A SUPPLEMENT TO EUROMONEY/APRIL 1998: GHANA – THE SEARCH FOR INVESTMENT
Ghana’s economic strategists are fighting hard to regain credibility after almost four years of drift and slippage. They are having some success. The IMF, having acknowledged that underlying fiscal performance is improving and inflation is coming down, has again given its backing – a key signal to other donors and investors.
US president Bill Clinton’s decision to kick off his 11-day African tour with a visit to Ghana on March 23 was another plus point. “The president has chosen Ghana to be one of just five African countries which are being held up as role models for economic liberalization and democratic governance,” said Ghana’s communications minister Ekwow Spio-Garbrah. “If the US president enters Africa through Ghana, then I think other [foreign] businesses can feel good about using Ghana as a gateway.”
Clinton was equally bullish, drawing attention to legislation before the US congress that will lower tariffs for textile exports from African countries, set up infrastructure and venture capital funds and open up the Exim Bank and other institutions to African countries deemed ready. “Today Ghana lights the way for Africa,” Clinton said. “Democracy is spreading, business is growing, trade and investment are rising.”
Underlying improvements in Ghana had begun to spur hopes of a recovery in business confidence until an energy crisis emerged this year. Low water levels behind the Volta hydroelectric dam have forced power cuts and could derail the 1998 budget’s growth and fiscal plans. Even here, though, Clinton was able to offer some help, announcing a $67 million “grant” to help solve the crisis.
The stakes are high, given government commitment to pushing through some of its most unpalatable structural reforms to date, including a massive cut in the public-service workforce.
The World Bank has suggested two possible medium-term outcomes. The favourable one is “lower inflation, higher private investment and exports, and faster growth” – the takeoff that has so far eluded Ghana. The unfavourable view is of “a vicious cycle of increasing debt burden, rising inflation, faltering growth and growing poverty”. Government performance in recent years suggests either outcome is possible. For now there’s stagnating private investment and annual GDP growth of between 4% and 5%.
Building blocks that could form a foundation for the favourable outcome are, however, in place, based on active courtship of foreign investors and impressive fundamental reforms. These include a liberal policy framework and new investment legislation aimed at speeding-up processing of new projects.
The new investments have helped diversify Ghana’s exports, which are dominated by minerals and cocoa. Non-traditional exports increased to about $245 million in 1997. Free-zone legislation has paved the way for 10-year tax holidays and other investor benefits as part of a wider plan to create a regional gateway to the 16-member Economic Community of West African States (Ecowas) and a manufacturing base for exports.
The government has also restructured banking from a shambolic system saddled with non-performing loans into a sound, well-capitalized (though rather risk-averse) group of institutions, now competing with private banks. Full and part stakes in more than 180 state enterprises have been divested. This has drawn foreign direct investment and expertise into enterprises and portfolio flows to the Ghana Stock Exchange. The privatization of Ghana Telecom, replete with provisions for competition, has been hailed by donors as a model for the region.
Better economic opportunities have attracted back hundreds of Ghanaian professionals to run new banks and companies in the service and export sectors. “The mixture of skills and quality of people coming back is incredible,” enthuses a US banker in Accra.
Despite these advantages, successive fiscal deficits – which have bloated domestic debt obligations – leave Ghana particularly vulnerable. A low domestic savings rate (around 6% of GDP) makes the economy reliant on foreign investment. But poor energy, port and rail infrastructures put a damper on this.
Between 1984 and 1992 the government turned in eight years of sustained fiscal adjustment and falling inflation, and took a once corruption-ridden, declining economy to the point of takeoff in 1991. Officials spoke of graduating from reliance on conditional IMF financing and went back to the syndicated loan markets for the first time in decades. Private investment rose to a 10-year high of 8.1% of GDP in 1990. After a pre-election binge in 1992 – including 70% civil service pay rises – Ghana moved back into intensive care. By 1995 it was borrowing adjustment funds from the IMF again, only to have the programme suspended amid fiscal profligacy before the 1996 elections. Inflation hit 70% at the end of 1995, forcing interest rates up as a counter-measure.
