“After undertaking a due diligence exercises into the mine… Randgold has determined that the development plan will not satisfy its internal investment requirement,’’ the miner said. “Accordingly, Randgold has decided to terminate the investment agreement entered into with AngloGold Ashanti, with immediate effect.” This was the blow a deal which was targeted to mine some 5 million ounces of gold reserves in the Obuasi mines suffered. What are the economic ramifications for Ghana- which has already seen some dwindling revenues from the commodities trade in recent times due to global commodities trade slump? Gold peaked at about $1,900.00 an ounce in 2011 but has since dipped toward $1,000.00, and Randgold believes this is the level at which a project must be capable of generating a 20 percent internal rate of return.
On September 16th, 2015, Randgold Resources Limited with operations in West, Central and Southern Africa entered into a potential joint venture with South African based AngloGold Ashanti to redevelop (reopen and expand) the Obuasi mine. The deal as it stands now has been scrapped due to its inability to pass due diligence exercise. “We spent more time on it than most people would do on a normal M&A. But it got to the point where whichever way we cut the cake, we couldn’t get it to pass our criteria,” remarked Mark Bristow, who’s Randgold’s Chief executive.” He added, “Anglo has never made any money out of this asset.”
The Obuasi mines has been in operation over a century dating back to 1907 and was acquired by AngloGold in 2004- the plan was to focus on underground mining. But it has been posting some losses in recent times which resulted in the mines significantly scaling down operations since 2014.
The mining sector has been an important part of our economy, with gold accounting for over 90% of the sector. Ghana is the second largest gold producer in Africa after South Africa and the 10th largest producer in the world. The sector employs 28,000 people in the large scale mining industry whilst over 1,000,000 people are engaged in the small scale gold, diamonds, sand winning and quarry industries. In 2011, Ghana produced 3.6 million ounces of gold, the highest ever in the history of the country. This resulted in export revenues of over US$5billion. It is significant to note that small scale miners contributed some 28% of the total gold production in 2011. Total Direct Investment (DI) into the minerals and mining sector from 1983 to 2011 amounted to US$ 11.5billion. How will Randgold Resources Limited pulling out of this deal affect the Ghanaian economy?
• Drop in Foreign exchange earnings
The mining sector in Ghana is known to be one of the sectors which contribute immensely to the economic growth of the country. According to records of the ministry in charge of lands and natural resources, mineral exports made up of 41 percent of the country’s total export and averaged 35 percent to the mining sector and considered as one of the largest contributors in 2012.
Ghana has been exporting gold for centuries and this precious metal has been the backbone of the local economy until recent times when global commodities trade suffered a dip.
Obviously these earnings in foreign exchange will dip because AngloGold Ashanti was previously a big contributor to the sector.
The Ghana Chamber of Mines reported that the sector players saw a dip in their mineral revenue from US$4.8billion in 2013 to about US$4billion in 2014. The decline in earnings by the players in the sector will ultimately reflect in the local economy since their contributions in the form of taxes and other payments will also decline.
• Unemployment
One of the daunting challenges facing every government in Ghana and around the world is unemployment. Finding jobs for the teeming masses is a challenge for a developing country like Ghana. The mining sector alone employs 28,000 people in the large scale mining industry. Here you are talking about, the Anglogold Ashanti with mines in Obuasi and some parts in Tarkwa, Newmont with mines Ahafo Ano in the Brong Ahafo region, Goldfields Ghana with mining operations in Tarkwa, Prestea, Bogoso and surrounding towns in the Western region, Chirano mines among others.
Obviously the Randgold-Anglogold Ashanti deal not going through will have big blow on the mining industry in terms of employment here in Ghana. The people who would have gained employment should there have been a successful deal and consequent expansion of the mine operations have lost out. Also, AngloGold Ashanti scaled down operation last year as part of cost-saving move and a measure to make the mine in Obuasi very profitable. 4,300 workers were laid-off as a result. These numbers add up to the already growing numbers of unemployment in the country.
AngloGold Ashanti Iduapriem Company provided micro credit financing packages to selected groups and individuals engaged in enterprises such as bread baking, hairdressing and petty trading. The company installed an oil palm processor and corn mill at Adieyie, cassava and corn mill at Abompuniso and another oil palm processor at Teberebie in 2008.
Obviously, some cost cutting measures will wipe out substantial amounts of funds allocated to the micro credit financing packages introduced in 2008. The beneficiary communities will be the biggest losers since employment which otherwise could have been created will not be actualized.
• Corporate Social Responsibility initiatives declines
Mining companies in Ghana provide many corporate social responsibility initiatives in their respective catchment areas of operations which go to positively impact the livelihood of inhabitants. The case is not different with AngloGold Ashanti as they also launched a malaria eradication programme in the first quarter of 2015. The malaria eradication programme which was earlier scheduled to cover five districts in the Western Region now cover 40 districts across the country. The five districts including Ahanta West, Tarkwa Nsuaem, Prestea, Huni- Valley, Ellembelle and Axim was solely financed by AngloGold at a tune of US$ 9 million. This juxtaposes the belief that the yellow metal’s benefits to society are enormous. Anglogold Ashanti has immensely contributed to the host community Obuasi by building schools, hospitals, and roads among others. Brilliant but needy school pupils and students are given scholarships. AngloGold Ashanti Iduapriem Mine in Tarkwa presented a fully paid scholarship worth Ghc 75,000.00 to 42 students at the secondary, vocational and tertiary levels for the 2014/2015 academic year. The package is to enable students in their communities to successfully pursue further studies in various academic disciplines. This gesture goes a long way to enhance the livelihood of the inhabitants in the catchment areas.
The Chamber of Mines has adopted a policy where member companies set aside a minimum of US$1 out of every earning per ounce of Gold and also one percent (1%) of the their net profit to develop their communities.
Aside adhering to this policy, mining companies in Ghana also voluntarily undertake community sustainable development projects in their catchment areas. In 2012 alone, mining companies committed US$26 million to community sustainable development projects various communities.
To these mining companies, sustainability is significant when it comes to CSR initiatives. That is why most of their projects are in the long term.
AngloGold Ashanti’s corporate social responsibility programs budget will see a reduction. This is mainly due to the fact that productions have scaled down significantly and also the slump in global commodities trading.
It is predicted that the US$26 million allocated for community sustainable development projects in 2012 will reduce in the wake of the slump in global commodities trade and the latest blow to the AngloGold Ashanti Randgold deal.
Author: Paa Swanzy-Essuman || p.swanzy@ghanatalksbusiness.com
