News / Africa

Analysis: Gold Price Drop Jolts West Africa

Laborers work at a mine believed to contain gold, Minna, Niger State, Nigeria, June 23, 2013.
Laborers work at a mine believed to contain gold, Minna, Niger State, Nigeria, June 23, 2013.
Reuters
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 fueling demand for gold and traditional producers were struggling to keep up.
 
Corrugated iron rusts beneath disused mine shaft at the Aurora gold mine, 50 km (31 miles) east of Johannesburg, Feb. 2, 2011.Corrugated iron rusts beneath disused mine shaft at the Aurora gold mine, 50 km (31 miles) east of Johannesburg, Feb. 2, 2011.
x
Corrugated iron rusts beneath disused mine shaft at the Aurora gold mine, 50 km (31 miles) east of Johannesburg, Feb. 2, 2011.
Corrugated iron rusts beneath disused mine shaft at the Aurora gold mine, 50 km (31 miles) east of Johannesburg, Feb. 2, 2011.
Until July, South Africa — Africa's largest gold producer and the world's number five exporter — had seen output decline for 27 consecutive months.
 
West Africa appeared destined 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 — many of them junior miners vulnerable even at high gold prices — 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 told Reuters. “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 $250 an ounce in 2001 to a record $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.
 
Bursting bubble
 
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.
 
Endeavor 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, told Reuters.
 
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.
 
Nowhere was this more true than in Ivory Coast, which had long neglected mining in favor of agricultural commodities like cocoa and has only three producing mines. Its untapped gold potential fueled 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.
 
“There are very few that are now active. I don't know if it is even 10 percent,” said Nouho Kone, president of the Professional Grouping of Ivory Coast Miners.
 
“Most projects are so little advanced that practically nothing is proven. They're so far from being able to estimate their reserves that the risks for investors are big.”
 
Exploration is in a similar holding pattern across the region.
 
Pain ahead
 
With the U.S. Federal Reserve expected to roll back its quantitative easing program, many analysts believe gold prices may fall further as investors switch to assets offering better returns.
 
For mining-dependent regional economies, the consequences could be dire.
 
Although Ghana's current economic boom is often chalked up to its new oil wealth, its gold exports were worth $5.6 billion last year, nearly as much as oil and cocoa combined.
 
Gold contributed 27 percent of the country's foreign exchange and furnished more than $700 million to government coffers, according to data from Ghana Chamber of Mines (GCM).
 
“We are not going to repeat that feat this year. Payment to the GRA (Ghana Revenue Authority) is going to shrink,” said Toni Aubynn, GCM chief executive.
 
The impact on Africa's third biggest producer, Mali, where gold accounts for 75 percent of export receipts and 25 percent of GDP, is potentially even worse. Just two mines, Sadiola and Morila, historically accounted for 80 percent of Mali's output.
 
Global interest in Africa's economic boom is rising but critics argue growth relies too heavily on natural resources, leaving it vulnerable to price fluctuations. Anyone looking at West Africa's gold industry might share those concerns.

You May Like

China May Be Biggest Winner From Ukraine Crisis

Missile sales, oil and gas shipments are among many areas that may drive Beijing and Moscow closer together in coming years More

Obama Faces Chaotic World, Limits of Power

Current foreign policy issues bring into focus challenges for US policymakers who are mindful of Americans' waning appetite for overseas military engagements More

SADC Meeting Lesotho Officials to Resolve Stalemate

Official says regional bloc has been engaged with leaders in Lesotho to resolve political disagreement that led to coup attempt More

This forum has been closed.
Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
West Africa Ebola Vaccine Trials Possible by Early 2015i
X
Carol Pearson
August 30, 2014 7:14 PM
A U.S. health agency is speeding up clinical trials of a possible vaccine against the deadly Ebola virus that so far has killed more than 1,500 people in West Africa. If successful, the next step would be a larger trial in countries where the outbreak is occurring. VOA's Carol Pearson has more.
Video

Video West Africa Ebola Vaccine Trials Possible by Early 2015

A U.S. health agency is speeding up clinical trials of a possible vaccine against the deadly Ebola virus that so far has killed more than 1,500 people in West Africa. If successful, the next step would be a larger trial in countries where the outbreak is occurring. VOA's Carol Pearson has more.
Video

Video Survivors Commemorate 70th Anniversary of Nazi Liquidation of Jewish Ghetto

