Thu, Oct

Chamber urges mining companies to control cost

Mr Sulemana Koney — CEO of Ghana Chamber of Mines

The Ghana Chamber of Mines (GCM) has cautioned mining companies to adopt effective cost management strategies in their operations in order to remain competitive

This is because, mining companies in the country face the brunt of an unfriendly business tax regime, which analysts say erodes the gains of the companies in the midst of falling gold prices.

Speaking at a Mining for Development Forum in Accra, Chief Executive Officer of GCM, Mr Sulemana Koney, said effective cost management would enhance profit and increase investment.

The forum which was attended by stakeholders, including Ghana Revenue Authority, National Development Planning Commission, Civil Society Organisations (CSOs) and the media, was to discuss the rising cost of mining, especially gold in Ghana.

Mr Koney said mining required huge outlay of capital but the mining companies are not in control over the price of gold they produce, necessitating the need to critically look at cost control.

 To him, despite the contribution of the mining to various communities, the royalties paid to mining communities may not be getting optimised utilisation, one may easily discern.

Mr Koney fears the priorities have been lost; “for instance, between 2011 and 2013, US$854,407,800 was ploughed back into seven mining districts but was there a manifestation of commensurate development?”

He explained further that 30 per cent of the royalty paid to the district assemblies was used in the management of waste and queried whether it was a judicious way of exploiting revenue from a finite resource.

“This is a finite resource. It will finish one day. What plans are we putting in place to ensure that we have balanced development?” he asks. 

While waste management is an important area, the absence of easily measurable outputs as against the financial inputs made, makes it easy alibi for wasteful dissipation of resources.

Critics’ raise concerns

Critics say, the goodwill mining industries deserve is evidently thinning out.  They point to a combination of factors, which include opaque and troubled utilisation of mining royalties paid by mining companies and perceptions fuelled sometimes by awry cries of some civil society organisations that see no good in mining have amply torched and tortured the good perceptions people had of the mining industry.

But Mr Koney insists the mining plays a critical role in the economy, contributing immensely to government tax revenue and job creation.

The Acting Vice President of Gold Fields West Africa, Mr Augustine Wireko Asubonteng who did a presentation on the cost build-up for gold mining said the erroneous perception among stakeholders that mining companies make huge profits is not true.

"The mining industry is going through tough times and it is not as easy as people see it," he said.

Eroding profits

Mr Asubonteng said the high cost of inputs in the mining and processing of gold eats deep into the profit the companies and in some instances produce even at a loss.

For example, it costs more than US$1000 to mine and process an ounce of gold, he said, adding that the cost build-up included high cost of capital, rising input cost, exploration, fuel, procurement and maintenance of mining equipment, energy, labour, royalty and management of mining waste.

Besides, the mining and processing cost, the companies had to continuously invest additional capital to sustain the mine.

Mr Asubonteng said to be able to determine sustainable cost of mining, Gold Fields Ghana had adopted a new cost metrics that incorporates the various cost that is incurred.

The new cost metrics, he said, had recorded about the 95 per cent of the cost incurred by the company in its operations in order to arrive at the true cost of mining and processing for an ounce of gold.

Mr Asubonteng said a better definition of associated cost of producing an ounce of Gold would help to improve visibility of the true margins mining companies make to stakeholders.

It would also enable host governments do away with the wrong notion of high margins and help reduce pressure for higher taxes and royalties.

Mr Asubonteng called for a friendly tax regime to attract more capital and investment in the mining industry.