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15.04.2008 General News

Ghana moves to increase gold mining royalties

By mineweb
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Ghana, along with a number of other African countries, is considering increasing the royalties paid by companies exploiting its gold resource.


The West African state of Ghana is the latest in the growing list of African countries that are pushing to benefit more from commodities' long rally.

Mining companies operating in the gold producing country will soon be mandated to pay more than the current 3% minimum royalty to the government. Ghana's Minerals Commission has come up with the necessary regulatory framework -- a bill that will ensure that companies contribute more to government coffers.

The bill seeks to ensure there is an exact percentage, which all mining companies will be mandated to pay to government as royalties. Newmont [NYSE:NEM], AngloGold [NYSE:AU], Gold Fields [NYSE:GFI], Golden Star [AMEX:GSS; TSX:GSC], Iamgold [NYSE:IAG; TSX:IMG] and Rio Tinto [NYSE:RTP; LSE:RIO] are all mining gold there.

If approved, the new legislation will ensure that the companies do not have the option to pay what is convenient for them so far as the amount does not fall outside the minimum royalty rate, the Chief Executive of the Minerals Commission, Benjamin Aryee, told Ghanaian media last week.

Section 25 of Ghana's Minerals Act stipulates a mining royalty of not more than 6% or less than 3% of the total revenue obtained from mining operations. But mining companies operating in Ghana, whether big or small, have only been paying 3% - the lowest rate - to the government.

"It is unfortunate that most of the companies pay the minimum 3% or a little more as royalties, despite the fact that gold is selling at an all time high of around US$1000 an ounce," Aryee is quoted as saying by Public Agenda, adding that it was prudent for the government to put in place measures that would ensure that the country benefits from the sales of the product.

The bill looks into how communities hosting mining companies can benefit from the royalties paid to the central government, Aryee said, reportedly assuring Ghanaians that mining companies would have to cough up more in mining royalties.

The United Nations Conference on Trade and Development has claimed that Ghana earns just some 5% of the value of its gold exports, a lower figure than in many non-African gold producing countries.

In June last year, Ghana's Chamber of Mines proposed a 10% royalty for miners, whom it accused of not doing enough for the communities they operated in, voicing concern that the current royalties paid were paltry and would not translate to meaningful development in the communities.

Figures were not available Monday as to how much mining companies paid as royalties to the government in 2007. But in 2006, mining companies contributed US$780 million to government coffers, with AngloGold Ashanti spending US$5 million more on the health sector, while Gold Fields spent US$3 million on a soccer team. Newmont and Golden Star are reportedly spending US$4 million and US$3.6 million, respectively, on social corporate investments.

Ghana is not isolated in pushing for increases in taxes paid by miners. Many African countries are currently saying they do not see the benefits from their huge resource base filtering down to the indigenous communities and are looking at how they can derive a greater proportion of income from their natural resources.

Only recently, on April 1, Zambia began enforcing a new tax code from which it expects to earn US$650 million in additional revenue this year. The new tax code lifts royalties on sales fivefold from 0.6% to 3% and increases corporate income tax to 30% from 25%.

The Zambian government has also introduced a 15% variable profit tax on taxable income above 8% and a minimum 25% windfall profit tax. It has raised the effective tax rate on miners to 47% from 31%.

Tanzania, in east Africa, has proposed new legislation that would see mining firms paying the existing corporate tax of 30% and a royalty of 3% for gold and 5% for diamonds much earlier - with times depending on the life of the mines. Under the old mining policy, companies could defer tax for up to 20 years.

The World Bank has also come out in support of African countries in their endeavours to benefit more from their natural resources, unveiling on Saturday the Extractive Industries Transparency Initiative Plus Plus (EITI++) initiative. Besides urging for full disclosure of company payments for the right to extract resources as well as government tax revenues from oil, gas, and mining operations, the EITI++ initiative will also provides technical assistance and capacity building for improving the management of resource-related revenue so that it benefits the poor.

World Bank President Robert Zoellick says global commodity prices have risen by 75% since 2000 and for commodity exporters, "revenue windfalls from high commodity prices must translate into tangible improvements in the lives of poor people living on the fringes of the global economy".

Author: Rodrick Mukumbira

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