16 March 2005

Ghana: Of Underground and Surface Mining - The Realities of the Future of Mining in Ghana (1)

analysis

The nostalgia for underground mining

The past three decades have seen a tremendous shift in the way gold is mined worldwide. Gold which used to be mined mainly from deep the belly of the earth is now being done mainly in open pits.

In Ghana Manganese and Bauxite have been mined on the surface for nearly 100 years. However, large scale open pit gold mining in the country started less 15 years ago when Teberebi Goldfields Limited commissioned the first large scale surface mine in Ghana. Yet there is already some nostalgia for underground mining perhaps due to the intrusive surface reflectivity of surface mining operation as against the quiet, discrete but highly dangerous underground operations. Surprisingly, there have been inadequate efforts to debate, explain and understand the rational for the shift in the methodology of mining.

In the absence of clear explanation of the changing trends in the industry, discussion about mining in Ghana has been deluged in sentimentalism and emotionalism, especially on the part of mining communities and a section of the public, including the media and some NGOs who tend to create the erroneous impression that surface mining occurs mainly in poor developing countries. Some people have bluntly advocated a complete cessation of surface mining and an immediate return to underground mining in Ghana.

This article is an attempt to provide some dispassionate realist-based explanation of why surface mining is most likely to be with us if Ghana should maintain its place as major gold producer. This is not to suggest, necessarily, that surface mining is better than underground or vice versa.

Changing methods of mining

Ghana currently has seven operating mines gold mines and three others (Chirano, Akyim and Kenyaase) also at the stages of construction and soon to be on stream. Three world leading gold companies, including Newmont, Anglogold Ashanti and Gold fields operate over 90% of these mines. All of them operate opencast. To start with, it is simply untrue that surface mining occurs only or mainly in developing countries. This type of mining has been going on in the US continuously for more than 90 years and in many places, producing a number of different metals from low value ores including copper and iron as well as gold. Much the same is true for Australia and Canada, the world's third and forth largest gold producers respectively, where surface gold mines are far more typical than underground operations. In Ghana, Manganese and Bauxite have always been mine on the surface of the earth, not deep underground.

Mining, they say is an age-old activity. It is claimed to predate agriculture. The saying in the Bible that "silver and gold have I none " is perhaps a good indication of the use of such minerals in biblical times. Closer home, the ancient empires of Ghana, Mali and Songhai have long been associated with gold and gold mining as far back as the 9th Century. What needs to be taken note of is the changing trend in the method of extracting the mineral from the rocks.

Technology has and will always continue to change the way humankind do things. Indeed the scratching of gold-bearing land surfaces and panning, as well as some simple dredging of riverbeds and banks are perhaps the oldest methods of mining. Gold produced via these methods were mainly in small quantities for domestic purposes. However, modern large scale production of gold has been undertaken through underground mining where, thanks to advancement in technology which has made it possible for miners to burrow deep into the belly of the earth, through long shafts, some as deep as several kilometres.

World gold production history

South Africa is perhaps the only major gold producing country in the world where underground operations still dominate. The country's gold mines have dominated world gold supply since the Witwatersrand was discovered in 1886. A look at the global gold production statistics clearly indicates that this dominance has been maintained even if its has been seriously challenged over the years.

As far back as 1970, South Africa produced 32million oz of gold, about 2/3's of the world's production of 47.5Moz. Russia was a distant second at 6.5Moz, whiles Canada, the US, and Australia, produced 2.4, 1.7 and 0.6 Moz, respectively. The rest of the world accounted for less than 9% of production. Thus the top five countries account for over 90% of the world's gold production. Ghana's total gold production during the same period was a little over 300,000 oz. Twenty-five years on, world production hit 72.3Moz with South Africa producing 16.8Moz (23%) while the US and Australia (25.4%) produced 10 and 8.2Moz respectively. Production of gold during the same period by the rest of the world had jumped to 5Moz (about 38%). Ghana alone produced about 1.5Moz. In line with this trend, in 2003, world gold production reached approximately 87Moz, but South Africa now produced only 14Moz. Indeed during that year, world gold production was equally split between the top 5 and the hitherto marginal producers (including Ghana).