The treasury’s continuing issuance of high-yielding bills diverted funds from equities and its monetary measures put financing beyond the reach of smaller businesses. As a result, private investment fell back to 4% of GDP in 1996. Servicing costs of the cumulative debt from fiscal deficits are the single largest budget outlay. These were the main cause of last year’s large broad deficit which undermined the best underlying fiscal performance in years. Cuts in capital spending and a 37% increase in tax revenues raised the primary budget surplus to 3.4% of GDP, from 0.3% in 1996.
The government also maintained tight monetary measures – interest rates above 40% – to continue reducing inflation. The year-on-year rate dropped to 20.8% in December, from 32.7% in 1996. The current account deficit narrowed too, from $322 million to $213 million, after imports contracted by $200 million as a result of government cuts and cedi depreciation.
Had imports remained at 1996 levels, there might have been an external accounts crisis. As things stand, foreign debt, at just over $6 billion, remains troublesome but manageable. Arrears owed by earlier administrations have been paid and the government remains in good standing with international creditors.
Predictably, donors expect a tough diet of fiscal and monetary austerity between now and 2000. The plan calls for the primary fiscal surplus to rise to 5% of GDP by 2000, to reduce debt service and provide more opportunities for the private sector to borrow. Public-service reform poses the trickiest expenditure challenge. The public sector requires radical restructuring, with sweeping job cuts projected to free funds to pay more attractive salaries to professionals in a leaner, more accountable, system. But the government assumes a nearly unchanged wage bill until 2000.
The other challenge is tighter control of non-wage outlays. These include implementation of the Public Financial Management Reform (Pufmarp), which includes measures and technology to track, monitor and control spending. It also calls for more contracts to be put out to competitive bidding.
On the revenue side, the government’s plan assumes taxing consumption more (through value-added tax) and trade less. The latter includes increasing the share of the world cocoa price farmers receive to 60% by 2000. The programme also sets out plans to improve the infrastructure further. Since donors are shifting out of such funding, and budgetary constraints limit government investment, the only solution is to get the private sector into areas that need most attention.
Separately the government has invited private companies to provide the infrastructure for free zones, in a bid to spark manufacturing investment. The strategy also envisages further financial reforms and policies to boost savings and to improve competition and intermediation between savers and investors.
Banks have not provided adequate services to smaller businesses, particularly those geared to the domestic market. The 1998 budget contains measures to boost lending to commercial and small-scale farmers, and measures are in place to boost micro-finance operations.
However, delays in implementing some of these reforms already – The National Institutional Renewal Programme (Nirp) and Pufmarp have been on the agenda for some years – underline the difficulties: Ghana’s public-sector workers have suffered big real-wage cuts in recent years and may oppose pay ceilings. This would make it all the more imperative for Nirp to be implemented to meet the budget target. Sceptics doubt the government has the political will to fulfil its job-cut targets.
Charles Jebuni, research fellow at the Centre for Economic Policy Analysis in Accra, reckons only parliament – which is constitutionally empowered to force the government to keep within budget spending targets – can do the job. Until recently, though, it has lacked all the facts. The new “broad” budget format will, though, make it easier to scrutinize public finances.
Even if the government does get fiscal and monetary policy right, some of its foreign investment goals – particularly plans to become an export manufacturing base – could prove elusive. There are doubts about the gateway-to-Ecowas concept. The government perceives Ghana as an oasis of political and economic stability in a troubled region. But intra-regional transport costs are cripplingly high and regional poverty and instability limit market growth.
It was also hoped Asia would provide investment; the fear now is that currency depreciation there will rather throw up bargains that provide unwelcome competition. That said, Ghana still looks relatively attractive to foreign investors: it is resource-rich and is still privatizing, its reformed financial systems are sound, and its government is pragmatic. Private investment is the missing factor.
