Ghana fights for Mining Stability Agreements.

Among the over 20 large-scale mining companies operating in Ghana currently, it is only two companies that have mining Stability Agreements with the government of Ghana. FRED SARPONG writes more.

Government of Ghana in some few months ago set up seven-member team to review and renegotiate the mining stability agreement that covers mining operations in the country. Some mining operators have welcome the idea, however, others too believes that the review and renegotiation of the stability agreement will affect their investment in the mining sector.

The team is led by Prof. Akilagpa Sawyerr to review, re-negotiate and redesign the entire mining regime agreements so that the state derives maximum benefit from the sector.

Firstly, the team was asked to review and re-negotiate any part of the stability agreement between Ghana and any of the mining companies in the country. This must be in the best interests of the country.

Secondly, the negotiation team is to revise the manner of granting stability agreements, and thirdly, redesign any existing or draft agreement to ensure that it yields better social and economic returns for the country.

These mining companies have said that the changes to the mining sector stability agreement would put their investments at risk, and also they believe that the government is trying to make it difficult for them.

A stability agreement normally freezes mineral royalty and other tax-rates paid by a company over a 10- to 15-year period creating a situation where very little of the windfall earnings of a beneficiary company accrue to the state.

The stability agreements seek to protect all mining companies in the country. However, it will also going to affect some mining companies in one way or the other, which do not have such agreements, since they started operation in Ghana.

This new stability agreement allows the government to introduce a new process of bidding system for mining licences and mining certificates in the country. Before the adoption of the review and renegotiation of stability agreement, mining licences are awarded based on a first-come-first-served. Also it takes a looks at the company’s ability to deliver on its proposed activities.

The new system will see concessions put out for international tender and interested companies submitting details proving that they have the technical and financial capabilities to develop awarded concessions.

It will also bring much-needed clarity and sophistication to Ghana’s mining sector, as well as contributing to greater transparency through open, competitive processes.

Many are of the view that, the review of the Ghana’s mining stability agreement comes against the backdrop, where mining resources across Africa is not enough and various governments intend to take move revenue from a sector.

Mining companies that have had stability agreements with the government of Ghana include South African-based Anglogold Ashanti, the world’s third largest gold producer, and the Newmont Ghana, a subsidiary of Colorado-based Newmont Mining Corporation.

Some mining companies are not affected with some taxes increase in the sector, as a result of some agreements signed between them and the government.

For instance, the two leading companies, Anglogold and Newmont have signed such agreements with the government that freeze taxes, royalties and other conditions over 10 to 15 years. These companies have said they do not expect to be immediately affected by this new agreements initiated by the government.

However, Gold Fields, the world’s fourth largest gold producer company, has said that the introduction of stability agreement may affect some projects plans from the companies and the country would lose huge investment portfolio into the mining sector.

The government of Ghana believes that reviewing of laws in the mining sector is probably in a good direction and seen as a result of the economic boost. The government was of the view that it is important to institute a reform into the mining sector, in order to march equally with the Ghana’s new oil sector.

Many Ghanaians believes that it is time for mining companies in the country act professionally and responsibly with their all activities. A lot of these companies have taken various communities they operate into granted.

Many of the communities have complaint bitterly about the destruction of their forest, water bodies and other natural resources. The communities believe that little has been done for them by these companies and they deserve better.

Ghana’s mining sector has come of age and it is very important for the country to benefit fully from the sector. Benefits from the mining sector to the state and various mining communities in the country have been lean and many of them have complaint vigorously.

According to the Economic Intelligence Unit (EIU) report, ‘in spite of the challenges in the mining sector, Ghana’s mining assets and the track record of political stability continue to make it an attractive destination for mining investments, which will go some way towards ensuring that the reforms did not cause mining investments to dry up as the balance of benefits shifts away from companies and towards the state.’

After government gave indication last year of its intention to renegotiate contracts with mining companies, some mining companies had hoped to count on the stability agreements which contain fixed clauses and conditions to shield them from any sweeping revisions.

Among the changes were a review of the corporate tax-rate for the industry from 25 to 35 percent, the imposition of an extra 10% windfall tax, and a reduction in the capital allowance rate from what was sometimes as high as 80% to 20% for a period of five years.

Meanwhile, Anglogold Ashanti, which signed a stability agreement with the state in 2004, has said that it will not change it already planned investments into its operation, even though there are tax-changes in the system.

The changes include an increase in the corporate tax from 25 to 35 percent, a windfall-profit tax of 10 percent and changes to capital allowance rates.

Despite these tax changes by government, some of the mining companies have said that they will continue remain in operation. For instance, Anglogold believes it will remain productive for at least the next 30 years.

