COMMODITIES-GUYANA: Much Hope Hangs on Increased Gold Prices

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Bert Wilkinson

GEORGETOWN, Oct 3 1999 (IPS) - Several early English explorers had penetrated deep into Guyana’s interior, searching for a city of gold called El Dorado, but it was not until the early 1990s that the country began hinting that the lost city which was dismissed by many locals as a myth could, in fact, be real

By then, several large North American companies began exploring for gold in the western interior, with the Canadian-run Omai Gold Mines out-performing its rivals by opening South America’s third largest operation in 1993. Others are still exploring.

In doing so, Omai had used data lying at the state’s Geology and Mines Commission showing that millions of ounces of gold were in large veins of hard rock, lying way below the surface. Several small miners and a German company had worked the area at the surface level up to the late 1890s before abandoning it, leaving the hard rock deposits for companies with equipment and money to exploit it.

But even as Omai is today producing more than 300,000 ounces of gold annually, current uncertainties about the world market price for the mineral is threatening to push the industry back to low depths of the late 70s and 80s.

Last week, the price of gold jumped dramatically to 321 dollars per ounce after hovering around the 262-dollar mark for more than a year.

Few are betting that it will remain so for any length of time, with more than a dozen European central banks deciding to limit sales of stocks in a measured way over the next five years instead of dumping en masse.

Dumping en masse means depressed prices and this would have hurt most gold producing countries including Guyana and Suriname.

” It may well be that this is just a reaction to the announcement by the central banks. We have to wait and see. Most companies need a price of more than 300 dollars per ounce to survive and make a profit and so we hope this stays there or moves up further,” says Norman McLean, Omai’s Human Resources Manager.

The low rate had either pushed several small and medium scale firms out of business or had forced many to drastically cut back production while they waited out the downturn, caused in part by the initial threats from western European countries to sell off gold reserves and from lost investor confidence following the Bre- X Mine hoax in Indonesia several years ago.

In the Bre-X Mine hoax many persons were fooled when a local miner in Indonesia claimed to have discovered a huge gold mine in the country’s interior. Many persons bought stock in a company which did not exist

But with hope that the price will remain at more than 300 dollars, it may well spark a revival in an industry which up to 1997 almost outstripped sugar as the country’s chief export for the first time in nearly 400 years.

“Because of the current prices, we have asked government for subsidies to help the industry or it will continue to suffer,” says Toney Shields, Executive Secretary of the Gold and Diamond Miners Association.

“We need an ease on the tax for fuel and an ease on tax for people who declare gold, but we are hoping that government does not give up on negotiations now because prices are looking better,” notes Shields whose members declare an average of 100,000 ounces annually.

Observers say the Washington-based International Monetary Fund (IMF) has also played a part in pushing down prices after it had announced plans to dispose of some of its long held gold reserves.

The Fund has 103 million ounces in stockpile and last week it said it now plans to cash in on the current price increase by revaluing 14 million ounces from the vaults in a one -time operation that could earn it hundreds of millions of dollars.

The plan is to use the difference from the present book value of the stocks and the current market price to assist member states.

The money will be used to help finance a debt relief programme for several heavily indebted poor countries including Guyana, Mozambique, Bolivia and Uganda.

Uganda will be the first to benefit almost immediately from easier debt servicing terms, officials say.

The arrangement could raise up to 2 billion dollars if gold prices are 260 dollars per ounce.

Meanwhile, the low prices that had one time reached 252 dollars, resulted in many investors deciding not to expand their operations.

For example, Omai, owned by Cambior Inc of Montreal, Canada and Golden Star Resources of Denver, Colorado, were just months away from opening the Gross Rosebel Mine in western Suriname when depressed prices started to become a fact of life in the industry.

The mine is as big as the one the company is working in western Guyana with reserves for between 10 and 15 years.

“Everything has to fall into place for us to move into Suriname. We are going there next month to meet with government to talk, but prices have to be good,” says McLean.

Economists say gold exports from Omai are the main reason the Caribbean Community (Caricom) has a favourable trade balance with Canada. Methanol from Trinidad and Tobago is also a factor.

Government officials say that if the price holds, they are expecting persons from various companies which had put negotiations for concessions on hold to start knocking on doors again in the coming months.

Gold ranks second after sugar as the main foreign exchange earner here. In Suriname, officials were hoping to ease the country’s dependence on bauxite earnings, now 70 percent of the Gross Domestic Product (GDP) by encouraging development in an industry now dominated by small scale local and Brazilian operators.