A banking system stirs
Many banks in Ghana do little more than invest their deposits in government securities. But, as Patrick Smith reports, some are pushing into such areas as trade finance, retail banking and lending to smaller companies
Despite the outward signs of progress indicated by Accra’s burgeoning financial district, the decade-old process of reforming and restructuring Ghana’s financial sector still has a long way to go. High inflation, cedi depreciation and high interest rates have encouraged conservatism. For the established banks this means large deposit bases, some of which are invested in high-yielding government securities with most of the rest lent to blue-chips or to smaller companies working for the government. By last month treasury bills were yielding 47.5% while the average lending rate to the private sector was around 40%. So almost all the borrowers for productive investment are big multinational affiliates. Most of the other private bank credit is for fast-turnround trade finance.
This is beginning to change as financial-sector reforms and liberalization kick in. Abolition of credit allocations has allowed banks to reshape loan portfolios; ending control over banking fees has made the market more competitive; and banking supervision and asset quality have been greatly improved. Most important, most of the state stake in local banks has been sold. For example, Social Security Bank is now 52% owned by investment funds led by London-based Blakeney Management. Under managing director Kojo Thompson, SSB has made electronic banking innovations and lowered rates on loans to blue chips to around 30% last year.
Much still depends on broader conditions. Bankers such as CAL Merchant Bank chief executive Kofi Bucknor and Standard Chartered Bank (SCB) chief executive Visnhu Mohan detect a slowing of inflation and a stabilization of the cedi that should help lower interest rates generally. SCB research suggests cedi depreciation will slow from an average 27% in 1997 to about 15% this year. CAL estimates inflation will slow from an annual rate in the mid-30s in 1997 to around the mid-20s this year.
Competition in the banking market is driving much innovation as newer entrants cannot rely on large deposit bases and lending to government. The formerly state-owned Ghana Commercial Bank (GCB) has the most branches and the biggest deposit base. Despite this, it is losing ground. SCB’s local affiliate has a GSE listing and its shares have outperformed GCB’s and yielded better returns. GCB is still in the throes of privatization. After the bank was floated on the GSE in February 1997 Malaysia’s Denko Corporation emerged as the would-be purchaser of a 40% stake for $25.6 million. A year later the deal has not been sealed, possibly because of the Asian crisis. Meanwhile GCB’s London branch, which generated about 40% of group net income in 1996, was hived off in February to form Ghana International Bank. GCB retains a 40% stake in this.
GCB’s new chief executive, Archibald Tannor, is pressing ahead with computerization and staff retraining to make the most of its large branch network. Its presence throughout Ghana has also given it a lion’s share of the foreign-remittance market, now worth more than $300 million a year.
The most aggressive competitor has been SCB. With a much smaller deposit base than GCB and SSB, it has diversified. Net interest income now accounts for 60% of business and 40% of its non-funded income comes from a rapidly expanding trade finance portfolio. SCB was the first bank in Ghana to offer ATMs. Over the next three years, it is investing C25 billion in computerization and retraining. “There are growing links to the international economy through Ghanaians returning home after long periods abroad and those sending remittances from overseas,” Mohan says. “People want local banking services to be as good as international services.”
Domestic savings remain problematic. A World Bank report concludes that the financial system is too small. Total financial assets and non-bank intermediaries amount to less than 20% of GDP, and the volume of credit extended to productive enterprises is much lower than in Asian countries. The World Bank believes transaction costs for financial services remain too high and that more organized credit information and collaboration across intermediaries is required. It wants Ghana to develop bill-based facilities, term finance and supporting secondary markets in securities.
The bank study suggests the use of time and savings deposits must be a big part of the effort to boost local savings. It wants a local securities market developed, with increased issuance of corporate debt and equity and the use of contractual obligations issued by pension funds and insurance companies.
