Uganda goes for gold

Africa Gold Refinery Limited, a unit of Belgium’s Tony Goetz N.V., plans to open a gold refinery in Uganda, providing a major boost to the region’s nascent mineral processing facilities. Construction of the $20m plant, with the capacity to produce 200kg of gold a day, is expected to commence before the end of the year, according to company chairman Richard Kaijuka.

The project will give a major lift to one of the key gold producing regions in Africa. “There is no such facility in all of Eastern and Central Africa,” says Kaijuka. “We have had to export raw gold to Dubai, Europe and Asia with established refineries.”

Located near Uganda’s Entebbe airport, the plant seeks to tap into the unexploited potential of the mineral both in the country and from gold producing giants – Tanzania, Democratic Republic of Congo and South Sudan. “Entebbe is a key transit point for gold exports from the region, rendering the plant a critical addition to the region,” Kaijuka says.

In the initial phase, the plant will churn out gold bars, small minted bars and granulates, before embarking on jewellery in the second phase, over the next two to three years. Among the wide range of incentives that the government has put in place to lure investors include tax breaks, the provision of up-to-date geophysical and geological data and scrapping of import duties on mining equipment.

The government is also currently reviewing its mineral laws to boost investment in the sector. The landmark investment comes amid a surprising rebound in gold prices, in contrast with poor prices for other metals including copper and nickel, over concerns about the health of the global economy.

Gold prices have been up nearly 30% since the start of the year, reaching a multi-year high of $1,375.34 an ounce in July, according to Bloomberg Commodity index. This is the biggest annual gain since 2010, as investors flock to traditionally safe investments following global economic headwinds.

Amid the lucrative gold prices, the Ugandan government has sought to use the moment to revamp its underperforming mining industry to boost earnings, according to Irene Muloni, Uganda’s energy and minerals minister. “Now is the time to rev up the industry. This is an industry that is capital intensive, but we are trying to make it easier for the investors with good policies,” she says.

Uganda has seen a spike in investments in its mineral sector, a few years after a $75m national mineral survey funded by the World Bank indicated that the country is well endowed with significant quantities of commercial minerals including gold, copper, tin and iron ore.

The geological data from the survey has since been instrumental in attracting investors. “The geophysical data from the survey has been a game changer,” says Angelo Izama, an analyst with Ugandan think-tank Fanaka Kwa Wote. “With such high advanced data on hand, Uganda will exploit the full potential of its mining industry.” Uganda predicts that the mining industry, if well managed, has the potential to transform the country and catapult it into the ranks of middle-income nations by 2025.

Regional benefits

In neighbouring Congo, which is expected to contribute the bulk of gold for the plant, output jumped 30% last year, to hit 25.6 metric tonnes, boosted in part by higher prices. According to the Uganda Chamber of Mines and Petroleum, companies such as South Africa’s Randgold Resources have been ramping up production at their operations in recent years. Congo’s large-scale gold production was nearly nil, in 2011, as the mineral-rich nation battled a host of insurgencies.

With the return of relative peace, and US-backed initiatives to clean conflict minerals from the global supply chain, there has been a surge in production and export of conflict-free minerals – a huge boost for mineral processors in the region.

Similarly, Tanzania’s gold mining industry is enjoying robust growth, with miners such as Acacia Mining and AngloGold Ashanti posting strong output growth in recent years. According to data from Bank of Tanzania, gold export earnings rose 7% to $1.36bn in the 2015–16 fiscal year, aided by higher export volumes amid impressive prices.

As both artisanal and industrial miners ramp up output, the potential for gold refining is enormous, according to Kaijuka. Most gold traders who have been taking the mineral for refining to Dubai and South Africa now have Uganda, which is keen to improve value addition of all its export commodities from minerals to agricultural output.

Among the downside risks to the plant is the sourcing of minerals – amid mounting pressure on international buyers to stem the flow of conflict minerals from the restive Congo. The conflict-torn country holds vast reserves of minerals, which include gold, tin, tantalum and tungsten widely used in a flurry of products, from electronic devices to engagement rings to auto parts.

The US 2010 Dodd-Frank Act requires companies to exercise due diligence on minerals they source from Congo and its nine adjoining neighbours to ensure that minerals they secure are not connected to violent militia groups. According to Kaijuka, the company is “well aware of the requirements and its principal tenet is to source for gold responsibly,” with the aim of creating “a regional hub refinery.”

In addition to Entebbe airport serving as key transit route, Uganda’s road and railway infrastructure is undergoing a major uplift, by mainly Chinese-funded projects. A $4bn standard gauge railway is being built to connect the landlocked nation to the Kenyan port of Mombasa. Whereas road and railway transport is ideal for bulkier minerals such as copper, cobalt and tin, gold is usually shipped out of the region via cargo planes.

Diana Taremwa Karakire