When early indication of the government wanting to review the mining regime and contracts was given two years ago, Newmont said the company had already reminded government of its stability agreement in place, however, indicated its readiness for further discussion.

Since the government intention to review and renegotiate the stability agreement, some personalities and civil society have called on the government to expedite action introducing the agreements.

One of such institutions is the Ghana Chamber of Mines, the umbrella body of the mining companies has asked government to quick the review and renegotiated stability agreement to guarantee investor confidence in the country’s mining regime.

According to the Chief Executive Officer (CEO) of the Chamber Dr. Toni Aubynn, he expects the seven-member committee to work faster, because investors are very sensitive to instability.

“Investors need to be assured that the fiscal regime will not let them down. It is important that government work on that. What investors are looking for is stability in the regime over a period of time. “Investors apply a lot of speculation and this requires planning, so they want assurance that the regime will not change every year,” Dr. Aubynn he said in an interview with B&FT.

A coalition of civil society groups also called on the government for the speedy review of any stability agreement signed between the state and any mining company in the country, in a manner that will balance profitability with fiscal investment in the country’s economy.

The coalition said the agreements must be framed to avoid a situation where the country’s stake in the mining industry is locked up in its effort to mobilise revenue.

“The stability agreements are not good for the economy of Ghana. About 10 to 15 years ago they were necessary for Ghana because we were not sure of our political stability. Today Ghana is a beacon of hope in Africa in terms of political stability, so there’s no reason why we should make special provisions for mining companies,” Mr. Abdulai Darimani, Head of Environment Unit at the National Coalition on Mining (NCOM), in an interview with B&FT.

Dr. Kwabena Duffuor said at the inauguration of the team that, the issue with the mining operations was about fair and transparent sharing of benefits and windfall gains from the exploitation of the country’s resources.

“What government is looking for therefore, is a win-win situation in which both the mining companies and the people of Ghana will equally benefit. The importance of the government’s strategy is to develop an economy that works for everyone,” he added.

Ghana’s mining industry continues to be a prime contributor to export earnings and to state coffers.

Mining and quarrying, excluding oil and gas, accounted for 2.7% of real Gross Domestic Product (GDP) in 2011, grew at a rate of 19%, according to Ghana Statistical Services (GSS).

According to the Mineral Commission, gold production grew by 6.3% to3.6 million oz, while manganese production increased by 9% to 1.7 million tonnes.

The sector remains crucial to Ghana’s economic growth, with minerals exports accounting for 39.6% of total exports in2011, down from 49.2% in 2010, according to the Minerals Commission, though it accounted for 28.35% of all government revenue collection, up from 23.745 in 2010.

Furthermore, with investment in the mining sector increasing by 26% to US$970.3 million and overall by 91% among producing companies, prospects for growth looking strong.

Although, production among large-scale producers dipped slightly in 2011, the high price on international markets ensured revenue growth for Ghana’s leading operators.

According to statistics from the Ghana Chamber of Mines, gold production among its members fell by 2% to 2.92 million oz in 2011, though revenues increased by 28% to US$4.6 billion.

The leading producers in the sector, Gold Fields Group, with a total production of 936,335 oz at Tarkwa and Damang; Newmont Ghana (566,285 oz), Anglogold Ashanti, with a combined production at mines in Obuasi and Iduapriem of 508,245 oz in 2011; Golden Star resources with production of 300,149 oz at Bogoso/Prestea and Wassa, have all benefited from the strong gold price in international markets.

Indeed, according to the Chamber, the average realised gold price increased by 30% to US%1,583 per oz in 2011.

The gold mining sector has been one of the few beneficiaries of the global economic downturn, particularly given the increased prevalence of investor flight to gold, that seen as a safe haven in times of economic turbulence, political instability and inflationary pressures.

Dr. Aubynn with an interview with Oxford Business Group (OBG) said the slight dip in production in 2011 was the result of operators looking at further investments and concentrating on maintenance to bolster production from existing pits.

He indicated that, in the first quarter of 2012, for example, Perseus Mining announced it had increased its measured and indicated gold resources at Esuajah North in the Edikan Gold Mines by 341,000 oz to 920,000 oz at a cut-off of 0.4 grams per tonne of gold as a result of deeper mining.

According to Dr. Aubynn Perseus completed 27,986 meters of drilling at the mine in the first two months of 2012, including deeper drilling at Asuajah South. Given the higher cost of drilling at these depths (with Perseus’s gross cash costs for Edikan coming in at US$975 per oz in the first quarter), the increased price of gold has played an important part in the further development of the country’s underground resources.