Interview: Johan Ferreira
What local content would improve the supply chain?
JOHAN FERREIRA: It is essential that we create sustainable, competitive local businesses, as well as a business-friendly operating climate. This needs to happen both in host communities and at the national level. In Ghana, the industry’s local procurement strategy has focused on supporting the growth of the manufacturing sector. A unified local procurement plan will aggregate the mining industry’s demand and provide base volumes for new investment in the country. Some of the commodities in the industry’s procurement plan include major spend items like grinding media, activated carbon and electric cables, which were once imported.
How has the development of the oil and gas industry affected the mining sector?
FERREIRA: Production in Ghana’s oil and gas industry has been ongoing for about three years now, and it may take a while before one can evaluate the impact of its operations on the mining sector. However, there are already some effects being felt in the area of human resources. There is competition for health and safety personnel since both industries have similar health and safety needs. This has driven up the cost of labour for personnel with requisite skills in this area. Having a predictable and reliable power supply is also critical to business growth and investment in Ghana. With the inconsistent supply of Nigerian gas, Ghana currently relies on crude oil to generate electricity. This has a direct bearing on our operational costs, with power being one of our largest direct cost drivers.
The oil and gas sector is enabling the government to construct a gas processing plant so that the nation can rely on its own natural gas for electricity generation. This project is likely to ensure a more stable and less expensive electricity supply, which will certainly have a positive impact on our direct operating costs.
Opportunities for synergy between the two industries have not been fully explored. Reliable oil and gas supply along with increasing demand should attract independent power producers, improving electricity supply. Both industries can also explore the creation of a local content policy to enhance local business capacity and improve access to contracts. A similar approach can be replicated in training for health and safety personnel, environmental management and areas that have similar skill requirements.
Has the decline in gold prices improved efficiency?
FERREIRA: With rising cost pressures coupled with a declining gold price, sustainability in the near term is essential in order to ensure viability and enable future growth potential. A greater focus has been placed on all-in sustaining cost (AISC). Management decisions emphasise reducing overall AISC to generate enough free cash flow in the near term to sustain current operations, while progressing growth projects within the pipeline. In international mining companies, this equates to competing for capital resources within a global pipeline of projects. Mining units within the larger company must perform feasibility studies to prove the economic viability and competitiveness of such projects.
Gold mining operations have multiple areas to focus on to positively impact their overall profitability and cost base. One option is to optimise the existing asset base through continuous improvement projects and focusing on value over volume. Another is to focus on higher value and less risky organic growth projects and exploration opportunities within current operational lease areas. A third option involves managing direct operating expenses and sustaining capital costs within our control. This entails re-basing our existing operations to sustain the cost reduction trend. Re-basing involves aligning mining rates to milling capacity, reducing stockpiles, assessing the resources needed to maximise the value of an operation and reducing overall sustaining capital spend in order to stay profitable. The free cash flow generated from the above efficiency improvements can then be used to sustain current operations and fund upside potential investment opportunities.
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