Gold prices soar but Africa loses out
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Gold prices soar but Africa loses out

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Objective Capital's West Africa Investment Conference 2012

Objective Capital's West Africa Investment Conference 2012
Moevenpick Ambassador Hotel in Accra, Ghana
7-9 May 2012
Speaker: Dr Toni Aubynn, The Ghana Chamber of Mines

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    Gold prices soar but Africa loses out Gold prices soar but Africa loses out Presentation Transcript

    • WEST AFRICAINVESTMENT CONFERENCE Gold Prices Soar but Africa Loses Out Dr Toni Aubynn – CEO, The Ghana Chamber of Mines MOEVENPICK AMBASSADOR HOTEL IN ACCRA, GHANA MONDAY-WEDNESDAY, 7-9 MAY 2012 www.ObjectiveCapitalConferences.com
    • ‘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 RankPGMs* 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
    • Reaction to these perceptions 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
    • Nature of mining business 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
    • Some realities from Ghana:Contribution of the Mining sector in Ghana
    • Traditional Minerals 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.
    • Fiscal Contribution of Mining to Economic Development of GhanaFiscal RevenuesTwo 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
    • Royalties Paid to Government (GH¢) From 2003-2011Government revenue increases with rise in Gold Prices250,000,000 218,922,903200,000,000150,000,000 133,278,248 104,244,553100,000,000 68,358,429 50,000,000 43,226,713 35,107,983 19,054,625 18,585,970 21,655,540 - 2003 2004 2005 2006 2007 2008 2009 2010 2011
    • Government revenue increased with rise in gold price Corporate Tax (GH¢) 700,000,000 649,902,536 600,000,000 500,000,000 400,000,000 300,000,000 Corporate Tax (GH¢) 200,000,000 100,000,000 70,002,249 22,877,347 6,604,989 26,939,694.64 - 3,309,517 30,169,771 18,137,127 2004 2005 2006 2007 2008 2009 2010 2011
    • CONTRIBUTIONS TO IRS 2009-2010 CONTRIBUTION 2011 CONTRIBUTION 2010 SECTOR GH¢ % to total Ghana GH¢ % to total GhanaAgriculture, hunting and 10,926,086,.25 0.45forestry 13,175,279 0.35Fishing 5,296,392 0.14 3,214,272.21 0.13Mining and Quarrying 1,034,221,712 27.61 519,682,174.41 21.29Oil & 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 2.03 55,921,205.73 2.29Construction andConstruction equipment 95,451,523 2.55Wholesale 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 25,087,038.20 1.03activities 35,301,340 0.94Computer, Reg. and 16,161,635.67 0.66Development 19,939,629 0.53Other Professions and 79,473,583.27 3.26business activities 127,585,391 3.41Public Administration 375,729,558.10 15.39and Defence 505,792,297 13.5Education 68,640,771 1.83 59,591,481.81 2.44 18,798,635.78 0.77Health and Social work 25,771,085 0.69 76,521,855.65 3.13Other Social andpersonal service activities 74,566,123 1.99Private Household 1,519,356.97 0.06Employment 453,306 0.01Extra Territorial Org. and 8,497,422.83 0.35Bodies 9,767,808 0.26
    • TREND IN TOTAL INVESTMENT INFLOW INTO THE MINING INDUSTRY 2000-2011 900 799.5 765.3 762.26 770 780 800 661.98 670.22 700 556.44In Million US Dollars 600 500 400 INVESTMENT 313.72 330.43 275.53 300 231.78 200 100 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Years
    • 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  Conveyor Rollers, Idlers & Pulleys Yelomine Pipe  Steel Products, including fabrication Rock-bolts and Split-sets  Tyre-retreading Caustic Soda  Heavy Duty Electric Cables Explosives Manufacturing, including  Metal or PVC Core Trays Ammonium Nitrate  Chain Link Fencing, Wire Ventilation Ducting Mwetting, Barbed Wire, Welded Ammonium Sulphate Mesh, Expanded Mesh, Concrete Mill Liners Mesh, Razor wire and Panel Mesh Grinding Media  Motor Re-winding General and Speciality Lubricants  Plastic Sample Bags HDPE & PVC Pipes  Calico Bags Overalls & Work Clothes  Bullion Boxes Cement and Cement products  Reversed Engineered Speciality Products Quicklime and Hydrated Li  Cupels & Crucibles  Wood Products
    • Electricity and other commodity prices increased dramatically Electricity Cumulative electricity price increases (2001 – 2012F) 1000 900 800 700 600 500 400 300 200 100 0 2011F 2012F 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 South Africa Ghana Australia Peru Note: Cost inflation after 2012 estimated based on historical CAGR 2001-2012; Crude Oil Prices for West Texas Intermediate delivery to Cushing, Texas Source: Economist Intelligence Unit, International Energy Agency, Eskom website, Government of Western Australia website, press searches, Bloomberg
    • Fiscal regime changes in Ghana  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 Regimes of some African Countries Rank Average Country Corporate Tax Gold Royalty Carried Interest Operating Cost# % (%) (%) US$/oz) 1DRC 30% 2.5%NA 347 2Ivory Coast 25.0% 3.0% 10% 509 3Sierra Leone 30.0% 5.0% 10% 439 4Liberia 25.0% 3.0% 10% 533 5Egypt 20.0% 3.0%NA 643 6Burkina Faso 27.5% 5.0% 10% 525 7Tanzania 30.0% 3.0%NA 624 8Senegal 25.0% 3.0% 10% 639 9Mauritania 25.0% 5.0% 10% 666 10Ghana 35.0% 5.0% 10% 751 11Sudan 35.0% 5.0%NA 805 12South Africa 35.0% 1.5%NA 829 13Guinea 35.0% 5.0% 10% 828 14Niger 30.0% 5.0% 10% 872 15Mali 35.0% 3.0% 10% 882
    • Total taxes and levies: Corporate, windfall and royalties - %Ghana no longer preferred investment territory
    • Drawback of the cash-cow mentality 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.
    • Who Received What of Mineral Revenue? 2009 2010 2011 % share of % share of % share of Amount mineral Amount mineral Amount mineral Spent(USD) revenue Spent(USD) revenue Spent(USD) revenueAmortizing loans,including interest 192,856,437 8% 230,905,746 7% 283,221,271 6.7%ImportedConsumables 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%
    • 120% 0.43%100% 21% 1% 1.00% 6% 21% 19.30%80% 14% 9% 12.70% 7%60% 9% 7.20% 7% 7% 7.60% 5% 7.30%40% 28% 21% 18.20%20% 16% 16% 15.30% 8% 7% 6.70% 0% 2009 % share of mineral revenue 2010 % share of mineral revenue 2011 % share of mineral revenue 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