<<Print>>

Obuasi Mine is the oldest gold mining company in Ghana and started operations in 1897. It has been a predominantly underground mine, although there was a large-scale open pit mining between 1996 and 2000. It used to operate the cut and fill mining method and sub-level caving which were quite labour-intensive. This was changed to open stoping to improve productivity and safety, as well as lower cost of operations. It is now a mechanised mining operation using mechanised drills and other trackless equipment to improve productivity and safety, as well as lower cost of operations. The mine had huge ore reserves that could keep it in operation for up to 2030 or beyond. The head grade of underground ore was above 6 g/t. It used to have four main shafts, two active treatment plants: the sulphide treatment plant to process underground ore and the tailings treatment plant to handle tailings reclamation operations. Challenges in 2004 before the merger The major challenge was insufficient developed and drilled underground ore reserves for continuity of operations. New stopes were not being created or built up for extraction of the ore bodies. Development involves removal of blasted material, scaling (removing any unstable slabs of rock hanging from the roof and sidewalls to protect workers and equipment from damage), installing support or/and reinforcement, drill face rock, load explosives, and blast explosives. The failure to realise the desired results of the gold price hedge drove the company into serious financial difficulties and caused a major cashflow crisis for the company. The expectation was that the gold price would continue its steady decline but unfortunately, it started rising sharply. There was insufficient trackless mining equipment. Some of the underground equipment were over-age and had high maintenance cost. The underground ore bodies above 50 level were almost depleted. The head grade was below 6 g/t and as a result, there were higher production cost and less profitability in processing. The company had invested heavily in the construction of the Len Clay Sports Stadium, Sports Academy and other urban development projects. Unfortunately, the huge profit margins that were made through massive mining of the high grade areas were not reinvested in the business to carry out the backfill, definition drilling, ore reserves development, and to provide the needed equipment and machines which were imperative for sustained operations. Indeed, there were no prudent measures to control wastage and wasteful expenditures. Contract prices were mind-bugling. It was no wonder the company was capital starved. Coupled with these challenges were the activities of the illegal miners who were invading the company�s concessions and the unrealistic demands from mining communities. Strategic option In the face of the challenges highlighted above, the strategic option was the development of the deep-level ore deposits at the Obuasi mine referred to as Obuasi Deeps which had become the only imperative option to sustain the mine and potentially extend the life-of-mine to well beyond 2040. The project will require huge infusion of capital estimated at $570 million in real terms over the anticipated life-of-mine which the company might not be in a position to provide. Why AngloGold Limited won the bid AngloGold Limited won the bid for the merger for two main reasons: the company�s expertise and proven ability in the development of deep level projects and its proven capital raising capability to fund the project. Commitment to transform the mine AngloGold Limited had indicated its commitment to facilitate the expeditious and optimal development of the Obuasi mine�s deep level ore by making the necessary investments. It was anticipated that the initiative would improve underground operations and increase efficiency with the objective of reducing anticipated cash operating costs at Obuasi by an estimated $20 per ounce in real terms over the subsequent five years. The state of the mine now AngloGold Ashanti has realised that the mine was over-valued as per the acquisition model and there is a huge gap between published and available resources and reserves particularly above 50 level. The mine�s performance has not met the merger expectations. The mine is operating behind development. The operating cost in Obuasi Mine has been escalating. The gold price has been declining and fell by 25 per cent last year. Labour cost and other input costs such as power and material have increased significantly. The situation has been exacerbated by illegal mining activities, poor security and social and environmental challenges. Production and financial targets are not being met. The cost of maintenance of the company�s residential communities for employees with free electricity and payment of cedi equivalent of the dollar salaries has had huge cost implications. The options The options are to provide the capital outlay for the deeps or to sell the mine to those with the necessary funds to continue or to abandon the mine altogether with its social and financial implications. To invest in the deeps will involve sinking new shaft, ventilation shafts and putting in place the necessary safety measures. The company is already spending a lot of money on a long-term ramping plan to improve access to the deep underground resources in a bid to raise production volumes and lower costs which is the only way to make the mine profitable. Obuasi Mine is said to have produced 58,000oz during the second quarter of this year at a total cash cost of $1,560oz as compared to 357,000oz at $633oz in 2008 and 280,000oz at a total cash cost of $1,187oz in 2012. The closure of the mine will lead to massive job losses and seriously affect economic activities in the municipality and its environs. The way forward The company has decided to shut down for between 18 to 24 months for upgrading as a result of a number of operational challenges that have bedevilled the mine in recent times. It will put the mine in a care and maintenance mode. It has declared its commitment to create a sustainable operation that is able to sustain high-quality jobs and support the economy for decades to come. Mine closure is imperatively necessary once its mineral resource is completely depleted or the mine�s operations are no longer profitable and uneconomical to operate. There has been demonstrable evidence that the Obuasi Mine has not been making profits with the present production volumes and quality of ore deposit being extracted. Mining the deeps is the only feasible option to get the mine out of its woes. What is disturbing is why the deep mine project was not accorded the needed sense of urgency. Probably, the company had, at a point in time abandoned the move. What was the outcome of the exploration programme and feasibility studies which were carried out? The understanding was that if it was found to be viable, development of Obuasi Deeps would proceed with preliminary scoping studies. What is the blueprint that the company intended to invest in the deeps? The government must ensure that the terms of the closure are clearly defined and articulated and monitored to ensure that they are implemented. There should be financial assurance in the form of deposit or bond for any breach.