Hitting the ground running
Banker Kofi Bucknor is a shining example of the skilled Ghanaians beginning to flood back home. Patrick Smith talks to him about Ghana’s economic prospects
When the National Portrait Gallery in London put on an exhibition of portraits of black achievers in the UK, one of those it selected was 42-year-old Ghanaian banker J Kofi Bucknor. Although the distinction was earned in the UK, it could equally have been Ghana, or neighbouring Côte d’Ivoire where he was treasurer at the African Development Bank, or the US where he cut his teeth as a corporate banker at Chemical Bank.
Bucknor puts his return to Ghana after 20 years in the US, Europe, Asia and other African countries in the context of a wider homecoming of Ghanaian professionals. “Many of us who have pursued professional careers overseas have achieved the goals we wanted and are now looking seriously at the opportunities in Ghana,” he says.
This back-to-Africa generation was persuaded by an upturn in economic fundamentals, Bucknor says. “You’re looking at a complete change in the business environment from when my generation left Ghana.” The first sign of this was the steep rise in Ghanaians’ expatriate remittances to more than $100 million a year a decade ago. Now they are running at more than $300 million.
Much of the money went into residential property investments, particularly in the capital, Accra. But in the last few years, Bucknor says, a widening range of professionals has been coming back to set up companies and invest in sectors where they can capitalize on skills such as IT and medicine and are helped by networks built up overseas.
As managing director at CAL Merchant Bank in Accra, Bucknor sees the bank’s role as a catalyst for these trends. His career, first as a vice-president at Chemical Bank in the 1970s and 1980s and more recently as executive director at Lehman Brothers, has given him hands-on experience at the sharp end of corporate finance and insights into how Ghana might do its banking business better. And his stint at the African Development Bank, where he managed the institution’s $1 billion annual borrowing in the Eurobond, yankee and samurai markets, put him on the other side of the counter.
Bucknor impressed many bankers during his time at the AfDB as a consummate professional who kept his head amid political infighting, but he sees the private sector as his natural habitat. An energetic and intense man, he was described by one of his former colleagues as “someone who hits the ground running”.
“CAL is a niche player but we are at the cutting edge of the banking business,” Bucknor says. CAL has built a reputation for financial engineering for local corporates – such as a successful rights issue for Guinness Ghana and lead management of a $5 million fund-raising effort for a formerly state-owned food-processing company – but also as an innovator. Several of the local mining houses seeking local listings sought out CAL for its analytical and diagnostic skills. Its international reach is enhanced by having as shareholders the IFC (25%) and the Commonwealth Development Corporation (15%). Established in 1991, CAL’s assets grew steadily to C50.4 billion ($21.9 million) in 1997. Net operating income reached C5.1 billion.
Bucknor eschews the easy banking options. While the older established commercial banks can keep afloat on their huge deposits, the younger banks – especially investment banks such as CAL – have to work much harder. Conceding that lack of investment is retarding Ghana’s growth, Bucknor argues that local resource-based industry could be developed much faster were the right financial packages available. The bank is moving into leasing arrangements and looking at asset-backed financing deals.
Bucknor says the Asian meltdown offers several lessons: “The integrity of banking and financial systems is critical, as is accurate economic information to base decisions on.” And that is where Ghana is making progress, he insists. “Morale in the sector is good and banking supervision is excellent.” Banks lagged behind other sectors in the economic reform programme in its early phases, but now it seems Bucknor and many of his fellow bankers are ahead of the game and waiting for the rest of the economy to catch up.
The stock market grows up
Ghana’s stock exchange is buzzing. A few portfolio investors are quietly making good money as stock prices rise. The listing of Ashanti Goldfields brought critical mass, and privatization should bring further new equity. Patrick Smith reports
For some years emerging-markets cognoscenti have been making substantial profits from the Ghana Stock Exchange (GSE) despite quite high inflation and a depreciating currency. But few of these investors, such as London-based Blakeney Asset Management or James Capel, are particularly keen to publicize their good fortune. One reason is that there isn’t much room left. Like many African markets, the GSE is fairly illiquid with relatively low trading volumes. But that too is beginning to change.
