gold prices soar but africa loses out
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Objective Capital's West Africa Investment Conference 2012Moevenpick Ambassador Hotel in Accra, Ghana7-9 May 2012Speaker: Dr Toni Aubynn, The Ghana Chamber of MinesTRANSCRIPT
WEST AFRICAINVESTMENT CONFERENCE
MOEVENPICK AMBASSADOR HOTEL IN ACCRA, GHANA ● MONDAY-WEDNESDAY, 7-9 MAY 2012
www.ObjectiveCapitalConferences.com
Gold Prices Soar but Africa Loses OutDr Toni Aubynn – CEO, The Ghana Chamber of Mines
‘Gold Prices Soar but Africa Loses Out’
A Reality or Exaggeration: The Case of Ghana
Dr. Toni Aubynn
Chief Executive Officer
The Ghana Chamber of Mines
Basis of a ‘Losing out’ Perception
Price of Gold From 2000-2012
Africa is home to most of the worlds mineral resources/reserves Over half global gold reserves Over 90% of Chrome Over 80% of Platinum Increasing discovery/production of oil; etc
Some leading African mineral resources (2005)
Mineral Production Rank Reserves Rank
PGMs* 54% 1 60+% 1Phosphate 27% 1 66% 1Gold 20% 1 42% 1Chromium 40% 1 44% 1Manganese 28% 2 82% 1Vanadium 51% 1 95% 1Cobalt 18% 1 55+% 1Diamonds 78% 1 88% 1Aluminium 4% 7 45% 1Also Ti (20%), U (20%), Fe (17%), Cu (13%), etc.*PGMs: Platinum Group Minerals
Basis of a ‘Losing out’ Perception Persistence of poverty, inequality and unemployment Dominance of multinationals companies in the
mining industry Inadequate visible local content Africa’s resilience to the recent global economic
crises and descent economic growth providing it a new confidence
Mining Industry, ‘a bad story teller’ Positive commodity price particularly au and oil in
the last two decades: More than quintupled in 10 years
Perception of Revenue equating profit
Attempt at ‘Resource Nationalism’ in South Africa—increases in fiscal regime in other countries
Zimbabwe: increase in royalty on gold from 4.5% to 7%
Zambia attempted introduction of Windfall profit tax
DR Congo to increase taxes Ghana
Reaction to these perceptions
High sunk cost, long-term focused
The prospects of substantial rents
Uncertainty
International Consideration
Exhaustibility
Project Basis
Tax Revenues are substantial and primary benefit
Price volatility
Nature of mining business
Some realities from Ghana: Contribution of the Mining
sector in Ghana
Traditional minerals • Gold• Manganese • Bauxite and • Diamonds.
Others not fully exploited include• Kaolin• Salt• Clay• Marble• Mica• Limestone etc.
Location : Western, Ashanti, Eastern, Brong–Ahafo, Volta and the Northern parts of Ghana.
Traditional Minerals in Ghana
Fiscal Contribution of Mining to Economic Development of Ghana
Fiscal Revenues
Two kinds of fiscal revenues are provided by mining.
Direct revenues
Indirect revenues
Direct Revenue Mineral royalties
Taxes
Dividends
Levies.
Indirect Revenue - Taxes and levies through the supply chain
and Support to General Public and Host Community
Contribution of the Mining Sector
Mining companies were not insulated from the adverse impact of
the global economic turmoil.
In spite of the challenges, Ghana’s mining sector performed quite
creditably in 2011.
According to the Ghana Statistical Service and Ministry of Finance
and Economic Planning, the mining sub–sector grew at a
remarkable rate of 14.3%. This compares favorably with the 8.6%
recorded in 2010.
The total merchandise export earnings by the traditional minerals
represented is about 48% of gross merchandise exports.
Contribution of the Mining Sector
Number One Tax Payer and highest contributor to GRA: Contributed about GH¢1 billion to GRA representing 27.61% of
total GRA collections in 2011.
paid GH¢ 645 million, in corporate tax to the GRA, representing 38.26% of the total company tax collected in 2011.
The sector voluntary contributed an amount of about GH₵ 43 million to their communities and the general public
Contributed about 42% of gross merchandise exports earnings
companies returned about USD 3.1 billion representing 75% of their mineral revenue through the BOG and the Commercial Banks in 2011 against statutory requirement of 25%.
