The Story within the Story… Gold Too Big To Fail: Closed operations and a scientific approach

Dec 28, 2014 News

By Leonard Gildarie

CEO of MACORP, Jorge Medina

This week we celebrated Christmas, and one cannot help but wonder where Guyanese find all the money to shop so much. It has been that way for years, but within recent times, the situation seems to have escalated into a frenzy, especially in the city. Traffic jams are but one indication. Guyanese are known to pull out all the stops for the festive season. So is it more of a case of window shopping or is it that there is a lot of money going around?

I am asking this because just over a week ago we learnt that gold declarations this year will be at least 100,000 ounces short of the original target. That means on a conservative estimate, at least US$100M in foreign export earnings have fallen off. So where is the money coming from?

Government is set to revise downwards its growth figures because of the obvious dent that will be left by the gold performance.

At mid-year, the Ministry of Finance dropped its target by more than 30,000 ounces to 450,000 ounces. It may barely reach 385,000 ounces. We learnt that the impact of poor world prices became more pronounced this year with operations reducing, affecting declarations. It will, of course, impact the economy significantly.

We spoke two weeks ago about the effect on truckers, one of the many integral cogs in the wheel.

For someone unfamiliar with the situation and living on the coastland or the city, there is another world in Guyana, and it needs food, fuel, clothing and other services. The hinterland’s very existence depends on transportation – planes, trucks, minibuses, and even those four-wheel all-terrain vehicles (ATVs). There is an old joke that when an Amerindian tells you he going around the corner, it is 10 miles away. Transportation is indeed critical in the hinterland.

While logging, mining, farming, and some level of trading, have been the mainstay of many communities, the attention has shifted in recent years. Gold mining became a high-paying, ambitious employer, attracting workers in droves. It stole workers from the construction sector, the sugar industry, transportation, logging and even bauxite.

I am being told that the Cuyuni/Mazaruni area especially, saw the migration of scores of ‘career bandits’ who opted for a safer way of earning a living. With the contraction of the industry now, and workers being sent home, there is worry now by the law enforcement agencies that the tide could unfortunately turn.

SUPPLIERS

A major player has been overlooked in the whole process – the suppliers.

In addition to food, fuel and vehicle spares, the development in the gold industry has seen the emergence of another set of entrepreneurs – heavy equipment and spares. Agri Parts, Japarts, Crown Mining and MACORP (Machinery Corporation of Guyana Limited) are some of the companies who capitalized having invested heavily.

In fact, around 5,000 excavators have been reportedly sold in the last five years, according to sources within the Guyana Gold and Diamond Miners Association (GGDMA). Staggering, if one considers that one excavator, used to clear the earth so that the dredges can operate, can cost at least $35M.

Bulldozers, ATVs, trucks and pickups, generators, stoves and pumps were all in high demand during the height of the gold rush. So too was road-making equipment.

Those little links on which the excavator runs cost a pretty penny, at least $50,000 for one. So too can the buckets and belts. Oil, filters, generators, long boots, batteries, mosquito netting and yes, even hammocks, have been coveted. I happen to learn that some of the mining companies would keep stocks like even toothbrushes and deodorant. Of course, the employees would have to pay for these.

I made contact with a few of the suppliers in recent weeks. There is some worry in the industry.

Several of the big miners, the Guyana Geology and Mines Commission confirmed two Fridays ago, had scaled back, closing off operations.

On a slightly more optimistic note, according to MACORP, there is tremendous hope for Guyana’s economy. The company has the franchise on Caterpillar machinery. Chief Executive Officer, Jorge Medina, in a recent media statement expressed the belief that finding oil will have a significant impact on Guyana, putting it well on the way of development, because of the effects of cheaper power.

Judging from the equipment at this mining site, it is safe to conclude that investments are substantial.

While not giving figures with regards to repossession of large equipment, Medina is upbeat.

According to him, although there have been some perceptible challenges, such as the lowering in the gold prices, MACORP stands ready to buckle down and meet them.

Regarding the gold, he admitted that the price reduction on the world market from a high last year of US$1900 per ounce to now US$1200, has been affecting all sectors related to gold business, but it is a state of affairs that has occurred in the past.

The result of such situations, according to Medina, has the potential of affecting the local businesses, particularly those small to medium–sized, as the cost of production often escalates.

SCIENTIFIC APPROACH

The company executive is offering a solution to the problem. Miners have to adopt a cost-effective way of operation. But in order for them to embrace the cost-lowering tactic of their production, they would need education on the necessary measures that can be taken.

It may require more sensitization in the area of Geology, even at the level of the University of Guyana, in order to better understand the mining venture.

Medina believes that the scientific approach to gold mining is the way to go. Rather than select areas to mine in the old ways, operators will have to use technology and other means to zero in on where the gold is. This will reduce operational costs in the long run. In other words, to survive, miners will have to be more selective in choosing the areas to mine.

Currently, MACORP has in excess of 300 customers who are involved in small to medium-sized mining operations, “some” of whom are struggling to maintain their equilibrium whenever there is a drop in the price of gold.

The current gold price drop and the hardships faced by miners to keep their head above water have placed MACORP on guard, and seen the company acting strategically.

“The resulting situation is one that has the potential of severely affecting the operations of MACORP itself. Because of the fact that miners are unable to access loans from banks and lending institutions to procure machinery to start up their businesses, MACORP is able to fill that gap by lending support to them.”

This means that the company has been taking it upon itself to finance miners by allowing them to access excavators and machinery parts on a hire purchase basis.

The entity has become very cautious after quite a few miners have started missing payments.

As a matter of fact, Medina disclosed that the entire hire purchase arrangement by MACORP has been jeopardised because of miners being unable to fulfill such obligations.

And this challenge is not only faced by MACORP, but other providers of machinery as well.

“We are not banks and we need money to keep financing them. We get credit from both local and overseas banks to support the miners and we have to pay on time; that is our obligation, and if we don’t, we will be forced to pay high penalties or to close the business. So if miners don’t meet their obligation to us, they will jeopardise the stability of this company,” Medina stressed. He insisted that “gold miners need to be conscious that they too need to pay their debts.”

To arrest the situation, MACORP has taken on the responsibility of training locals to take up leadership of the entity. This has however been a challenge since MACORP, and by extension Guyana, continues to face a debilitating brain-drain.

But despite the situation, Guyana can start planning for the next few years and miners will have to ready themselves to learn of some of the scientific methods available to locate the gold deposits. That is because another opportunity will come in at least two years when gold prices are expected to rise to at least $1400 per ounce. That is the prediction of reputable economists and other knowledgeable stakeholders. We do hope they are accurate.

This will be the last article of its kind for 2014. Early next year we will be speaking with other suppliers, the Gold Board, the GGDMA and the Government, on the situation. Happy New Year to all, and do continue to send those photos and comments to [email protected] or call weekdays 225-8491.