Business in Ghana

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Anglogold Bites Bullet At Troubled Obuasi

Posted by Business in Ghana on May 20, 2014

By Brendan Ryan, Business Day Live

AngloGold Ashanti intends shutting down underground operations temporarily as part of a drastic final attempt to turn troubled mine around

HAVING lost more than $1bn on the Obuasi mine in Ghana since it took it over in 2003, AngloGold Ashanti now intends shutting down the underground operations temporarily as part of a drastic final attempt to turn the troubled mine around.

Announcing the decision at the group’s March quarterly briefing on Monday, CEO Srinivasan Venkatakrishnan outlined sweeping measures, including the retrenchment of most of the 6,500-strong workforce, to ensure Obuasi’s long-term future.

Mr Venkatakrishnan also said AngloGold Ashanti “was considering other strategic alternatives for its Ghana business”.

SBG Securities mining analyst David Davis said: “At long last they have bitten the bullet at Obuasi, but in a constructive manner.”

Mr Venkatakrishnan said $600m had been pumped into Obuasi from AngloGold Ashanti’s corporate funds, a nd $500m more had been invested through funds generated by Obuasi itself.

Asked to elaborate, Mr Venkatakrishnan said it was possible that a partner could be found to invest in Obuasi once the problems had been sorted out.

“Initial discussions we have had with people indicate a range of strategic opportunities could be opened up. The ore body is still lucrative and has huge potential.

“Historically, the big problem has been around labour. If we can deal with the labour issue and concentrate development around one part of the underground mine, then it’s a very attractive business. The entire operating cost model changes,” he said.

Mr Venkatakrishnan said the programme would cost AngloGold Ashanti $220m to implement this year and would include the retrenchment costs for a “significant” — but unspecified — number of workers.

AngloGold acquired Obuasi when it merged with the former Ashanti Goldfields to create AngloGold Ashanti under former CEO Bobby Godsell.

Randgold Resources bid against AngloGold for Ashanti Goldfields but Randgold CEO Mark Bristow called a halt over the commitments demanded by the Ghanaian government.

“We did not take over Ashanti Goldfields because we were not prepared to pay too much for it,” Mr Bristow told the Financial Mail in November.

Asked why AngloGold Ashanti was taking action only now after pumping in so much money for so long, Mr Venkatakrishnan said: “The cash bleed from Obuasi was affordable when the gold price was $1,500 to $1,700. The collapse in the gold price has changed everything.

“We have fundamentally come to the conclusion that the employment model and social model have to change.

“Obuasi is a challenging asset but technically it can be fixed. I think the softer, social issues were underestimated.”

Mr Venkatakrishnan said these issues included “legacy overhangs” and “outdated business models”. He cited in particular the generous, dollar-denominated pay agreements and retrenchment packages for workers. “We are looking at retrenching a significant number of the workforce to put an end to the ballooning retrenchment formulae and then re-employ on a sustainable employment model.

“We have spent six to nine months consulting with the government and the wider range of stakeholders over what has to be done. We could have done this unilaterally as AngloGold, but we wanted to get everybody on board to work together.

“The government is supportive. They recognise the long-term future of the mine is at stake here. They think this is being correctly done and they want to support us in seeing the turnaround actually happen,” he said.

AngloGold Ashanti’s March quarter results were positive, with gold production up 17% year on year at 1.06-million ounces and total cash costs down 14% year on year to $770/oz.

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