We forecast gold production in Ghana to achieve substantial growth in 2021 on the back of the achievement of steady operations at Phase 2 of AngloGold Ashanti’s Obuasi Project. Ghana will maintain its position as Africa’s largest gold producer in 2021, after surpassing South Africa in terms of gold production in 2019. AngloGold poured first gold at the Obuasi mine in December 2019 during Phase 1 of the project, and in October 2020 the firm reported that Phase 2 of the project is 68.4% complete.
While the Obuasi project targets a ramp up to 2,000 tonnes per day (tpd), operational rates have been limited to 60.0-70.0% of capacity throughout much of 2020 amid Covid-19-induced labour shortages. The firm currently expects to achieve a steady state of operation in 2021, increasing Ghana’s gold production by approximately 350-400koz per year during the first 10 years of Obuasi’s mine life. In turn we expect Ghanaian gold production to achieve 9.0% growth y-o-y in 2021, up from 2.0% growth in 2020, reaching 4.7moz of gold.
Ghana Surpasses South African Gold Production
SSA- Gold Mine Production, moz
e/f= Fitch Solutions estimate/forecast. Source: USGS, Fitch Solutions
Going forward, a strong project pipeline will maintain production growth in Ghana. Outside of AngloGold Ashanti several other major gold producers have project developments in Ghana. For example, Newmont Goldcorp expects to reach an investment decision on the USD700-800mn Ahafo North deposit in 2021, which would increase gold production by 250koz per year during a 13-year mine life.
The project has been progressing through the permitting process virtually due to the Covid-19 pandemic and possesses a three-year project timeline, adding upside to medium term production. Additional pipeline opportunities at Newmont’s world-class Ahafo gold mine include the Subika underground expansion project for which the firm updated the mining method in Q220 to extend the mine life and increase cost efficiency.
Exploration and extension strategies at Kinross Gold and Galiano Gold will help mitigate maturing assets. In September 2020, Galiano Gold, joint-owner of the Asanko gold mine with Gold Fields reported that its near-term exploration strategy will focus on offsetting depleting production.
In the longer term the company will aim to have its exploration targets in production to replace the Esaase deposit at the Asanko gold mine. Additionally, a mine life extension at Kinross Gold’s Chirano will drive the firms production growth from 2021-2023 while possible underground extensions could extend the mine life through 2025.
Project Pipeline To Provide Steady Growth
Ghana – Gold Mine Production, % chg y-o-y
f= Fitch Solutions forecast. Source: USGS, Fitch Solutions
Elevated gold prices on the back of global economic uncertainty will bolster gold mining investment in Ghana. Gold prices have rallied in 2020 amid the Covid-19 pandemic, and we now forecast an average annual price of USD1,850/tonne in 2020. In Q320, a second wave of the virus hit Europe and the United States, prompting a widespread reinstatement of lockdown and preventative measures which will dampen investor sentiment going into 2021, and support demand and prices of safe haven assets including gold.
Furthermore, should a successful Covid-19 vaccine fail to be approved and rolled out across developed markets during the first half of 2021, this would delay the economic recovery. As such we expect persisting elevated gold prices to encourage foreign investment in the Ghanaian gold sector.
Nevertheless, a recent conflict concerning Ghana’s gold royalty fund’s listing on the London Stock Exchange (LSE) will increase policy uncertainty in the Ghanaian mining sector in the near term. In October 2020, the government of Ghana announced it would delay the initial public offering (IPO) of Agyapa Royalties for USD500mn, the government-financed fund which holds rights to the country’s gold mining royalties.
The delay was issued in response to calls by the opposition party, the National Democratic Congress, for an independent investigation into the company’s valuation and registration in Jersey, an alleged tax haven.Elevated Gold Prices To Incentivise InvestmentGold Spot, USD/oz
f= Fitch Solutions forecast, Source: Bloomberg, Fitch Solutions.
In addition, a victory of Ghanaian Presidential incumbent, Nana Akufo-Addo, will foster a continuation of the agenda to monetise future royalties, posing risks to mining investment in Ghana and our longer-term forecasts. Despite a recent decline in approval, our Country Risk team expects the NPP to maintain control of the Presidency and legislature in Ghana’s December general elections.
In the longer term, if an LSE listing is accomplished, international miners could face increasing threats of resource nationalism as the government could seek to increase gold mining royalties to maximise the return on its remaining equity in Ayapa. By selling future royalties now to raise funds without increasing the country’s vast debt, Ghana will cut down on its future revenue streams necessary to pay off present debt.
The risk for resource nationalism is echoed in previous statements made by Akufo-Addo in 2019, when he stated that foreign mining companies should not expect to make monumental profits off of Africa’s resources.
