Gov’ts revenue at stake amidst 7% drop in gold output

There are growing concerns that government’s revenue target could be hard hit as the continuous fall in gold price has pushed down production in Ghana by about seven percent in the first six months of the year.

Official figures from the Minerals Commission indicate that the precious metal, which has in recent times seen a drastic decline in its price, saw a fall in production of seven per cent to 2.054 million ounces; a situation that has prompted some major mining firms to downsize their operations in the country.

The price of gold -- which contributes almost one-third of government’s revenue -- last week dropped to its lowest in four years amid speculation that the US Federal Reserve is considering raising borrowing costs as other central banks add to stimulus, strengthening the dollar.

Since June last year, gold prices have declined by 30 percent on the world market. Last week, gold capped the first back-to-back monthly decline this year after dropping to about US$1,161 an ounce, the lowest price since July 2010.

Regulators of the country’s mining sector, who have observed a rise in the output of other minerals, have attributed the decline in gold production to the continuous price fall.

“The decline in the production performance was largely on the back of the falling gold price despite an impressive performance from diamond and bauxite,” Daniel Krampah, Financial Analyst at the Minerals Commission told B&FT in an interview in Accra.

After two years of soaring gold prices in 2011 and 2012, the price of the metal recorded very low prices -- forcing industry players to re-strategise on possible policy interventions to avert consequent negative impact on the economy.

Mr. Krampah explained that the recent shut-down of AngloGold Ashanti’s operations actually affected the quantities of production expected, with small-scale mining accounting for more than 25 percent of the total gold production.

He noted that effects of the mineral’s decline in output will negatively impact government’s revenue and the economy, since gold is the country’s highest gross foreign exchange earner.

Gold currently contributes 27 percent to government’s revenue as captured by the Domestic Tax Division of the Ghana Revenue Authority.

Forecasts by mining analysts show that gold price will keep on falling and could drop further to about US$1,050 an ounce by year-end and boost demand.

Mr. Daniel Owiredu, a former President of the chamber, opined that the imminent temporary shutdown of AngloGold Ashanti’s Obuasi Mine for rehabilitation significantly blighted the minerals industry’s fortunes in 2014 -- while output at Golden Star’s Wassa Mine is projected to decline to between 130,000 and 140,000 ounces in 2014, due to ongoing rationalisation of production.

The effect of the falling gold price has caused the country to slip to ninth position in leading gold producers in 2013, compared to eighth in 2012.

Mr. Owiredu said the downturn in gold revenue drove a percentage point reduction in the share of gold in total mineral revenue for 2013, from 97.5 percent to 96.3 percent.

Alfred Baku, Executive Vice President of Gold Fields’ West Africa Operations in a recent interview explained that mining investments are under threat as companies 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,” he said.

Meanwhile, diamond production in the first half of this year surged by 115.20 percent to 161,641 carats while bauxite production increased by 2.85 percent -- from 442,990 tonnes in 2013 to 455,675 tonnes in the first six month of 2014.