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

Lesotho Faces New Round of Violence, Political Crisis

Brutal killing of military officer has sent former leaders back into S. Africa where they're watching anxiously as regional officials head in to try to restore peace More

Video US Diplomat Expects Adoption of Bosnian Massacre Anniversary Resolution

Samantha Power says there's broad consensus about killings in Bosnia's war, but Russia calls resolution 'divisive,' backs UN countermeasure More

UN Report Exposes Widespread Boko Haram Atrocities

Damning report graphically details pattern of vicious, widespread atrocities committed by Islamist militants 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.
Olympics Construction Scars Sacred Korean Mountaini
X
July 02, 2015 4:10 AM
Environmentalists in South Korea are protesting a Winter Olympics construction project to build a ski slope through a 500-year-old protected forest. Brian Padden reports that although there is strong national support for hosting the 2018 Pyeongchang Winter Olympics, there are growing public concerns over the costs and possible ecological damage at the revered mountain.
Video

Video Olympics Construction Scars Sacred Korean Mountain

Environmentalists in South Korea are protesting a Winter Olympics construction project to build a ski slope through a 500-year-old protected forest. Brian Padden reports that although there is strong national support for hosting the 2018 Pyeongchang Winter Olympics, there are growing public concerns over the costs and possible ecological damage at the revered mountain.
Video

Video Xenophobia Victims in South Africa Flee Violence, Then Return

Many Malawians fled South Africa early this year after xenophobic attacks on African immigrants. But many quickly found life was no better at home and have returned to South Africa – often illegally and without jobs, and facing the tough task of having to start over. Lameck Masina and Anita Powell file from Johannesburg.
Video

Video Family of American Marine Calls for Release From Iranian Prison

As the crowd of journalists covering the Iran talks swells, so too do the opportunities for media coverage.  Hoping to catch the attention of high-level diplomats, the family of American-Iranian marine Amir Hekmati is in Vienna, pleading for his release from an Iranian prison after nearly 4 years.  VOA’s Heather Murdock reports from Vienna.
Video

Video UK Holds Terror Drill as MPs Mull Tunisia Response

After pledging a tough response to last Friday’s terror attack in Tunisia, which came just days before the 10th anniversary of the bomb attacks on London’s transport network, British security services are shifting their focus to overseas counter-terror operations. VOA's Henry Ridgwell has more.
Video

Video Obama on Cuba: This is What Change Looks Like

President Barack Obama says the United States will soon reopen its embassy in Cuba for the first time since 1961, ending a half-century of isolation. VOA White House correspondent Luis Ramirez reports.
Video

Video Hate Groups Spread Influence Via Internet

Hate groups of various kinds are using the Internet for propaganda and recruitment, and a Jewish human rights organization that monitors these groups, the Simon Wiesenthal Center, says their influence is growing. The messages are different, but the calls to hatred or violence are similar. VOA's Mike O’Sullivan reports.
Video

Video US Silica Sand Mining Surge Worries Illinois Residents, Businesses

Increased domestic U.S. oil and gas production, thanks to advances known as “fracking,” has created a boom for other industries supporting that extraction. Demand for silica sand, used in fracking, could triple over the next five years. In the Midwest state of Illinois, people living near the mines are worried about how increased silica sand mining will affect their businesses and their health. VOA’s Kane Farabaugh has more in this first of a series of reports.
Video

Video Blind Somali Journalist Defies Odds in Mogadishu

Despite improving security in the last few years, Somalia remains one of the most dangerous countries to be a journalist – even more so for someone who cannot see. Abdulaziz Billow has the story of journalist Abdifatah Hassan Kalgacal, who has been reporting from the Somali capital for the last decade despite being blind.
Video

Video Texas Defies Same-Sex Marriage Ruling

Texas state officials have criticized the US Supreme Court decision giving same-sex couples the right to marry nationwide. The attorney general of Texas says last week's decision did not overrule constitutional "rights of religious liberty," and therefore officials performing wedding services can refuse to perform them for same-sex couples if it is against their religious beliefs. Zlatica Hoke reports on the controversy.
Video

Video Rabbi Hits Road to Heal Jewish-Muslim Relations in France

France is on high alert after last week's terrorist attack near the city Lyon, just six months after deadly Paris shootings. The attack have added new tensions to relations between French Jews and Muslims. France’s Jewish and Muslim communities also share a common heritage, though, and as far as one French rabbi is concerned, they are destined to be friends. From the Paris suburb of La Courneuve, Lisa Bryant reports about Rabbi Michel Serfaty and his friendship bus.
Video

Video Saudi Leaks Expose ‘Checkbook Diplomacy’ In Battle With Iran

Saudi Arabia’s willingness to wield its oil money on the global diplomatic stage appears to have been laid bare, after the website WikiLeaks published tens of thousands of leaked cables from Riyadh’s Ministry of Foreign Affairs. VOA's Henry Ridgwell reports.
Video

Video In Kenya, Police Said to Shoot First, Ask Questions Later

An organization that documents torture and extrajudicial killings says Kenyan police were responsible for 1,252 shooting deaths in five cities, including Nairobi, between 2009 and 2014, representing 67 percent of all gun deaths in the areas reviewed. Gabe Joselow has more from Nairobi.

VOA Blogs