When the German Nazi army occupied the Polish city of Lodz in 1939, it marked the beginning of a long nightmare for the Jewish community that once made up one third of the population. Roughly 200,000 people were forced into the Lodz Ghetto. Less than 7,000 survived. As VOA’s Kane Farabaugh reports, some survivors gathered at the Union League Club in Chicago on the 70th anniversary of the liquidation of the Lodz Ghetto to remember those who suffered at the hands of the Nazi regime.
Video

Video Cost to Raise Child in US Continues to Rise

The cost of raising a child in the United States continues to rise. In its latest annual report, the U.S. Department of Agriculture says middle income families with a child born in 2013 can expect to spend more than $240,000 before that child turns 18. And sending that child to college more than doubles that amount. VOA’s Deborah Block visited with a couple with one child in Alexandria, Virginia, to learn if the report reflects their lifestyle.
Video

Video Chaotic Afghan Vote Recount Threatens Nation’s Future

Afghanistan’s troubled presidential election continues to be rocked by turmoil as an audit of the ballots drags on. The U.N. says the recount will not be completed before September 10. Observers say repeated disputes and delays are threatening the orderly transfer of power and could have dangerous consequences. VOA correspondent Meredith Buel reports.
Video

Video Ukraine Battles Pro-Russia Rebel Assault

After NATO concluded an emergency meeting to discuss the crisis in eastern Ukraine, the country is struggling to contain heavy fighting near the strategic port of Mariupol, on the Azov Sea. Separatist rebels are trying to capture the city, allegedly with Russian military help, and Ukraine's defense forces are digging in. VOA's Daniel Schearf spoke with analysts about what lies ahead for Ukraine.
Video

Video Growing Business Offers Paint with a Twist of Wine

Two New Orleans area women started a small business seven years ago with one thing in mind: to help their neighbors relieve the stress of coping with a hurricane's aftermath. Today their business, which pairs painting and a little bit of wine, has become one of the fastest growing franchises across the U.S. VOA’s June Soh met the entrepreneurs at their newest franchise location in the Washington suburbs.
Video

Video Ebola Vaccine Trials To Begin Next Week

The National Institutes of Health says it is launching early stage trials of a vaccine to prevent the Ebola virus, which has infected or killed thousands of people across West Africa. The World Health Organization says Ebola could infect more than 20,000 people across the region by the time the outbreak is over. The epidemic has health experts and governments scrambling to prevent more people from becoming infected. Zlatica Hoke has more.
Video

Video Asian Bacteria Threatens Florida Orange Trees

Florida's citrus fruit industry is facing a serious threat from a bacteria carried by the Asian insect called psyllid. The widespread infestation again highlights the danger of transferring non-native species to American soil. VOA’s George Putic reports.
Video

Video Aging Will Reduce Economic Growth Worldwide in Coming Decades

The world is getting older, fast. And as more people retire each year, fewer working-age people will be there to replace them. Bond rating agency Moody’s says that will lead to a decline in household savings; reducing global investments - which in turn, will lead to slower economic growth around the world. But experts say it’s not too late to mitigate the economic impact of the world’s aging populations. Mil Arcega has more.
Video

Video Is West Doing Enough to Tackle Islamic State?

U.S. President Barack Obama has ruled out sending ground troops to Iraq to fight militants of the so-called Islamic State, or ISIS, despite officials in Washington describing the extremist group as the biggest threat the United States has faced in years. Henry Ridgwell reports from London on the growing uncertainty over whether the West’s response to ISIS will be enough to defeat the terrorist threat.
Video

Video Coalition to Fight Islamic State Could Reward Assad

The United States along with European and Mideast allies are considering a broader assault against Islamic State fighters who have spread from Syria into Iraq and risk further destabilizing an already troubled region. But as VOA State Department Correspondent Scott Stearns reports, confronting those militants could end up helping the embattled Syrian President Bashar al-Assad.
Video

Video Made in America Socks Get Toehold in Online Fashion Market

Three young entrepreneurs are hoping to revolutionize the high-end sock industry by introducing all-American creations of their own. And they’re doing most of it the old-fashioned way. VOA’s Julie Taboh recently caught up with them to learn what goes into making their one-of-a-kind socks.
Video

Video Americans, Ex-Pats Send Relief Supplies to West Africa

Health organizations from around the world are sending supplies and specialists to the West African countries that are dealing with the worst Ebola outbreak in history. On a smaller scale, ordinary Americans and African expatriates living in the United States are doing the same. VOA's Carol Pearson reports.

AppleAndroid