AngloGold battles costs at loss-making Ghana mine

ACCRA — The cost structure at AngloGold Ashanti’s flagship Ghana gold mine is unsustainable and the company is looking to make cuts to counter rising costs and falling production, CEO Srinivasan Venkatakrishnan said this week.

Production costs per ounce have more than doubled since 2008 at Obuasi, Ghana’s largest mine. A fall in gold prices this year has added to the financial strain and the Ghana unit is relying on its parent for funding. "Obuasi is currently making losses at the operating level," Mr Venkatakrishnan said.

AngloGold, Africa’s biggest gold producer, swung to a loss in its second-quarter results issued this month.

The company will spend $30m-$40m this year on a long-term plan to build a ramp to improve access to the ageing Obuasi mine and speed up mechanisation in a bid to raise production volumes and lower costs. "We are looking across the business at reducing costs and improving productivity by investing capital in the new ramp access," Mr Venkatakrishnan said.

The mine’s biggest expenses are payroll and electricity. Mr Venkatakrishnan said the company wanted to eliminate wasteful expenditures and was also considering worker layoffs.

Ghana is the second-largest gold producer in Africa and Obuasi is its most prominent mine. Mining is the top source of government revenue. The country exports gold, cocoa and oil.

"Government is very concerned about what is happening. They (AngloGold) came up with various options that are being considered and so we are waiting to hear what they intend to do," President John Mahama said in an interview on Monday.

Mr Venkatakrishnan said Obuasi produced 58,000oz during the second quarter at a total cash cost of $1,560/oz. It produced 357,000oz at $633/oz in 2008 and 280,000oz at a total cash cost of $1,187/oz last year.

The Ghana Mineworkers’ Union said AngloGold had notified it of 450 job losses to come out of a total workforce of more than 5,000 people, said senior union official Erik Gyima.

AngloGold merged with Ashanti Goldfields in 2004 but found maintaining the century-old mine cost more than expected, says a former AngloGold executive.