Ghana’s mining industry has seen a great deal of success, but the competitiveness of the region’s leading gold producer may wane as juniors pursue less-explored terrain in countries with greater incentives to invest in greenfield projects.

BY Catherine Howe, Carl-Johan Karlsson

Ghana: Breathing Life into a Maturing Sector

October 17, 2018

Ghana is king when it comes to West Africa’s gold mining industry – second only to South Africa in terms of gold production on the continent, and many companies have found great success in the country’s share of the Birimian Greenstone Belts. As the mining industry has matured, the landscape has become dominated by large players such as Gold Fields, Newmont, Kinross and AngloGold Ashanti.

Gold Fields, which has seven operating mines in Australia, Ghana, Peru and South Africa, entered Ghana 25 years ago. As a result of a number of acquisitions over the years, the company holds a 90% attributable portion of the Mineral Resources and Mineral Reserves for Tarkwa and Damang, with the remaining 10% held by the Ghanaian Government as a free-carried interest. In 2018, Gold Fields bought a 50% stake in Asanko Gold Ghana, further cementing its strong hold on the country’s gold resources. Total attributable annual gold-equivalent production for the company is approximately 2.2 million ounces.

Measured by production, AngloGold Ashanti is the third-largest gold mining company in the world, with 14 mines and 3 exploration projects across Africa, Australasia and the Americas. AngloGold Ashanti has two wholly-owned and managed operations in Ghana’s Ashanti and Western Regions. In the latter, the Iduapriem mine is an open-pit mine with a CIP plant and gravity circuit. Located in the Ashanti region, the Obuasi gold mine has been primarily an underground operation and has been on care and maintenance. However, the first gold pour from the redeveloped mine is expected in the third quarter of 2019.

Kinross’s Chirano mine, approximately 100km southwest of Kumasi in the Western Region of Ghana, made the transition to a pure underground mine in 2017 and produced 246,027 Au eq. oz. that year. Meanwhile, Newmont’s Ahafo operation commenced commercial production in 2006, with Akyem following suit seven years later.

These mine owners and operators are now focused on reducing footprints or moving into underground or throughput operations, with a greater emphasis on recovery and brownfield exploration to extend mine life. “Most of the work in Ghana is brownfield exploration, around the 800m to 1000m mark,” commented Jon Madigan, West Africa division manager at Boart Longyear. “There is some exciting work coming up in deeper directional drilling to hit tighter targets. We will see the construction of shaft mines rather than open pits. Our biggest focus at the moment is building our directional drilling experience and showcasing ourselves as a company with capabilities in deep-hole and directional drilling. We are also looking to expand our RC offering in Ghana since demand is increasing again after a slow period.”

As companies move underground and pursue lower grades, cost efficiency becomes increasingly important. To cater to this need, Boart Longyear is using a “mother and daughter” approach in its directional drilling; drilling a mother hole and branching off at 500m so the top 500m to 600m of drilling can be saved.

In gold, it is primarily the larger companies that are driving exploration and there is relatively little greenfield exploration underway. Rather than capturing business with new market entrants, the opportunities for service providers in Ghana are more aligned with the changing requirements of existing players as they seek to extend mine life and expand operations. “In Ghana, most of the mines have gone into underground operations to find high-grade ore which requires complex and sophisticated mining methods unlike countries like Burkina Faso, which has untapped resources and does not need such complex equipment to extract minerals yet,” said Enoch Kusi-Yeboah, general manager at Metso Minerals Ghana. “Business is always dynamic, and the mining industry of five to seven years ago has metamorphosed into something very different; customer demands are mostly linked to resource prices. The development of new technologies and it’s implementation options are dependent on the economic viability – good return on investment depends on finding the right tools for the task at hand.”

While investors are certainly drawn to countries with proven geological potential, exploited land also means waning attractiveness as the potential for big discoveries is reduced. While Ghana has proven itself to be a strong mining jurisdiction with a relatively stable political and security environment, the geological risk has increased. Many investors are looking instead to less explored countries.

Nevertheless, the rebound in global commodity prices has restored some investor confidence and there are several instances of both new and old explorers striking gold in Ghana’s southern region and also in the less explored north where new gold as well as lithium deposits have been discovered. “Not surprisingly, our mining sector has contributed strongly to Ghana’s overall provisional growth in GDP with the mining-quarrying sub-sector recording the highest year-on-year quarterly GDP growth rate in the Q1 2018 this year,” said Hon. Barbara Oteng-Gyasi, Ghana’s Deputy Minister for Lands and Natural Resources, during the 2018 Africa Down Under mining conference in Perth. However, increased production in oil, gas and agriculture is progressively overhauling mining as the pillar of Ghana’s economic development strategy – allowing the government to put tighter restrictions on mining companies – and Ghana faces stiff competition from younger West-African players like Côte d'Ivoire, Burkina Faso and Mali. As follows, the long-term competitiveness of Ghana’s mining industry will rely heavily on continued uptake in exploration activity.

