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Damang, Tarkwa to receive major cash injection until 2027

29th July 2016

By: Sascha Solomons

  

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South African gold mining firm Gold Fields asserts that a planned $2.5-billion investment in its Tarkwa and Damang operations, in Ghana, from now until 2027, will ensure the longer-term sustainability of these mines.

Damang will absorb an estimated $500- million, of which a significant portion could be spent over the next few years to expand the mine and avoid placing it on care and maintenance.

About $2-billion is likely to be allocated to the Tarkwa mine – one of the largest openpit mines in Africa – over the next 11 years to ensure further exploration, sustaining capital expendi- ture and, if required, the expansion of Tarkwa’s processing and mining facilities.

It is envisaged that the $2.5-billion will be generated from cash flow at both mines, rather than debt or equity funding.

Following the signing of a development agreement between Gold Fields and Ghana’s government earlier this year, Ghanaian media reported that the investment was to serve as a fiscal incentive to help stimulate growth in the Tarkwa operations and revive the Damang mine. Growth has stagnated over the past five years at Damang, owing to the challenges associated with the rising cost of production in relation to lower grades of the orebody and declining gold prices.

“The recently enacted development agreement helps give us the certainty amid possible fiscal changes in Ghana while assisting with improved cash flow for future investments,” Gold Fields corporate affairs VP Sven Lunsche tells Mining Weekly.

The agreement includes a reduction in the corporate tax rate from 35% to 32.5%, effective since March this year, and a change in the royalty rate from a flat 5% of revenue to a sliding-scale royalty based on the gold price, which becomes effective in January 2017.

Lunsche adds that the agreement covers Tarkwa for 11 years and Damang for nine years, each renewable for an additional five years.

Gold Fields West Africa stakeholder relations VP David Johnson told Ghanaian media earlier this month that the agreement with government provided fiscal predictability for the company, as it eliminated the painful fiscal uncertainty often occasioned by periodic adjustments in taxes, royalties and other statu- tory payments.

“We need a stable fiscal environment that will help us make an informed decision about investment,” he commented.

Lunsche tells Mining Weekly that the investment decision on Damang has not yet been taken.

“The agreement is obviously a positive input into the decision-making process, though we are considering many other economic, financial and mining variables in the process.”

Lunsche asserts that the reduced payments to government will feed into the review of Damang, as the company considers the injection of capital to widen the ten-year-old Damang pit and extend the life of the mine.

He explains that, if Gold Fields decides to invest in Damang, it should safeguard many of the 1 500 jobs at the mine. Had the investment agreement been in place in 2015, it would have resulted in an average $45/oz reduction in all-in sustaining costs (AISC) at both mines, translating to a $33-million saving that year.

“We have also calculated that there would be a 5% saving on AISC at Tarkwa over a 15-year life-of-mine. This is money that can be made available for further productive investment that will enable the mines to reduce the AISC of production and ensure its longer-term sustainability,” Lunsche highlights.

He further notes that, as part of the company’s commitment to Ghana, following the signing of the development agreement, Gold Fields has also agreed to spend between $15-million and $17-million on the construction of the 30 km Tarkwa-Damang road, in the western region.

“This was going to be a joint venture between government and Gold Fields, but the company has agreed to fund the entire development of the road. Local companies and community members will be given preference in the appointment of contractors and workers for the project,” Lunsche concludes.

Edited by Tracy Hancock
Creamer Media Contributing Editor

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