Mining and Power Conference and Exhibition 2014, which brought together investors, policymakers, natural resources experts, civil society organisations, think-tanks, government officials, members of parliament, and representatives of regulatory bodies as well as opinion leaders from host resource-rich communities.

Resource Nationalism is when countries make efforts to extract maximum value and developmental impact for their people from their finite natural resources.

He observed that countries like Chile, Peru, Botswana and Zambia are making strides in addressing resource nationalism, and have put in place strategies, programmes and measures to remodel their fiscal margins.

“Protecting investor rights will help countries make the most of their resources,” he said; “equity investors are frustrated,” he added.

The world’s biggest mining companies are cutting costs, selling assets and scrapping expansion plans to counter lower prices.

Mr. Baku explained that government needs to create a climate conducive to responsible investment and provide policy certainty whereby it will stick to the rules.

“Government must seek collaborative partnerships with miners who are better able to operate and develop ore bodies, and who are good social partners.”

He urged government to create a climate conducive to responsible investment that provides policy certainty; develop infrastructure and the broader economy; partner to manage input costs; and help miners to procure locally.

He appealed to government to cut down on the country’s taxes regime to ensure a favourable mining investment destination.

“We are appealing to government to come to our aid and loosen the fiscal regime, because the current gold price doesn’t help us at all. We are really in a difficult situation,” he said.

Gold Fields’s all-in cost of production in Ghana is US$1,200 an ounce, Baku said.

A study of 40 top mining companies in 2012 indicated that they were operating at a loss due to the general economic hardship -- with some closing down and making people lose their jobs, whereas everybody’s focus is on the resources in the sector.