...after windfall tax resurfaces in budget

Any attempt by government to introduce a windfall profit tax on mining companies will further discourage investment in the industry, Dr. Toni Aubynn, CEO of Ghana Chamber of Mines, has said.

Already, with the persistent drops in gold price, mining companies are struggling to keep the cap on rising cost of operations.

The warning comes after Seth Terkper, the Finance Minister, said that government has not backed down on the windfall profit tax bill first introduced to Parliament last year, but withdrawn for further consultations with the industry and regulators.

“A committee is reviewing all stability agreements, incentives, and the windfall profit tax that could not be passed in 2012. In due course, government will re-introduce the bill in Parliament after completion of the consultations with all stakeholders. I will urge all civil society interest groups to continue with the submission of their recommendations on how to adequately tax the mining industry,” the Minister told MPs.

Dr. Aubynn told B&FT that the tax would be inimical to future mining investments and the long-term sustainability of the industry.

“We were surprised that the Finance Minister even mentioned it in the budget at this time; maybe there must be some good reason for reintroduction of the tax,” he said.

“If government introduces a windfall profit tax when gold prices are rising, will government also provide subsidies to the industry when prices fall?” he queried.

Dr. Aubynn said miners will find it difficult to accommodate yet another tax as the price of gold continues to drop. The metal has lost 25 percent of its value this year, and this came on the back of an increase in the mining sector’s corporate tax rate from 25 percent to 35 percent.

Efforts to boost the tax-take from the extractives sector are informed by a “super-decade” of mining -- in which prices quintupled - and common sentiment that the sector has not provided sufficient benefits to government and communities, with civil-society bodies and the International Monetary Fund (IMF) supporting additional taxes for the industry.

But after more than a decade of record prices, the gold price bubble has been bursting in 2013, hitting miners hard and causing a rethink of investment plans for the industry. In a bid to tighten their belts, companies have announced job-cuts.

He also cautioned government to be careful with its decision to embark on stakeholder consultation on matters involving mining taxes, “because persons who do not understand the industry may have their way.

“It should be technically considered because not everybody understands mining, and not everybody understands taxes. If you technically consider the issue, you look at the technical intricacies and listen to what the experts from both sides are saying before you come to a compromise,” he said.

Falling prices have been further worsened by rising costs according to the CEO, as gold miners are currently producing at a cash cost of US$962 per ounce -- up 25% from US$768 per ounce in the first half of 2012.

This situation has led to the discontinuation of some exploration and brownfield projects, and rationalisation of inputs including labour.

Newmont Ghana is terminating the employment of approximately 300 of its miners, while AngloGold Ashanti’s (AGA) Obuasi Mine is also expected lay-off about 430 of its workers.