Contracting out in the mining industry in Ghana: a case study at African Star Goldfields

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Contract mining has become a specialised arm servicing the mining industry. There is an increasing trend to use contractors in all forms of mining, both open pit and underground. Mine owners in some cases, have simply assumed accounting and management roles, overseeing a range of contractors who fulfil all key roles in the mining and treatment processes. The contract between African Star Goldfields Limited (ASGL) and ECO Mining Services at Sefwi Anhwiaso in the Western region of Ghana was used as a case study. There is an existing contract between African Star Goldfields Limited and ECO Mining Services which is up for renewal in the year 2001. ASGL has the option to renew the contract or take it over and do in-house mining. The thesis examined the economic viability of the project if ASGL takes it over as opposed to renewing the contract with ECO Mining Services. Cash flow analyses were carried out on both the in-house and contract mining scenarios, taking into consideration the fact that the project is located in Ghana and therefore the appropriate features of Mineral Investment laws of Ghana apply. The essential features of the Mineral investment laws are government interest and royalties, taxes and allowances. Sensitivity analysis were carried out on both cash flows to determine the effect of variation in investment parameters such as operating cost, income tax and the price of gold. Data for the economic analysis were from both practical and theoretical sources. Some of these sources are Tractor and Equipment, Kumasi, African Star Goldfields, ECO Mining Services. This thesis showed that the project is economically viable under both in-house and contract mining situations. However, contract mining was found to be the better option because, it gave a higher return on investment than in-house mining. Secondly, it was also realised that, contract mining was more robust to negative variations in investment than owner mining.
A thesis submitted to the Board of Postgraduate Studies, Kwame Nkrumah University of Science and Technology, Kumasi in partial fulfilment of the requirements for the award of Master of Science degree in Mining Engineering, 2000