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

Obama: Alaskans Feel Signs of Climate Change

They're seeing bigger storm surges as sea ice melts, more wildfires, erosion of glaciers, shorelines More

Katrina Brought Enduring Changes to New Orleans

The city’s recovery is the result of the people and culture the city is famous for, as well as newcomers and start-up industries More

Magical Photo Slides Show Native Americans in Late 1800s

Walter McClintock spent 20 years photographing the Blackfoot Indians and their vanishing culture at the dawn of the modern age 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.
Colombians Flee Venezuela as Border Crisis Escalatesi
X
August 27, 2015 2:08 AM
Hundreds of Colombians have fled Venezuela since last week, amid an escalating border crisis between the two countries. Last week, Venezuelan President Nicolas Maduro ordered the closure of a key border crossing after smugglers injured three Venezuelan soldiers and a civilian. The president also ordered the deportation of Colombians who are in Venezuela illegally. Zlatica Hoke reports.
Video

Video Colombians Flee Venezuela as Border Crisis Escalates

Hundreds of Colombians have fled Venezuela since last week, amid an escalating border crisis between the two countries. Last week, Venezuelan President Nicolas Maduro ordered the closure of a key border crossing after smugglers injured three Venezuelan soldiers and a civilian. The president also ordered the deportation of Colombians who are in Venezuela illegally. Zlatica Hoke reports.
Video

Video Is China's Economic Data Accurate?

Some investors say China's wild stock market gyrations have been made worse by worries about the reliability of that nation's economic data. And some critics say the reports can mislead investors by painting an unrealistically-strong picture of the economy. A key China scholar says Beijing is not fudging ((manipulating)) the numbers, but that the economy is evolving quickly from smoke-stack industries to services, and the ways of tracking new economic activity are falling behind the change. V
Video

Video Next to Iran, Climate at Forefront of Obama Agenda

President Barack Obama this week announced new initiatives aimed at making it easier for Americans to access renewable energy sources such as solar and wind. Obama is not slowing down when it comes to pushing through climate change measures, an issue he says is the greatest threat to the country’s national security. VOA correspondent Aru Pande has more from the White House.
Video

Video Shipping Containers Provide Experimental Housing

Housing prices around the San Francisco Bay area are out of reach for many people, so some young entrepreneurs, artists and tech industry workers are creating their own houses using converted shipping containers. But as VOA's Mike O’Sullivan reports from Oakland, the effort requires ingenuity and dealing with restrictive local laws.
Video

Video Arctic Draws International Competition for Oil

A new geopolitical “Great Game” is underway in earth’s northernmost region, the Arctic, where Russia has claimed a large area for resource development and President Barack Obama recently approved Shell Oil Company’s test-drilling project in an area under U.S. control. Greg Flakus reports.
Video

Video Philippine Maritime Police: Chinese Fishermen a Threat to Country’s Security

China and the Philippines both claim maritime rights in the South China Sea.  That includes the right to fish in those waters. Jason Strother reports on how the Philippines is catching Chinese nationals it says are illegal poachers. He has the story from Palawan province.
Video

Video Technique May Eliminate Drill-and-Fill Dental Care

Many people dread visiting dentists because they're afraid of drills. Now, however, a technology developed by a British firm promises to eliminate the need for mechanical cleaning of dental cavities by speeding a natural process of tooth repair. VOA’s George Putic reports.
Video

Video China's Spratly Island Building Said to Light Up the Night 'Like A City'

Southeast Asian countries claim China has illegally seized territory in the Spratly islands. It is especially a concern for a Philippine mayor who says Beijing is occupying parts of his municipality. Jason Strother reports from the capital of Palawan province, Puerto Princesa.
Video

Video Ages-old Ice Reveals Secrets of Climate Change

Ice caps don't just exist at the world's poles. There are also tropical ice caps, and the largest sits atop the Peruvian Andes - but it is melting, quickly, and may be gone within the next 20 years. George Putic reports scientists are now rushing to take samples to get at the valuable information about climate change locked in the ice.
Video

Video French Experiment in Integrating Roma Under Threat

Plans to destroy France’s oldest slum have sparked an outcry on the part of its Roma residents. As Lisa Bryant reports from the Paris suburb of La Courneuve, rights groups argue the community is a fledgling experiment on integrating Roma who are often outcasts in many parts of Europe.
Video

Video Kenyans Turn to Agriculture for Business

Each year Kenyan universities continue to churn out graduates for the job market despite the already existing high rate of unemployment among youth in the country. Some of these young men and women have realized that agriculture can be as rewarding as any other business or job, and they are resorting to agribusiness in large numbers as a way of tackling unemployment. Rael Ombuor reports for VOA.
Video

Video First Women Graduate Elite Army Ranger School

Two women are making history for the U.S. Army by proving they are among the toughest of the tough. VOA's Carla Babb reports from Fort Benning, Georgia as 94 men and those two women rise as graduates of the difficult Ranger school.

VOA Blogs