For those able to buy into the market’s blue chips, the returns have been spectacular, say analysts. Blakeney’s own quirky investment guide extols the opportunities: “Prices have finally been kicked out of the rut they had been stuck in for the last three years and are now spiking upwards whenever they trade. Admittedly that is not very often.” The bulletin then reports that many of its fund’s holdings have gained 30% to 50% in the past quarter. “Despite these moves, the market remains the cheapest in the known world. Prices could double from these levels and still be excellent value.”
The GSE offers the chance to buy into well-managed, well-financed local subsidiaries of multinationals such as Guinness, British American Tobacco and Unilever at bargain rates. It has grown from modest beginnings. At its launch in November 1990 it had three brokerages, 11 listings and market capitalization of $75 million. Now it is a buzzing exchange with 11 brokerages, market cap of over $1.2 billion and 22 stocks, with many more in the pipeline as privatization progresses. It has moved from its cramped accommodation in downtown Accra to the new Cedi House skyscraper it shares with the central bank, the Bank of Ghana.
The Accra market took off after the 1994 flotation of Ashanti Goldfields Corporation and the government’s sale of 20% of its then 55% stake in the company. That year Ghana’s was the best-performing stock market in Africa, boasting 124.9% growth over the previous year. The AGC flotation not only boosted the Accra market: the stock makes up just over 70% of market’s cap. Trading volume too is picking up and there is a developing culture of takeovers and mergers. For example, last year Akwaaba Investments took over UTC estates (Ghana) after it bought out the Swiss parent’s 66% stake in the local company. There has also been a takeover battle for Enterprise Insurance in which Britain’s Guardian Insurance sold its 40% stake at the end of 1997.
Yeboa Amoa, the GSE’s managing director, says development of the equities market is a logical result of the government’s economic strategy in the 1980s. “The stock exchange has not come about as some afterthought. It’s part of a highly planned reform programme.” The GSE wants to increase the liquidity and depth of the market. A bond market is also being developed which the Housing Finance Corporation has used to raise funds.
Gradually Amoa and the government have begun to bring down entry barriers. Initially non-residents could not trade on the GSE. Now foreign investors may buy majority stakes and the repatriation of capital and dividends has been substantially liberaized.
Expansion has been driven by privatization. After AGC the sale of the state stake in Social Security Bank has given the market a fillip, as will the privatization of the large Ghana Commercial Bank – when it’s finally completed. Other large companies undergoing privatization are Ghana Airways and pharmaceutical conglomerate GIHOC. Despite initial controversy over valuation, the 1996 sale of 30% of the state holding in Ghana Telecom for $38 million to G Com, a consortium led by Telekom Malaysia, appears to have produced much-needed improvements in the phone service.
Another Malaysian company, Penang Shipbuilding, finalized a deal early last year to buy 60% of Tema Drydock for $4 million on the undertaking that it would invest at least $5.5 million over the two following years. The first year of operations under the new ownership brought a rapid expansion of ship-repair business, bringing vessels from across the region to Drydock.
Ghanaian companies have also been involved in talks with South African entrepreneurs impressed with the country as an entry point to the wider west African market. South African Breweries, the world’s fourth-biggest brewer, has been casting a predatory eye over some of Ghana’s well-managed and high-quality breweries.
Hostage to the gold price
Gold has dominated the Ghanaian economy since 1992 so the fall in the gold price is a worry. Ghana’s energy crisis hasn’t helped. Nevertheless the sector is expansive, with pan-African aspirations. Jon Offei-Ansah and Patrick Smith report
It is a time for steady nerves in Ghana’s fast-growing mining houses. The crash in the world gold price to $283 an ounce by the end of last year – the lowest since August 1979 – dominates prospects for the mining sector, and is critical for the wider economy. The slight recovery to $290 an ounce by mid-March has done little to lift spirits. In 1992 gold took over from cocoa as the main foreign exchange earner and output grew from 261,000 ounces in 1983 at the start of the economic reform programme to an estimated 1.6 million ounces in 1997. Speculation about how quickly and how far the price will bounce back dominates directors’ meetings at the mining houses.
