Troubled AngloGold To Sell Obuasi Mine

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By Kojo KK Mensah

There are strong indications that Ghana’s oldest and flagship gold mine, Obuasi Mines, owned by multinational miner, AngloGold, may be sold to either of two foreign mining giants.

Deep throat sources in the Obuasi Mine, who confirmed this to us, gave reasons why this has become inevitable.

The sources, however, discounted the present low price of gold on the international market as a reason, ‘The Obuasi Mine has a legion of problems which demand the infusion of huge capital to bring it back to profitability which it enjoyed in the past,” said one of our sources, a mining engineer very conversant with the operations of the ageing mine.

Another source, a mining engineer with deep knowledge of the Obuasi Mine’s operations told us two multinational miners, Barrick Resources of Canada and the Australian giant BHP Billiton, are each in deep negotiations with AngloGold’s South African owners, over buying the troubled mine.

According to our engineer source, the problems facing Obuasi Mine can be gleaned from a statement recently made by the chief executive, Srinivasan Venkatakrishnan, when he confirmed that “We are looking across the business at reducing costs and improving productivity by investing capital in the new ramp access.”

The mine’s biggest expenses are payroll and electricity, Venkatakrishnan said, adding, the company wants to eliminate wasteful expenditures and is, therefore, also embarking on workers layoff.

The biggest problem it, however, faces is the depleting quality of the mined ore from its deep underground resources which though is above grade six involves higher production cost and less profitability in processing.

“What this means, in the layman’s terms, is like farming on a particular plot of land for a long time … ultimately the quality of the soil is degraded and harvest is poor.

The farmer has only two options: add more manure or fertilizer to the soil which increases the cost of the produce or abandon the farm and look for virgin land to cultivate, which also involves a high cost outlay,” the engineer explained.

In Obuasi’s case, the quality of the ore has degraded and exploration results have indicated that there is a richer vein of ore on the next level, which is about a mile below waiting to be explored. But that will mean a huge infusion of capital which AngloGold may not be in a position to provide now. The only solution is for AngloGold to sell the Obuasi operations to those with the necessary deep pocket to continue or for the current owners to abandon the mine altogether with its social and financial implications.

Currently, the company is mining at Level 52, which is over five thousand feet underground. To reach a new vein of gold, the owners will have to sink a new shaft and go about 700 feet deeper with all the necessary and attendant ventilation shafts and safety measures, which our mining engineering source said is in the multiples of millions of dollars.

“Construction of the shaft, will be an extra expense for AngloGold, because it meant hiring of specialists for a long period, until it is finished for the first rock to be blasted, making profit from this venture will not be in the short term, because drilling the shaft will not be a one day job. Even the ramping exercise will have to be extended to the new level,” he explained,

The two mining giants, knowing these of Obuasi have, therefore, opened talks with the AngloGold about the possible takeover, though official sources will not comment on this development.

But the directors too are making frantic efforts to improve profitability through the infusion of capital to improve the mechanization of the mine and stave off the evil day.

AngloGold will, therefore, spend between $30m to $40m this year on a long-term ramping plan to improve access to the ageing mine’s deep underground resources in a bid to raise production volumes and lower costs.

“Our ramping access plan is currently hitting its milestones and will be managed very closely. Essentially it must keep hitting these milestones in order to retain its ongoing access to capital from the group,” the company’s senior vice-president for investor relations Stewart Bailey said.

“We are looking across the business at reducing costs and improving productivity by investing capital in the new ramp access,” Venkatakrishnan said, admitting that the mine’s biggest expenses are payroll and electricity, hence the resort to the drastic cost cutting measures, which includes worker lay-offs.

Obuasi Mine which started operations more than a century in Ghana and was once listed on the London Stock Exchange and served as the beacon that attracted other mining companies into Ghana, has in recent times faced dwindling fortunes.

The District Chief Executive (DCE) for the area, was in the recent past reported in the media to have organized a prayer session at the mine site to avert the imminent collapse, which will lead to massive job losses and closure of allied economic activities in the municipality and its environs which he presides over.

Venkatakrishnan said, Obuasi produced 58,000oz during the second quarter of this year at a total cash cost of $1,560oz though it produced 357,000oz at $633 per ounce in 2008 and 280,000oz at a total cash cost of $1,187 per ounce in 2012.

The company has a long-term mechanisation plan that will lead to layoffs but no fixed number has been settled on, said Bailey.
Senior union official of the Ghana Mineworkers’ Union, Eric Gyima said, AngloGold Ashanti notified it of 450 coming job losses, out of a total workforce of more than 5,000 people.

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