Emblematic of the mining sector’s convalescence is the recent success of Azumah Resources, which received exploration results from the Kunche deposit at its Wa gold project in northern Ghana in May this year. One drill hole returned impressive intercepts at the 1.5km strike orebody comprising an interval of 44m at 5.37g/mt gold from 99m. This includes two high-grade zones of 1m at 144g/mt gold and 20m at 10.27g/mt gold. Further breakthroughs followed as Azumah’s joint venture partner Ibaera Capital provided ‘proof of concept’ of a possible feeder zone that could lead to a deepening of the existing shallow pit design and for an underground mining option to be scoped.

“Ultimately, Dr. Jon Hronsky and the Ibaera team were successful in confirming exactly what we all had hoped for – that our deposits, particularly our main deposit at Kunche, have a strong depth component. These results have really proved a ‘game-changer’ for the Wa gold project,” stated managing director Steven Stone, who will provide an Ore Reserve and Interim Project Update by the end of 2018 with a development decision scheduled for Q3 2019, after the release of a full feasibility study.

New explorers are increasingly heading northward as old players enjoy continued success in the region, and recent findings indicate the possibility of a whole new gold mining district in the country. Cardinal Resources – celebrating its 30th anniversary operating in the region this year – will be publishing PFS for its flagship Damdini project located in upper east region of north Ghana by Q3, 2018. The company has also struck gold at Ndongo, just 20km away from Namdini. The highest grading of 59.2 g/mt gold was within a 9-meter intersection of 23.3 g/mt from 60m.

In addition to its auspicious greenfields, the northern regions of Ghana are conducive to sustainable energy generation – making it a convenient area for companies exploring the potential for renewable power facilities. “We have incorporated solar into our project because it is well suited; the northern regions of Ghana have on average more sunlight than the south,” commented Cardinal’s CEO Archie Koimtsidis. “In finding a partner to develop our solar capacity, the question is around who we will partner up with and making sure the deal benefits both parties in the long run.”

While gold persists as the centerpiece of Ghana’s mining space, the government has made efforts to diversify its portfolio to undermine over-dependency on a single commodity. “At the moment, about 97% of mineral extraction is gold, so there is vast opportunity to diversify the country’s mineral basket,” highlighted Sulemanu Koney, president at Ghana’s Chamber of Mines.

Other historical metals in Ghana include bauxite, diamonds and manganese; the government’s move towards diversifications will broaden the focus to include base and clay metals, granites, solar salt and, most recently, lithium. The country joined the world’s producers of lithium after an agreement with IronRidge Resources to carry on with exploration in Ghana’s southern region. Recent drill results show intersections over 100 meters ranging from 1.2% to 1.35% oxide. The company has also rediscovered an historical lithium resource, Egyasimanku Hill, which was drilled up in the 1970s. “We believe this will be a world-class project partly due to its proximity to infrastructure,” said CEO Vincent Mascolo. “Our site is 90km from the capital of Accra, less than a 100km from the port of Takoradi and we have sealed roads to 1km of the site.”

As the government continues to carry out nationwide mineral exploration exercises, lithium deposits have so far been discovered in the Volta, Western and Ashanti region of Ghana. Ramped up exploration is part of a broader government initiative to attract more investors, which most importantly includes the introduction of new and more beneficial legislation for areas like licensing, support services and health and safety.

 

Removing barriers

While success stories continue to be woven, several juniors are facing challenges due to a lack of exploration incentives. The mining code has been written and shaped with the large companies that have long been the stalwarts of the sector in mind. This is underlined by the provision in the mining code that companies investing over US$500 million have negotiation rights over taxes and royalties, whilst companies with smaller investments do not. “In Ghana’s Mining Code, Act 703 dictates that terms are frozen for 15 years within a stability agreement, but a company investing a minimum of US$500 million has the opportunity to negotiate benefits above what is currently outlined,” noted Koney. “The large companies therefore have an upper hand and the smaller companies and juniors are at a disadvantage. Equally, the government should remove the VAT on exploration and other services, such as drilling and laboratory services.”

As with any mining code, a balance is crucial but not always easily achieved. “The Government is generally in a relatively weak negotiating position compared to companies,” commented George Kwatia, Ghana and West Africa mining leader at PwC. “Equally, since Ghana does not have sunset clauses in its agreements with mining companies, it becomes very difficult to get the company reviewed. There are companies in Ghana with warranties dating back to the 1940s – even if the companies themselves have moved on, the warranty is linked to the concession even after the assets are sold. Therefore, there are still companies relying on agreements that have been signed 60 years ago with no clause for termination. Ghana’s government wants to move forward from old regulations and previous mistakes, but the mining companies are not making it easy as they want the best for themselves. It has become a challenge for the government to shift to a place where mining regulations are mutually beneficial for both the country and the mining industry. This results in a reluctance from the government to enter into new agreements that favor the investor.”