Industry grew by 14.3% in 2011 as compared to 8.3% in 2010
Continues as the leading attractor of FDI
2003 2004 2005 2006 2007 2008 2009 2010 2011 -
50,000,000
100,000,000
150,000,000
200,000,000
250,000,000
19,054,625 18,585,970 21,655,540
35,107,98343,226,713
68,358,429
104,244,553
133,278,248
218,922,903
Royalties Paid to Government (GH¢) From 2003-2011Government revenue increases with rise in Gold Prices
Government revenue increased with rise in gold price
2004 2005 2006 2007 2008 2009 2010 2011 -
100,000,000
200,000,000
300,000,000
400,000,000
500,000,000
600,000,000
700,000,000
3,309,517 6,604,989
18,137,127
22,877,347
30,169,771 26,939,695
70,002,249
649,902,536
Corporate Tax (GH¢)
Corporate Tax (GH¢)
CONTRIBUTIONS TO IRS 2009-2010
SECTORCONTRIBUTION 2011 CONTRIBUTION 2010GH¢ % to total Ghana GH¢ % to total Ghana
Agriculture, hunting and forestry 13,175,279 0.35
10,926,086,.25 0.45
Fishing 5,296,392 0.14 3,214,272.21 0.13Mining and Quarrying 1,034,221,712 27.61 519,682,174.41 21.29
Oil & Gas 16,214,971 0.43Manufacturing 266,228,347 7.11 169,500,714.63 6.94Electric Gas and water 62,397,848 1.67 49,507,359.17 2.03Construction and Construction equipment 95,451,523 2.55
55,921,205.73 2.29
Wholesale and retail 263,111,198 7.02 206,659,420.84 8.47Hotel and Restaurant 18,589,133 0.5 14,051,092.18 0.58Transport 59,397,218 1.59 26,170,901.76 1.07Storage 98,392,534 2.63 101,771,112.21 4.17Communication 183,518,522 4.9 168,131,679.54 6.89Fin. Intermediation 532,967,730 14.23 317,177,340.40 12.99Real Estate and renting activities 35,301,340 0.94
25,087,038.20 1.03
Computer, Reg. and Development 19,939,629 0.53
16,161,635.67 0.66
Other Professions and business activities 127,585,391 3.41
79,473,583.27 3.26
Public Administration and Defence 505,792,297 13.5
375,729,558.10 15.39
Education 68,640,771 1.83 59,591,481.81 2.44Health and Social work 25,771,085 0.69
18,798,635.78 0.77
Other Social and personal service activities 74,566,123 1.99
76,521,855.65 3.13
Private Household Employment 453,306 0.01
1,519,356.97 0.06
Extra Territorial Org. and Bodies 9,767,808 0.26
8,497,422.83 0.35
TOTAL 3,746,024,194 100.00 2,441,331,841.81 100.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110
100
200
300
400
500
600
700
800
900
231.78275.53
313.72 330.43
556.44
661.98
799.5
670.22
765.3 762.26 770 780
TREND IN TOTAL INVESTMENT INFLOW INTO THE MINING INDUSTRY2000-2011
INVESTMENT
Years
In M
illio
n U
S D
olla
rs
Value Creation As all the mineral producing companies are transnational, they are able to
attract world class service providers into the country.
They also transfer knowledge, skills and technologies through their staff and
other customers.
