If no new ore found, Omai will close next year
Economy will shrink by 0.3%,lose substantial revenue
Stabroek News
April 30, 2004
Unless Omai Gold Mines Limited can find a new source of ore, it will exhaust gold production next year and the government projects that the economy will shrink by 0.3% as a result. The economy shrank by 0.6% last year and is projected to rebound to 2.5% growth this year.
But while the government approved the US$4.5M closure plan for Omai, it does not have a plan of its own to counter the effects of that closure on the economy or to deal with the dislocation on employment as well as government revenue.
Prime Minister Sam Hinds says the government is working to ensure the macroeconomic fundamentals remain stable to facilitate private sector investment. But while having a sound macro-framework is necessary, it is not a sufficient condition for investments as Guyana has seen in the last few years. Asked about a specific plan to deal with the dislocation from Omai's closure, Hinds says his government is working at the moment to create an environment for economic growth. Put to him that this is not enough, Hinds asked what else can the government do as it has foresworn state investment in the productive sectors.
"We are all for innovation and are willing to listen to those who have ideas on innovating," the Prime Minister said. Stabroek Business pointed to the growing domestic debt in a shrinking economy and the continued depreciation of the currency and suggested that the government had ignored suggestions to dis-continue the mopping up of excess liquidity.
The Poverty Reduction Strategy Progress Report for 2004 highlights the projection for negative growth in 2005 and attributes this largely to the completion of mining activities by Omai. However, the report does not outline a strategy to counter the effects of that closure on the economy but says the Ministry of Labour, Human Services and Social Security's capacity will be strengthened to manage safety net programmes and these reforms will benefit more than 60 000 persons. An analysis is to be done by the ministry to allow for the mitigation of the impact of expected retrenchment on vulnerable groups. Training programmes for retrenched workers are also to be designed.
The Linden Economic Advancement Programme (LEAP) is expected to solve the unemployment problems of Linden by fostering the creation of at least five large companies, 30 medium sized companies and 200 small and micro businesses by next year and providing training programmes for retrenched workers and entrepreneurs, the progress report said.
"LEAP will provide training in employable skills to at least 700 retrenched miners, unemployed youth and entrepreneurs by 2005," the report said, adding that roads are to be rehabilitated in West Watooka and Moblissa to facilitate agricultural production in new areas. However, LEAP has been criticised for being too slow in delivering tangible results to Linden.
Omai Gold Mines Limited employs some 632 employees, 601 of whom were Guyanese nationals. In 1993, the firm had 799 nationals on its staff of a total workforce of 943.
The company paid a total of US$50.3M in royalties, an average US$4.9M in the last two years. Income taxes from Omai have been declining as a result of a reduction in staff levels. By the end of 2003, a total of US$39.5M had been paid in income taxes, with income taxes last year alone being US$2.9M or $580M. The company's total purchases in the form of fuel, food and other items over the eleven years were US$221M and its payments to government's corporations and agencies were $2.8M. Duty and consumption taxes paid over the period were US$5M while US$9.4M was spent on infrastructural development and maintenance during the period. Discounting the purchases, a large component of which would have been fuel purchases from overseas, the company paid to the government coffers US$107M or an average of US$9.7M per year or $1.9 billion. Omai's total investment in Guyana has been US$252.8M.
The effect of the potential closure of Omai on the economy gives teeth to criticisms that the government has been unable since 1992 to attract investments to sustain the economy and that Omai and Barama Company Limited have been the drivers of the economic growth seen in the 1992-7 period.
Data provided by the poverty reduction strategy progress report shows private sector real GDP growth to have been -0.6% in 1999, 0.7% in 2000, 2.3% in 2001, -0.7% in 2002 and 0.7% in 2003 with a projection for 0.8% growth this year and -2.2% in 2005. The figures verify that government spending has been driving the economy with public sector (sugar, government services and 70% of construction activity) real growth being 10.1%, -4.9%, 2.2%, 6.6% and -3% respectively with projections for 5.7% and 3.2% in 2004 and 2005.
Meanwhile, the employees and management of Omai Gold Mines are hoping that the company, which has been spending on average US$1 million each year in exploration activities, would be able to hit new ore reserves or enter into some arrangement to add to the life of the gold mining operations. The money spent last year saw 32 diamond drill holes for a total of 7,900 meters on the Omai River and Quartz Hill but no "significant" results have been obtained to date, Cambior, Omai's parent company told shareholders.
Omai is this year expected to be a significant generator of unencumbered cash flow to Cambior and another US$1 million is to be spent exploring around the Omai mine to find additional ore reserves. "The company has also initiated its restoration programme and will step up its efforts to maximise the work done during the operating period to reduce the overall cost," Cambior's annual report for 2003 said. The government, the report adds, has approved the closure plan for Omai, and US$3.3 million has been set-aside in Omai's balance sheet to meet that expenditure.
To date, Omai has produced 3.2 million ounces of gold for Cambior. Omai is Cambior's largest gold mine, accounting for more than half of its gold production. Omai's production has been declining since 2001 when it hit a peak of 354 300 ounces of gold. The reserves are estimated at 359 100 ounces of which 50% is located in the Fennell pit. Subsequent mill feed will come from low-grade ore stockpiles of the initial years of production. No capital outlay is expected for the remainder of the mine's life.
"Unless a new ore body is identified through the ongoing exploration program, the mine will complete its activities in the second half of 2005," Cambior said.. Omai last year produced 271 000 ounces of gold and this year production is projected at 234 000 ounces.
Omai's plant capacity was reduced in May 2003 from 21 000 tonnes of ore per day to 15,500 tonnes, following the depletion of the soft ore. Part of the mill was dismantled and transferred to the Rosebel project in Suriname.
Omai's operating cost per tonne of milled ore was US$10.36 but direct mining cost was US$200 an ounce. Cambior received an average price of US$320 an ounce for the gold it sold in 2003 because of a prior hedging commitment. The market price for gold averaged US$363 per ounce in 2003.