While there is certainly work to be done to capture more investment into greenfield exploration, Ghana holds many advantages having enjoyed a peaceful transition of power during its last election, and continuing to uphold its reputation as one of Africa’s stable democracies. In addition, Ghana’s well-established mining tradition presents a clear advantage over adolescent competitors that often lack in both overarching industrial framework as well as in-country competence. “There are several educational institutions generating very skilled Ghanaian professionals, including mining staff,” noted Jeff Quartermaine, CEO of Perseus Mining. The company has one of the biggest gold mines in the country, with 650km² of tenements centered on the Ashanti Gold Belt some 25km to 65km from the 60-million-ounce Obuasi gold deposit.

 

Local Engagement and Development

Although the maturity of Ghana’s mining sector would imply a more tested and therefore more efficient process for local development, there are still a number of challenges to iron out. There has been a recent effort to increase reinvestment into local communities, with an additional 4% of investment by government on top of the 4.95% of company revenue.

Perhaps most importantly, the royalty distribution was in need of attention to avoid the scenario of taxes paid by mining companies for the purpose of local development not properly trickling down to the mining region. “Until recently, only 4.9% of royalties paid by mining companies were reinvested locally around the site of operation,” emphasized Koney. “Through advocacy, we secured the Mining Development Fund Act in 2016, which outlines a clear governance framework around the management of fund distribution from royalties. It has a national architecture coupled with a local committee, and dictates that funds will be used ultimately for the development of the host community under the label of the New Development Fund (NDF). The national board will act in line with the local communities to oversee distribution of funds.”

The preferred approach of the Chamber of Mines would be for the two investments to be added together and distributed by one development committee. This would enforce accountability and ensure the funds are being used judiciously.

 

Local Content: Adding Value

Due to Ghana’s position as a hub for mining activity in West Africa, the country is an obvious candidate to lead the way in development of local capabilities to serve the rest of the region. Many local companies that have grown with the industry and raised themselves up to international standards are now competitive service suppliers within the region. Operating from a more local base gives an immediate advantage, particularly when it comes to holding stock or enabling greater reactivity.

As well as providing a more local service to neighboring countries, the potential for greater in-country value addition is also huge. Due to Ghana’s geographic position and solid service foundation, there is a large opportunity to develop downstream activity to benefit the entire region. For example, Ghana’s Precious Minerals Marketing Corporation (PMMC), which assesses the grades and grants certificates for all gold leaving the country, plans to build a refinery at its site in Accra.

One challenge that still lies ahead of the Ghanaian government is the taming of unruly mining territory. Illegal mining has taken a considerable environmental, human and economic toll on the country over the last years, robbing the economy of US$2.3bn in 2016. According to the government, artisanal gold production sits at about 30% of total volumes. If the issue persists, it could constitute a deterrent to investors as other options emerge in the region. Illegal mining, or galamsey, is likely to persevere as an issue for the foreseeable future, especially following the government’s recent decision to lift a ban on small-scale mining. The ban was instated in 2017 and, in the ensuing period up to early 2018, the illegal-mining task force carried out some 1,200 arrests. However, following persistent pressure from legitimate small-scale miners, in May 2018 the government announced its plans on lifting the ban. The Ghana National Association of Small Scale Miners had also repeatedly called on government to reconsider the ban, pointing to the US$551m of lost profit during the period of interrupted operations. In recent years, galamsey has transformed from an artisanal, rudimentary way of putting food on the table, to operations with capital machinery incorporating businessmen, associations, and politicians. The lifting of the ban is likely to hamper efforts to sufficiently delineate illegal mining and practitioners will be able to take advantage of the blurred line between illicit and legitimate artisanal mining to avoid prosecution.

With an estimated 200,000 illegal miners operating in Ghana, there is also great potential for ethnic tensions between the Chinese workers in Ghana and the local population, between law enforcement and local communities and between farmers and artisanal miners. In the absence of a robust framework surrounding illegal mining, farmers will continue to fall prey to galamsey which, by extension, will pose a serious threat to Ghana’s food security. Mining companies that have paid for large concessions are also affected by illegal miners encroaching on their territories.

If properly regulated and developed, however, this market segment does present opportunities for local development and economic growth. With the right support, some small-scale miners may even grow to fill the gap in the mid-scale juniors space.

As one of the region’s more mature mining jurisdictions, Ghana is a country from which others can learn as they gain momentum. Ghana’s mining industry has seen a great deal of success, but the competitiveness of the region’s leading gold producer may wane as juniors pursue less-explored terrain in countries with greater incentives to invest in greenfield projects. Rather than placing an emphasis on attracting a continuous flow of new investment, Ghana has instead adapted its operating environment according to the producers providing greatest economic benefit in the present. However, with a renewed emphasis on diversification of Ghana’s resource exploitation and some promising projects in the pipeline, the mining sector will continue to be key in the country’s economic development, and investors will find peace of mind in its longstanding stability and proven track record of successful projects.

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