The cost of producing an ounce of gold has increased putting a strain on gold producing companies.
In Ghana, the production of gold increased by 7% compared to the 5% increase witnessed by gold producers across the globe.
The elevation in the general price level across most mining jurisdictions exerted upward pressure on the cost of gold production through the increase in fuel and energy tariffs, wages of employees, and prices of consumables.
The cost-push inflation drove the unit cost of gold production. Between 2022 and 2023, the cost of producing one ounce of gold in Ghana jumped from $1,430 to $1,540.
But what accounted for the about $100 increase in the unit cost of gold production despite the growth in the volumes of gold produced in the country last year?
Factors driving the escalating costs of gold production, as identified by the Ghana Chamber of Mines, include a general reduction in gold production by a number of local mining firms.
That was not all. Rising prices in mining consumables and equipment also contributed to this increase, but more importantly, the increase in taxes by the government, such as the growth and sustainability levy, income tax, VAT on mining companies for the supply of power, and levies imposed on petroleum products, were all major contributory factors.
Players in the mining industry are concerned about the disparity between Ghana and the world’s All-In Sustaining Costs (AISC) – which is the main parameter in determining the cost of producing an ounce of gold.
ThE spread between the global and Ghana’s AISC increased from US$203 per ounce in 2022 to US$243 per ounce in 2023, which proxies the heightened cost pressures facing gold producers in Ghana.
Further, the acceleration in cost resulted in a narrower margin between gold price and cost for producers in Ghana relative to their peers in other mining jurisdictions.
The margin of global producers stood at US$642 per ounce in 2023 whereas that of Ghana was US$398 in the same period.
In the previous year (2022), the margin for global and in-country gold producers was US$567 per ounce and US$364 per ounce respectively.
This also implies that the rate of rise in Ghana’s margin (9.4 per cent) was slower than that of the global producers (13.1 per cent).
These question the competitiveness of the mining sector in Ghana as the increase in the cost of production affects both large and small mining firms in the country.
For example, the cost of an ounce of gold produced by Abosso Gold Fields Limited saw a 55 percent increase—from $1080 to $1680 per ounce.
AngloGold Ashanti Obuasi Limited’s cost jumped from $1260 to $1770, a 41% increase.
Newmont Golden Ridge Limited’s cost rose from $970 to $1200 during the period under review, representing a 24.5% increase.
These developments were further exacerbated by higher costs of sales and increased royalty payments in the face of lower gold sales.