Notable sectors that have benefited from the mining industry in this way
include:
― Banking & Financial Services,
― Transport & Logistics,
― Hospitality and Catering,
― Consulting-Environmental &Engineering Services
― Manufacturing & Fabrication
Commitment to local Content
Activated Carbon Yelomine Pipe Rock-bolts and Split-sets Caustic Soda Explosives Manufacturing, including
Ammonium Nitrate Ventilation Ducting Ammonium Sulphate Mill Liners Grinding Media General and Speciality Lubricants HDPE & PVC Pipes Overalls & Work Clothes Cement and Cement products Quicklime and Hydrated Li
Conveyor Rollers, Idlers & Pulleys Steel Products, including fabrication Tyre-retreading Heavy Duty Electric Cables Metal or PVC Core Trays Chain Link Fencing, Wire Mwetting,
Barbed Wire, Welded Mesh, Expanded Mesh, Concrete Mesh, Razor wire and Panel Mesh
Motor Re-winding Plastic Sample Bags Calico Bags Bullion Boxes Reversed Engineered Speciality Products Cupels & Crucibles Wood Products
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
F
2012
F
0
100
200
300
400
500
600
700
800
900
1000
South Africa Ghana Australia Peru
Cumulative electricity price increases (2001 – 2012F)
Note: Cost inflation after 2012 estimated based on historical CAGR 2001-2012; Crude Oil Prices for West Texas Intermediate delivery to Cushing, TexasSource: Economist Intelligence Unit, International Energy Agency, Eskom website, Government of Western Australia website, press searches, Bloomberg
Electricity
Electricity and other commodity prices increased dramatically
Imposed the fiscal measures on the mining companies:
– Changed mineral royalty from a range of (3 to 6)% to a flat rate
of 5%
– Changed capital allowance from 80% in the first year and 50% on
declining balance to a straight line amortization over 5 years at
20% each year
– Ring-fencing of assets for the purposes of determining tax
payable
– Corporate tax increased from 25% to 35%
– Review of Stability Agreements
– Proposed windfall profit tax of 10%
Fiscal regime changes in Ghana
Rank
Country Corporate Tax Gold Royalty Carried InterestAverage Operating Cost
# % (%) (%) US$/oz)1DRC 30% 2.5%NA 3472Ivory Coast 25.0% 3.0% 10% 5093Sierra Leone 30.0% 5.0% 10% 4394Liberia 25.0% 3.0% 10% 5335Egypt 20.0% 3.0%NA 6436Burkina Faso 27.5% 5.0% 10% 5257Tanzania 30.0% 3.0%NA 6248Senegal 25.0% 3.0% 10% 6399Mauritania 25.0% 5.0% 10% 666
10Ghana 35.0% 5.0% 10% 75111Sudan 35.0% 5.0%NA 80512South Africa 35.0% 1.5%NA 82913Guinea 35.0% 5.0% 10% 82814Niger 30.0% 5.0% 10% 87215Mali 35.0% 3.0% 10% 882
Fiscal Regimes of some African Countries
Total taxes and levies: Corporate, windfall and royalties - %Ghana no longer preferred investment territory
Increases in these fiscal regimes has adverse side to business
Mine lives are planned alongside predictable fiscal regimes to
ensure profitability and sustainability.
Mining is highly complex and capital intensive: Interruptions
through review of existing fiscal regimes (especially without
due consultations) distorts the free flow of operations which is
detrimental to the mining business.
Interventions arising from unfair fines and penalties in times of
accidents, pose serious challenges to mining operations.
Drawback of the cash-cow mentality
2009 2010 2011
Amount Spent(USD)
% share of mineral revenue
Amount Spent(USD)
% share of mineral revenue
Amount Spent(USD)
% share of mineral revenue
Amortizing loans, including interest 192,856,437 8% 230,905,746 7% 283,221,271 6.7%Imported Consumables 384,374,253 16% 511,159,912 16%
647,485,259 15.3%
Local Purchases 677,106,543 28% 696,036,454 21% 771,920,186 18.2%
Electric Power 161,509,199 7% 168,052,032 5% 310,164,056 7.3%
Diesel 178,191,623 7% 227,447,069 7% 322,163,134 7.6%
Employees 344,592,456 14% 292,303,804 9% 303,793,323 7.2%
State 152,689,595 6% 300,556,884 9% 540,469,790 12.7%
CAPEX 511,423,033 21% 696,865,694 21% 821,061,062 19.3%
Host Communities 11,064,564 0.43% 17,590,469 1% 43,732,833 1.0%
Who Received What of Mineral Revenue?
2009 % share of mineral revenue 2010 % share of mineral revenue 2011 % share of mineral revenue 0%
20%
40%
60%
80%
100%
120%
8% 7% 7%
16% 16% 15%
28%21%
18%
7%
5%7%
7%
7% 8%
14%
9% 7%
6%
9% 13%
21%
21% 19%
0%
1% 1%
Amortizing loans, including interest Imported Consumables Local Purchases Electric Power Diesel Employees State CAPEX Host Communities
Conclusion and Food for Thought
Mining is a complex business and the industry need to engage relevant stakeholders, educate and inform
Excessive taxation on mining could be disruptive and kill the hen that lays the golden eggs
Increase the cash-cows through diversification and integration
Mining must be seen properly in its potential as catalyst for development
Thank You