Two other factors are complicating calculations. First, Ghana’s energy crisis has meant higher electricity prices and shortages. Energy rationing has not affected the mining houses’ production and processing operations directly – minister of mines and energy Frederick Ohene-Kana has assured the mining houses that he will ring-fence their supplies, given their pre-eminent role in the economy – but there are concerns that auxiliary industries supplying the sector will be affected by rationing.
Some help is at hand in the form of the Tano offshore gas project, whose exploitation has been under negotiation since the beginning of the decade. The first development wells were drilled in mid-1997 and Tsatsu Tsikata, chief executive of the Ghana National Petroleum Corporation (GNPC), which is managing the project, reckons the first gas-generated electricity will be produced later this year. The Tano power station, a floating natural-gas power plant, is owned by Western Power, a subsidiary of GNPC established in Ghana and the US. GNPC has been in talks with strategic investors in the company, principally US company Enron. The plan is for the eventual joint-venture to be floated on the Ghana Stock Exchange.
Electricity pricing is the key factor for the mining houses. Sam Jonah, chief executive of Ashanti Goldfields Corporation, which produces more than two-thirds of Ghana’s gold, takes an unsentimental view of the sourcing of energy; he has been exploring the possibility of importing natural gas from neighbouring Côte d’Ivoire despite GNPC’s Tano project. Jonah has emphasized that the key issue is reliable and “correctly priced” energy supplies. AGC officials had been unhappy with the government’s pricing structure and last year negotiated a tariff reduction to 4 cents per kWh.
Other mining houses that do not enjoy AGC’s economies of scale may take a different view. However their proportion of production is rising fast. Last year, Gold Fields Ghana’s opencast project in Tarkwa was approved. The principal shareholders – Gold Fields South Africa and Canada’s Golden Knight Resources – reckon production this year should reach 120,000 to 130,000 ounces, rising to 230,000 ounces over the next three years.
This will put Gold Fields in the big league in Ghana, which at the moment is dominated by AGC, producing about a million ounces a year, followed by Teberebie Gold Fields (in which the Boston-based Pioneer group has the major stake) producing about a quarter of that. The other two big-leaguers are Ghanaian Australian Goldfields (between 120,000 and 130,000 ounces a year) and Biliton Boguso Gold (100,000 to 110,000 ounces a year).
Quite how fears about the gold price will affect production targets this year is unclear; the number of mining licences issued by government has continued to climb, with more than 100 recorded last year compared with 75 in 1995. Gold is by far the dominant target for investors: Official diamond production was 272,000 carats in 1996 (almost all from Ghana Consolidated Diamond’s mine at Akwatia) although some sources estimate that at least another 100,000 carats are mined by small-scale miners. And bauxite production was 383,000 tonnes and manganese production 300,000 tonnes according to the Ghana Chamber of Mines.
None of this comes close to AGC’s colossus-like position; perhaps the best comparison is with Anglo American’s dominance of the South African economy. AGC, which had been restructured in the 1980s after years of state mismanagement, went into overdrive after the government sold just over 23% of its 55% holding in 1994, precipitating a major expansion of its activities. AGC was floated on the London and Ghana exchanges, raising $454 million, and two years later in 1996 it became the first African company to be listed on the New York Stock Exchange.
Since then AGC has been on a buying spree. In 1996, it acquired UK miner Cluff Resources, Canada’s International Gold Resources (IGR), and the Ghana government’s minority stakes in the Ayanfuri, Bibiani and Iduaprem gold mines. As well as being traded in Accra, London and New York, AGC is listed on the Australian, Toronto and Zimbabwe exchanges and is the largest sub-Saharan African company by market capitalization. It is now active in 10 African countries, with the main thrusts of exploration Tanzania, Guinea, Senegal and Niger.