Ore, Technology and cost An article in the July 2004 (also quoted in the August) edition of a leading business news magazine in South Africa, the Financial Mail South, described South Africa gold mines as a "dinosaurs in their death throes." The question is, what explains the downward trend in the production of Gold in the worlds No.1 gold producing country, South Africa, in the face of increasing world production? To answer this, we need to quickly discount the impact of gold price. It is of course a basic fundamental economic principle that ceteris paribus, the higher the price the higher the supply of goods. However, in a situation of a monolithic world market, i.e. where every producer faces the same price as is the case of the world gold market, price becomes a neutral factor. It must also be conceded at the outset that certain peculiar socio-political factors such legal, fiscal and general investment regimes may have significant impact on the mining industry of a country.

The key explanation for the trend of event discussed above can be found in two factors: availability of gold-bearing ore and technology, both of which combine to affect production cost. Gold, like other metals occur in situ and so if it is not there, it is not there. One cannot grow or propagate gold as may be for agricultural produce. This means that a country is either endowed or not endowed with gold. A study published in 2002 Beacon Advisers, a Minerals Consultancy Company, known resources associated with current mines were around 1,227 m oz or just over 38,000 tonnes. If all of this could be extracted economically this would amount to around 15 years production at current production rates. However, in practice the amount of known resources remains fairly constant over time since the results of new exploration finds replace those resources that are exploited. The problem is how to identify, locate and mine such a resource in economically, socially and environmentally viable manner. It must be emphasized that no mining operator worth its salt will decline to mine underground if it is profitable to do so. Indeed, it makes business sense to mine any mineral if the overall cost permits it, irrespective of its location: underground or surface. Therefore the decision to mine underground or overland in an era of liberalization is not political. It is mainly a function of cost and viability.

In South Africa where underground gold mines are getting deeper and the high cost of operations has largely become the bane of its declining production. Underground mining is so very expensive because everything must be done on a small scale and most work is done by hand. This requires many more people and where machinery is used, it must be small. According to the World Gold Council, the world average mining cost per troy ounce was around USD 235.00 in 2002 (based on figures published by Gold Field Mineral Services). These costs include depreciation and amortization but to get a true estimate one should add between 30 and 40 USD/ounce to cover exploration, head office costs and so on. However, costs vary widely between companies and the mines themselves. Over the years, the cost of mining underground worldwide has been growing steadily relative to declining gold prices. To move one tonne of ore from a typical underground gold mine cost close to US $30.00, while the cost to move the same quantity of ore in a surface mine is closer to US $4.00. This means that for an underground mine to be viable requires that the grade must be relatively high. Even if gold prices were at $500 per oz (gold price in December 200 hit $440, the highest in eight years), it would require an average of 6 grams of gold per tonne of ore for an underground mine to be viable.

Low underground mining prospects in Ghana

The grade of ore refers to the proportion of gold contained in the ore of a particular mine and is quoted in grams per tonne (g/t). The type of mine depends on the depth and grade of the ore. South Africa still has very deep and rich ores. They are too deep for surface mining and have a value high enough to pay the cost of mining. At a rough estimate, the larger, better quality South African underground operations are around 8-10g/t (Anglogold and Gold Fields), while the marginal South African underground mines run at around 4-6g/t. Many of the operations elsewhere in the world are open pit mines, which run at lower grades, from as little as 1g/t up to around 3-4g/t. A more significant piece of information than average gold mining grade is cost per ounce, which is a combination of grade (grams/tonne) and operating costs (USD/tonne).

Ghana has largely exhausted its high-grade underground deposits. Apart from Obuasi, there is hardly any known meaningful deposit of gold underground, which exceeds the 6 grams per tonne mark indicated above. This is not to suggest that the country does not abound in gold. In fact there is virtually no place in Ghana where traces of gold cannot be found. The fact is they are of low-grades and are mainly on the sub-surface not deep underground.

In spite of our historical name of the "Gold Coast," Ghana did not become an important gold producer in global terms until the early 1990s when surface mining began. Prior to that Ghana operated about four small underground mines at Obuasi, Tarkwa, Prestea and Konogo. The mines were small by global standards and very expensive to operate, so they produced very little.

The views of the writer are not necessarily the views of The Chronicle.

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