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

Taliban's New Leader Says Jihad Will Continue

Top US Afghan diplomat also meets with Pakistani, Afghan officials following news of Mullah Omar's death More

Video US Landmark Pushes Endangered Species

People gathered in streets, on rooftops in Manhattan to see image highlights that covered 33 floors of Empire State Building More

World’s Widest Suspension Bridge Being Built Over Bosphorus

Once built, Yavuz Sultan Selim Bridge will span 2 kilometers with about 1.5 kilometers over water, and will be longest suspension bridge in world carrying rail system 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.
Iraqi Yazidis Fear Death of Their Communityi
X
Sharon Behn
August 03, 2015 2:23 PM
A year ago on August 3, Islamic State militants stormed the homelands of Iraq’s Yazidi minority, killing hundreds of men and enslaving thousands of women. The scenes of desperate Yazidi families crowding on the top of Sinjar mountain without food or water spurred Kurdish fighters into action, an emergency airlift and the start of the U.S. airstrike campaign against the Islamic State Sunni extremists. VOA's Sharon Benh reports from northern Iraq.
Video

Video Iraqi Yazidis Fear Death of Their Community

A year ago on August 3, Islamic State militants stormed the homelands of Iraq’s Yazidi minority, killing hundreds of men and enslaving thousands of women. The scenes of desperate Yazidi families crowding on the top of Sinjar mountain without food or water spurred Kurdish fighters into action, an emergency airlift and the start of the U.S. airstrike campaign against the Islamic State Sunni extremists. VOA's Sharon Benh reports from northern Iraq.
Video

Video Bangkok Warned It Soon Could Be Submerged

Italy's Venice and America's New Orleans are not the only cities gradually submerging. The nearly ten million residents of the Bangkok urban area now must confront warnings the city could become uninhabitable in a few decades. VOA Correspondent Steve Herman reports from the Thai capital.
Video

Video Inclusive Gym Gets People With Disabilities in Fitness Spirit

Individuals with special needs are 58 percent more likely to be obese than the general population. According to the U.S. Centers for Disease Control, they also have an increased likelihood of anxiety, depression and social isolation. But a sports club outside Washington wants to make a difference in these people's lives. With Carol Pearson narrating, VOA's June Soh reports.
Video

Video Astronauts Train Underwater for Deep Space Missions

Manned deep space missions are still a long way off, but space agencies are already testing procedures, equipment and human stamina for operations in extreme environment conditions. Small groups of astronauts take turns in spending days in an underwater lab, off Florida’s southern coast, simulating future missions to some remote world. VOA’s George Putic reports.
Video

Video Special Olympics Show Competitors' Skill, Determination

Special Olympics competitions will wrap up Saturday in Los Angeles, and the closing ceremony for athletes with intellectual disabilities will be held Sunday night. In a week of competition, athletes have shown what they can do through skill and determination. VOA's Mike O'Sullivan reports.
Video

Video Civil Rights Leaders Struggled to Achieve Voting Rights Act

Fifty years ago, lawmakers approved, and U.S. President Lyndon Johnson signed, the Voting Rights Act of 1965. The measure outlawed racial discrimination in voting, giving millions of blacks in many parts of the southern United States federal enforcement of the right to vote. Correspondent Chris Simkins introduces us to some civil rights leaders who were on the front lines in the struggle for voting rights.
Video

Video Shooter’s Grill: Serving Food with a Touch of the Second Amendment

Shooter's Grill, a restaurant in Rifle, Colorado, attracts visitors from all over the world as well as local patrons. The reason? Waitresses openly carry loaded firearms as they serve food, and customers are welcome to carry them, too. VOA's Enming Liu and Lin Yang paid a visit to Shooter's Grill, and heard different opinions about this unique establishment.
Video

Video Despite Controversy, Business Owner Continues Sale of Confederate Flags

At Cooter’s, a store in rural Sperryville, Virginia, about 120 kilometers west of Washington, D.C., Confederate flags are flying off the shelves. The red, white and blue battle flag, with 13 white stars representing the Confederate states, was carried by southern forces during the U.S. Civil War in the 1860s. The South had seceded from the Union over several key issues of disagreement, including slavery. VOA’s Deborah Block has the story.
Video

Video Booming London Property a ‘Haven for Dirty Money’

Billions of dollars of so-called ‘dirty money’ from the proceeds of crime - especially from Russia - are being laundered through the London property market, according to anti-corruption activists. As Henry Ridgwell reports from the British capital, the government has pledged to crack down on the practice.
Video

Video Hometown of Boy Scouts of America Founder Reacts to Gay Leader Decision

Ottawa, Illinois, is the hometown of W.D. Boyce, who founded the Boy Scouts of America in 1910. In Ottawa, where Scouting remains an important part of the legacy of the community, the end of the organization's ban on openly gay adult leaders was seen as inevitable. VOA's Kane Farabaugh reports.

VOA Blogs