AGC’s activities in Tanzania centre on Geita, previously East Africa’s largest gold mine, where some 900,000 ounces were produced before its closure in 1996. Resources have been increased to 3.4 million ounces and the results of a pre-feasibility study indicate the project is sufficiently robust to yield a positive return even at prices of under $300 per ounce. AGC’s Zimbabwean subsidiary has proven ore resources expected to last well into the next century and has an approved investment programme worth about $16 million to be spent at its Freda Rebecca mine and other parts of the country. AGC also has a stake in the Youga/Bitou concessions in southern Burkina Faso in partnership with Echo Bay Mines, with AGC as the operator. It also holds three concessions in Mozambique totalling 5,300 sq km with exploration at an early stage.
This corporate expansion strategy chimes with government hopes that Ghana will become the regional launch pad for the region’s mining boom. Ghanaian technical and financial expertise could service mining operations in all the neighbouring countries. There are signs this is being taken seriously by, for example, some of the state-owned and private mining operators in Mali. There are close relations between president Jerry Rawlings’ government and Alpha Konare’s in Bamako, with Ghanaians helping to draw up investment and mining practice codes.
Such developments are hostage to the gold price. For all AGC’s acquisitions and expanding production, its commercial performance has been uneven. With its London share price at 518p by mid-March, recovering from a year low of 408p, it’s a long way back up to a year high of 938p (fuelled partly by expectations of a takeover from South Africa’s Johannesburg Consolidated Investment). Although turnover for the year to December 1997 was up to $531.3 million compared with $458.7 million for 1996, operating profits were down to $78.9 million, compared with $81.4 million for 1996. AGC officials explain the profits dip partly as a result of the expansion programme and point to the substantial progress in cutting costs at its flagship Obuasi mines in Ghana.
But again the major issue was the gold price and the damage to AGC was minimized by its hedging strategy. As Jonah told shareholders: “These results reflect the strength of the group’s hedge book, which at the end of 1997 totalled 6.5 million ounces at an average price of $401 per ounce.” AGC was thus able to secure an average price last year around $100 an ounce above spot.
Exploration results from a joint AGC and international geological study at Obuasi last year confirmed the continuing potential of underground ore bodies there – even after 100 years of operations. Annual exploration spending at Obuasi is more than $10 million a year, more than half of which is for underground expansion.
AGC’s new projects at Bibiani in Ghana and Siguiri, Guinea, which began in early 1997, are expected to begin producing this year. Bibiani is projected to add 170,000 ounces a year at an estimated cost of $210 per ounce while Siguiri is projected to produce 150,000 ounces at $220 per ounce. Financings totalling $100 million were completed for the Bibiani and Siguiri projects last year. These financings – arranged by NM Rothschild for Bibiani and Société Générale for Siguiri – did not involve multilateral institutions or carry any political risk insurance, a first for a sub-Saharan African gold mining project.
Gold prices worries have not totally diminished AGC’s appetite for acquisitions and joint ventures. It has been approached by several smaller mining companies that are finding it difficult to raise finance; although increasingly the strategy will be to team up for specific mining projects rather than going for takeovers. Less than a year ago, AGC itself was in the sights of a predator – JCI under the management of South African magnate Mzi Khumalo. JCI started negotiations with Lonrho for its 33% stake in AGC as part of a complex equity swap involving JCI’s parent company Anglo American. Reports of these talks prompted former Lonrho chief executive Tiny Rowland (who regards his decision to buy a stake of AGC as his smartest business move) to harangue the Jonah management and Ghanaian government to resist the overtures.
Local difficulties intervened in South Africa, and the near collapse of the JCI share price and Khumalo’s departure from its management have changed the picture. With JCI out of the picture for now, AGC is still one of Africa’s most attractive companies, weak gold prices notwithstanding. A fact that Jonah and his team are acutely aware of, adding to the other challenges they face.
