Vancouver-based gold miner Red Back Mining (RBI-T) is warning investors that it may be walloped by a doubling in power costs as soon as July 1 at its Chirano gold mine in Ghana, owing to higher world oil prices.
Hooked up to the national electrical grid, Chirano produced 33,931 oz. gold at a cash cost of US$411 per oz. in the first quarter, and is on track to produce 135,000 oz. gold in 2008.
The company expects a new crushing facility to be up and running at Chirano by October, with commissioning of a full plant expansion in the first quarter of 2009, whereupon output is slated to rise to 250,000 oz. gold annually
Red Back owns 90% of the mine, with the Ghanaian government holding a carried 10%.
Red Back notes that it has not yet received any official notification of any new rates from the mine’s power supplier, the Electricity Company of Ghana (ECG).
However, it warns that it “is our understanding that the cost of power could increase from the current level of approximately US$0.10 per kilowatt-hour (kWh) to up to approximately US$0.22 per kWh.
The company reckons that a US$0.22-per-kWh power cost would add about US$40-50 per oz. to the mine’s cash costs, or edge them up to about US$430 per oz. over the life of the mine.
Red Back says it has joined with the Ghana Chamber of Mines and other mining companies in start talks with the relevant governmental agencies regarding the size of this power price jump and the “apparent focus of this increase on the mining sector.”
“The recent announcements in Ghana regarding proposed increases in power costs for bulk users are unfortunate, as a decision appears to have been made without any formal discussions with the mining industry,” Richard Clark, president and CEO of Red Back, said in a press release on Friday.
The company has also started building its Akwaaba Deeps underground gold mine in Ghana, which is expected to start delivering ore to the Chirano mill by the fourth quarter.
In Mauritania, Red Back operates its wholly owned Tasiast gold mine, where a mine expansion is underway.
Tasiast has a production target for 2008 its first year of commercial operation — of 110,000 oz. gold at a cash operating cost of US$370 per oz.
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