Energy Crisis Devastates Mining Sector

THE PRESIDENT of the Ghana Chamber of Mines, Mr. Jurgen Eijgendaal has bemoaned the effect of the nation's energy crisis on the mining industry, describing it as very devastating.

According to him, mining is an energy intensive economic activity and as such obtaining full energy requirements at competitive rates was vital for the containment of the sector's overall production costs.

He said mining companies are compelled to run standby generators for prolonged periods to cover the shortfall from the national grid, saying, "With the high price of diesel, some mining companies spent an average of about $2 million per month to generate additional power."

He stated that those who did not have adequate self-generating capacity had to resort to batch processing to meet the 25% cut in power consumption as required by government.

Mr. Eijgendaal made this known at the Chamber's annual general meeting in Accra on Friday where he reiterated, "the implications were quite dire for both companies and government."

He lamented that, "this unplanned and increased cost adversely affected the profitability of the mining companies and reduced the corporate tax they expected to pay to government."

According to him, though Ghana's rank on the log of gold producing countries by volume improved from 11th in 2005 to 10th in 2006 and also retained her second position in Africa after South Africa, Africa's highest gold producer, "the output performance of the industry was generally mixed."

Gold output of 2,244,680 ounces went up 10.62% over that of the previous year and was attributed to the fresh output from the Newmont Ahafo Mine and a full year's production from Chirano Mine that commenced production in the third quarter of 2006 and fourth quarter of 2005 respectively.

"On the other hand diamond purchases from the small scale mines contracted by 8.67% from 1,062930 in 2005 to 970.751 carats in 2006", Mr. Eijgendaal noted, and added that manganese exports in 2006 was marginally down 2.71% to 1,658,701 tonnes from the 1,712,508 tonnes that was recorded in 2005.

He continued that an increase in bauxite export in the last few year's continued in 2006 with an outturn of 885,770 tonnes representing a 21% rise on the 2005 output of 726,608.

The Chamber's President indicated that in spite of the mixed output performance of the mining industry, total mineral revenue went up from $995,679,975 in 2005 to $1,419,974,200 in 2006 representing an increase of 42.6%, adding, "with the exception of diamonds all other minerals recorded higher revenues compared to 2005."

Further, he pointed out that the ambivalent production in the year under review was compounded by and partly attributable to the power crisis that hit the mining industry and the country at large some ten months ago.

He said while the expected amount of mineral royalties that mining companies projected to pay may not be seriously affected by the power situation; the inability of some mines to produce on a continuous basis reduced their output compared to planned production.

In this regard, he mentioned that actual mineral royalties mining companies paid to government fell short of planned payments.

The mining industry, which spends at least $8.6 million a month to produce electric power to make up for the power shortage has in the short term underwrote the cost of transporting the Volta River Authority's (VRA) rotor from the United Kingdom where it had been sent for repairs to the tune of $504,300.

In the medium term, a consortium of four mining companies namely; Gold Fields Ghana Limited, AngloGold Ashanti, Newmont Ghana Gold Limited and Golden Star Resources has acquired an 80-megawatt power generating plant to meet the 25% shortfall in their power requirements.

This plant would constitute a part of the country's generating capacity since the consortium would pass it on to the VRA after a year's operation at no cost and the excess power from the plant would be added to the national grid.

Looking to the future, Mr. Eijgendaal said "all major companies expect to increase their output in 2007" but stressed "on the other hand production costs are expected to rise mainly on account of the relatively high cost the mining companies incur in generating power."