Gold Fields pushes for Damang turnaround
Gold Fields Ghana is conducting feasibility studies on its Damang Mine to determine viable options to enable it to inject additional capital to improve output from the mine.
Advertisement
Additional capital can extend the life of the mine by another 15 to 20 years and increase employment numbers, but resorting to business-as-usual will ensure the mine continues for just about five or seven years.
The Damang Mine, one of the company's two concessions in the country, is at a crossroads as the cost of producing an ounce of gold is lagging behind the price per same amount of the precious metal on the internal market. For the past five years or so, the mine has been operating without profit; at best at break-even level.
Over the last three years, the price of gold on the International market has been falling. It just rallied to the region of US$1300 an ounce, a day after Britain voted to leave the European Union (EU).
Justification for fresh capital
The General Manager of the Damang Mine of Gold Fields, Mr Stephen Osei-Bempah, told a team of visiting journalists that they were keeping operations active at the mine only by processing material stockpiles, as stripping new ore required huge capital injection which viability the feasibility study will establish.
An ancient mine which Gold Fields took over from Ranger Mines in 2001 has undergone several phases of pre-feasibility, technical studies, pit designs and drilling, which proved viable. However, the fall in gold prices from 2013 has changed the dynamics, necessitated the reassessments which will confirm the long-term plan the company prefers for its Damang Mine.
Mr Osei-Bempah said results of the studies would be ready by the end of this month which would allow the company determine the extent of investment to be sunk to revive the Damang Mine in order to save about 2,500 workers.
Already, the mine has retrenched about 500 workers with a total severance package of almost $10 million. It has also moved from owner mine, which it started in 2011 to contract mining, as a way of saving cost and keeping factors of production active.
Cutting cost
The Damang Mine is also working towards cutting its cost of production from the region of $1300 an ounce to $1,000 an ounce.
Since 2010, the company’s ore value has been dropping due to the falling prices of gold. The area which could give them higher grade ore require massive injection of fresh capital. The feasibility study will, therefore, assist the company to determine the viability of the mine and understand its options in order to make a business case to attract the confidence of its investors to commit to new capital in line with the long-term prospects of Damang.
“Once we get the results of the study, it will make sense to make the huge capital investments. Until then it will be difficult to determine the profitability of further investments. This study will confirm what resources we have and will guide which areas to mine and what methods to adopt,” the Vice President and Head of Stakeholder Relations at Gold Fields, Mr David Ebo Johnson, explained.
The price of gold has been falling since 2013 and this has affected employment potential of the mine, which has reduced from 1,132 direct employees in 2012 to the current 362 employees, although contractors have also increased their employee engagements to 1,367 from 877 in 2014.
Development Agreement
Gold Fields recently signed what has been termed a development agreement with the government, which provides some reprieves to the company.
Mr Johnson said the agreement would provide certainty to the company when it came to royalties and corporate tax, while providing some fiscal space for prolonging the life span of its two mines, the Damang and Tarwa.
As per the agreement, which is based on the projected investments of up to $2 billion in the Tarkwa Mine over 11 years and about $500 million in the Damang Mine over the next nine years, Gold Fields will now pay corporate tax of 32.5 per cent. Its royalty payments will also fluctuate around three per cent to five per cent on a sliding scale depending on when gold prices hover around $1,300 and $2,300 an ounce. This is effective from January 1, 2017.