New tariff will worsen Obuasi’s Plight

ANGLOGOLD Ashanti has said that it would be unable to recover from its performance from its Obuasi Mine if the recent announcement of upward prices in utilities was implemented.
A statement issued by its Corporate Affairs Manager, Mr John Owusu said the situation was a delicate one, adding that “even at US$0.9cent per kilowatt-hour, power tariff is breaking our neck.”
“We do not have cash flow to talk about; so additional power cost will turn our cost structure and new projects asunder”, the statement said.
The statement mentioned two main reasons for Obuasi’s ‘unprofitability’. “Unlike surface mines, the over 100 years operation is not gaining from the current gold price due to high cost of production and the hedge book it is carrying”, the statement said.
It said total production costs, according to the company’s 2007 financial statement jumped from $481 per ounce in 2005 to $698 per ounce in 2007 and it was now in the region of $755 per ounce.
In contrast, gold price increased progressively from $410 in 2004 to $697 in 2007.
The statement said hedging the mine, which dated back to the ex-Ashanti Goldfields era, means that with its current hedge book, Obuasi was not in good stead to benefit from the current spot, which is well over $900 per ounce.
The company has launched this year a turn around strategy, backed with $44.4 million and additional $130 million for capital considerations, aimed at modernising and expanding the mine but these transformation projects may not be a reality if the new tariff is imposed on the mine, which is the only underground mine and hope that the mine’s competitiveness will be restored in three to 5 years time.
Nothwistanding, the mine continues to contribute its quota to the economy. It employs more than 7000 Ghananaians, including contractors and has paid $38 million in the past four years in the form of royalties and $15.4 million as dividends to the government.
The statement said the mining industry was talking to the VRA and other parties concerned, through the Ghana Chamber of Mines and expressed the hope that “something good, which was acceptable to all parties will come out of these meetings in the near future”.
It said Obuasi mine may be one of the richest, in terms of reserves, underground gold mines in the world.
However the statement said “at the current gold rally, which has seen a skyrocketed price from $410 per ounce in 2004 to about $900 this year, the AngloGold Ashanti operation is not making it, and is not likely to recover if the current maximum indicative power tariff announced by the Public Utility Commission is implemented.”