Stephen Roelofse, Sanlam Investment Managers
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» Gold miners hit by Ghana power jolt
» AngloGold’s Iduapriem seeks gold boost
» Gold Fields to triple Tarkwa plant
» Newmont may lift Ghana gold output

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Mine closure looms in Ghana power shortage
Allan Seccombe
Posted: Wed, 06 Sep 2006

[miningmx.com] -- ANGLOGOLD ASHANTI will shut its Iduapriem mine and stands to shed 10% of its September quarter output at Obuasi, its key Ghanaian gold mine, if power restrictions remain in place or worsen, the company said on Wednesday.

If AngloGold Ashanti has to reduce power consumption by more than the current 25%, it is likely that the company’s opencast Iduapriem mine would be closed because the remaining mill would have to be stopped, it warned.

As it stands, if the 25% power reduction remains in place at Iduapriem for the rest of the month, production could be 30% lower for the quarter. The mine was expected to produce 52,000 oz in the September quarter.

AngloGold Ashanti, the world’s number three gold producer, is struggling to successfully turn around its underperforming Ghana mines -- Obuasi in particular -- since buying the Ashanti Goldfields assets for $1.2bn in 2004.
not a sustainable solution
A water shortage at the Volta River Authority’s (VRA) power generation facilities have meant gold mining companies, amongst the largest users of electricity in the West African country, have been told to to cut back their use of electricity from the national grid for an unspecified period of time.

While Obuasi is using 25% less electricity with no immediate impact on production, if it has to continue to do so for the remainder of September gold production will fall to 90,000 oz, some 10,000 oz lower than forecast for the three months to end-September.

“AngloGold Ashanti is harder hit than other mining companies because they have underground operations, but we don’t really have enough information to make a proper assessment of the situation there,” said Stephen Roelofse, a fund manager at Sanlam Investment Management.

“If you take what’s happening in Ghana in the total context AngloGold Ashanti’s production it’s very, very small. But for the operations themselves it will make a difference. It is difficult to forecast just how long this is going to last, but it’s not the end of the world for the company,” he said.

AngloGold Ashanti produced 1.4million oz of gold in the June quarter at a total cash cost of $305/oz.

Obuasi is using older standby diesel-powered generators to provide electricity for its operations at a cost of $1.8m for the month. This would add an extra $60/oz to the cost of producing gold at the deep-level, multi-shaft mine. In the June quarter, Obuasi had total cash costs of $406/oz.

“This is not a sustainable solution due to the reliability of the generator sets and the risks associated with reliance on deliveries of diesel fuel by road transport,” AngloGold Ashanti said.

“In the event that a significantly higher cut in power became necessary, this would result in a substantial loss in gold production,” it added.

There is no indication of when the power shortage will come to an end, but AngloGold Ashanti spokesman Charles Carter said water levels in the Akosombo Dam are beginning to rise.
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There are extra newer generators at the Geita mine in Tanzania that are being sourced for the Ghanaian mines.

“For now it looks manageable, but it’s unpredictable in terms of the timeline,” Carter said. “If the rains come this issue goes away quite quickly. If they don’t we’ll have to re-guide the market.”

The Gold Fields opencast Damang mine is completely off the national grid because the company has brought in generators to provide the 56,000/oz a quarter mine and mills with sufficient power, said spokesman Willie Jacobsz.

“It should not affect production but it will impact costs at Damang,” he said. Damang had total cash costs of $315/oz in the June quarter.

Operating costs are expected to rise by $4m if the generation needs to be continued for a full month. Gold Fields said at the end of August its Ghana subsidiary had been told by the VRA to reduce power consumption at its operations by half.

“We are freeing up grid power from Damang and re-allocating all our grid power to Tarkwa, so Tarkwa will be entirely on the grid,” he said. Tarkwa, an opencast mine, produced 176,000 oz in the June quarter at a total cash cost of $321/oz.

Ghana provided just over 20% of Gold Fields’ 1.02m oz of gold production in the June quarter.

AngloGold Ashanti, Gold Fields and Newmont Mining, which started production at its Ahafo mine in Ghana in July, are working through the Chamber of Mines there to resolve the power constraints. The mines are providing management support and helping repair the thermal unit at the Aboadze plant in Takoradi.

The Ahafo mine is expected to produce 550,000 oz/year at full tilt, according to the Denver firm’s annual report. It is also developing the Akeym project due to begin production in 2008.