W. African nations bear brunt of falling gold prices
Print Edition
This year’s drop in world gold prices has been deeply sobering for West African countries, from established producer Ghana to promising newcomer Ivory Coast, whose prospects of mineral wealth are being snatched away.
As miners’ stock prices plummet and they have to consider suspending or halting new projects, many fear the dream that inspired West Africa’s gold rush may be gone for good and regional economies may be in for an abrupt awakening. Just a year ago, there was reason to believe in the golden future of a region that had long been handicapped by challenging terrain, underdeveloped infrastructure and political risk.
Economic uncertainty was fuelling demand for gold and traditional producers were struggling to keep up.
Until July, South Africa — Africa’s largest gold producer and the world’s No. 5 exporter — had seen output decline for 27 consecutive months.
West Africa appeared destined to take up some of the slack. From 6.7 million ounces — around 8 percent of the global supply — in 2012, output was expected to rise to 11 million ounces by 2015, mostly from production in the region’s top exporter Ghana.
Investors pumped money into companies that had a toehold in the region.
“The mining industry was in a state of over-exuberance before the correction,” Randgold Resources CEO Mark Bristow said. “In my mind, it wasn’t sustainable ... There has been a lot of mining development that hasn’t given value to shareholders or the host governments.”
Though gold prices had steadily risen, so too had the industry-wide costs of mining lower and lower ore grades. In West Africa, added factors like high energy prices further inflated costs.
Gold prices rallied from around US$250 an ounce in 2001 to a record US$1,920.30 an ounce a decade later but are set to snap 12 years of gains in 2013 after falling by more than a fifth in the year to date. When the bubble burst, miners large and small were hit hard.
Africa’s biggest gold producer, AngloGold Ashanti said in August its cost structure in Ghana was unsustainable and it would make cutbacks. It suspended excavation last month at the Yatela Mine in Mali, which it owns with Canadian mid-tier miner IAMGOLD.
Canada’s Kinross Gold Corp recorded a net loss in the fourth quarter of 2012 due to two mines in Mauritania and Ghana. It now plans to cut 300 jobs and has frozen expansion in Mauritania until at least 2015.
Endeavour Mining, which has three gold mines producing more than 300,000 ounces per year in Mali, Ghana and Burkina Faso, has also planned cuts.
“There’s no way around it but to suck it in and hold your breath,” Neil Woodyer, the company’s CEO, said.
While miners already in production may be able to survive by tightening their belts and praying prices don’t fall further, the scores of juniors who bet on West Africa in the past few years won’t get off so easily. Nearly 12 percent of all new gold discoveries over the last two decades have been in West Africa, a fact that has helped small miners raise exploration funds in Toronto, Sydney and London’s junior AIM market.
Ivory Coast, which had long neglected mining in favor of cocoa has only three producing mines. Its untapped gold potential fuelled a wave of interest after the end of a decade-long political crisis in 2011. But with gold stocks losing on average 40-50 percent of their value since January, financing has dried up and work under Ivory Coast’s 81 exploration permits has slowed to a trickle.
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