The Ghanaian government has issued a directive requiring all large-scale mining companies to sell 20% of their refined gold output to the Bank of Ghana, effective January 1, 2023. The announcement was made by Vice-President Mahamudu Bawumia in a Facebook post on Friday, signaling a significant shift in the country’s economic strategy amid ongoing financial difficulties.

This policy is part of the government’s broader plan to use gold instead of U.S. dollar reserves for purchasing oil products. By implementing this measure, authorities aim to curb the rapid depletion of foreign currency reserves while also reducing reliance on the U.S. dollar for oil imports. The increasing demand for dollars by oil importers has contributed to the depreciation of the local cedi, which has lost over 40% of its value against the dollar this year, resulting in higher inflation and a surge in the cost of living.

To enforce the directive, the Bank of Ghana and the Precious Minerals Marketing Company (PMMC) will work closely with mining firms to ensure compliance. The government has assured stakeholders that gold purchases will be conducted at spot prices in cedis, without any discounts, to maintain fairness in the transactions.

Bawumia also mentioned that community mining schemes and licensed small-scale miners would be included in the gold sale initiative, although he did not specify the proportion of their production that would be required for sale to the government. This expansion of the policy suggests that the government is seeking to consolidate a larger share of the country’s gold output as part of its economic stabilization strategy.

Mining Industry Reactions

While the directive represents a major policy shift, its immediate impact on Ghana’s gold mining sector remains unclear. Some of the largest mining firms operating in Ghana have responded cautiously to the announcement.

Sam Opoku, a communications officer at the Bank of Ghana, declined to confirm or deny whether Bawumia’s directive was being actively considered or was already in the implementation phase.

AngloGold Ashanti Ltd (ANGJ.J), one of the largest gold producers in Ghana, stated via email that it had not yet received a formal government directive regarding its gold reserves. However, the company expressed a willingness to study the policy and engage with authorities once more details are provided.

Gold Fields, another key player in the industry, stated that neither its Ghana unit nor the Ghana Chamber of Mines had been officially approached by the government regarding the initiative. Despite this, the company acknowledged its participation in an existing gold purchasing programme with the Bank of Ghana.

“We have already begun transactions under this programme and will, in total, sell 15,000 ounces of gold to the Bank of Ghana this year. The amount for next year is still under discussion with the authorities,” a Gold Fields spokesperson said.

Newmont Corp (NEM.N), Galiano Gold Inc (GAU.TO), and Asante Gold Corp (ASE.CD), which also have mining operations in Ghana, did not immediately respond to requests for comment on the policy.

Economic Context and IMF Negotiations

The new policy comes at a time when Ghana is facing one of its worst economic crises in decades. Inflation has soared, and the country’s foreign exchange reserves have been under significant pressure. Ghana is currently in negotiations with the International Monetary Fund (IMF) for a financial relief package to stabilize the economy. An IMF spokesperson did not immediately provide a comment on the government’s latest move.

Despite being an oil producer, Ghana has been dependent on refined petroleum imports since 2017, when an explosion forced the closure of its only refinery. The reliance on foreign oil purchases has further strained the nation’s dollar reserves, exacerbating the depreciation of the cedi.

By shifting to a gold-for-oil strategy, the government hopes to mitigate currency instability, reduce inflationary pressures, and create a more sustainable means of financing fuel imports. However, questions remain about the feasibility of the policy and whether mining companies will fully comply with the directive.

Industry experts have noted that while using gold reserves to purchase essential imports is an innovative approach, its long-term sustainability depends on the ability of the Bank of Ghana to efficiently manage the gold reserves and maintain consistent agreements with mining firms.

As the government works to implement this policy, the mining sector and international financial institutions will be closely monitoring its impact on the country’s economic outlook and foreign investment climate.

Source: Reuters.com