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Opinions of Wednesday, 11 September 2013

Columnist: Akakpo, Lawrence M Kofi

Fairer Way To Share Ghana’s Gold Mining Revenue

Radical But Fairer Way To Share Ghana’s Gold Mining Revenue

Lawrence M Kofi Akakpo *

I am suggesting here a radical but fairer and simpler way of revenue sharing from the gold mining industry in the country between the gold producers, on one hand and the mineral owners, on the other. It will eliminate all the negative effects of the propaganda, the lies, half-truths, lobbies, bribery and corruption and some aspects of creative accounting (the artificial raising of costs and reduction of revenues, in order to make as little as possible profit or none at all on paper so as pay little or no tax on profit) taking place in the gold mining industry in the country and elsewhere. It will further eliminate or reduce to minimum the nauseating propaganda emanating from spin doctors of Ghana Chamber of Mines and the individual mines in the country. More importantly, it will eliminate the unnecessary lobbying of ministers and their advisors to use their discretions, etc. to take decisions which often depend on the political colours of the ministers and may not necessarily be in the interest of the country. Newmont Gold Agreement is a typical example where Ghana’s interests have been totally subverted in all aspects.

Before I explain the simple method, I will like to take the opportunity to brief my fellow Ghanaians and the people of the world the state of the industry: what happened in the past and what is still happening. Historically Ashanti Goldfields Corporation Ltd in Obuasi, once the most famous gold mine in the world, invested only £250,000 in the company in late 1897 and by 1968, a period of 70 years, made after tax profit of £38,168,000. The annual after-tax profit was 2.1 times the total capitalization of the venture. The net dividend paid was £26,763,000; that was average of £382,300 per annum or 1.5 times the total investment. What did people of Obuasi have? Nothing! What did people of Adansi have? Nothing! I went to Obuasi in 1966 for the first time and went again in 2005, that was after 39 years later and it was relatively scruffy as it was then.

Newmont Gold invested $470 million (of which $125 million came International Finance Corporation (IFC) and its cohorts for booty sharing) in Ahafo gold project where it acquired 1,608 square kilometres (620 square miles) of forest land for exploration and gold mining. 10,000 poor inhabitants were thrown out from their ancestral homes and farm lands on payment of pittance as compensation. The project was said would produce permanent job for 620 people for its 20 years life. The project is one of the richest if not the richest ever in the gold mining industry for the investors but hardly anything for the minerals owners despite all the propaganda being publicized. In 2011, from estimated revenue of $900 million and in 2012 from estimated revenue of $937 million the company took home $600 million on each occasion. That was 1.3 times of the total investment on each occasion.

If no serious measures are taken now, people of Kenyasi, people of Ahafo, would end up the same way as Obuasi and Adansi. The big difference however would be, Obuasi agreement was signed in the 19th century when Ghana (the Gold Coast) was under colonial rule; Ahafo agreement was signed in the 21st century when people of Ahafo are supposed to be in independent country for nearly a half century then.

The misconceived and misapplied Stability Agreement enacted in Parliament in 2006 was backdated to beneficially affect Newmont Agreement signed in 2003. Can you imagine an agreement backdated in Parliament in Ghana or any developing country to adversely affect the transnational mining corporations operating in the country? Hell would break loose with condemnations from the financial and mining newspapers and magazines with all sorts of threats. Everything in the Newmont Gold Agreement stinks; my attempt to see the Agreement has so been ignored. I am not going to give way, on principle.

The main purpose of creation of IFC according to its own assertion is to provide financing that supports to “the establishment, improvement and expansion of private sector equity investments where sufficient private capital is not otherwise available on reasonable terms”. This means that the IFC aims to target companies that are either too small or risky to access financing in the capital markets, and that are based in countries where credit supply is extremely limited, or interest rates are too high and make financing for local firms scarce and costly. Who in the world would think of the then world’s largest gold producer, now the second largest producer with capitalization in excess of $20billions, Newmont Gold to fall under the above definition?

The most disingenuous, deceitful and disgraceful nature of World Bank Group’s behaviour, especially its International Finance Corporation (IFC) is that it pretends to be the adviser, promoter and protector of the developing countries’ (LDCs) economic advancement. It then uses the trust to lure them into the arms of the transnational mining corporations (TNMCs) with which it is in league to show them how best to exploit the LDCs mineral resources for virtually free with its invested money earning maximum return. WBG’s behaviour can be likened to that of your defence lawyer being the consultant to the prosecution team where his fees depend on how gravely you are found to be guilty.

See for yourself here the cheap unbelievable propaganda emanating from the mining companies now on slightly falling price of gold. In the past 12 years (2001 – 2012 inclusive) vampires and the cheap propaganda being waged by the mining companies briefly discussed above and more. The traditional sharing of gold or gold revenue in Ghana was the “abusa” system or the 2-parts-to-1- part system. The gold mined was divided into three parts. The gold miners would take two parts and the mineral owners would take one. That is, the ratio of sharing gold was – mineral owners (O) to miners (M) was 1 to 2; or O : M = 1 : 2. In other words, mineral owners would take 33.33% of the gold extracted or its revenue equivalent and the miners took 66.67%.

I am proposing here that the gold produced should be divided into four parts. The mineral owners should take one part or its equivalent in revenue and the miners should take three parts average gold price increased exponentially year on year from $271.04 to $1668.92. The year-on-year average price over the 12 years varied from 6.1% (2012 on 2011) and the highest of 40.6% (2006 on 2005). Immediately gold price fell on average of 8.7%, that is, for the first-half of this year from $1,668.92 (2012) to $1,523.79 (first-half of 2013) which incidentally was 19% greater than 2010 average price, hell broke loose, with astonishing wild claims like: Vanishing gold price! Gold profitability disappeared! Gold mines to close down! And similar deceitful sentiments in order cheat. That is, to declare no profit and even losses and so no tax payment. Gold would continue to be profitable in all developing countries as far as gold price is above $1,000 per troy ounce.

I am proposing a method which at a stroke will eliminate or eradicate all the vampires and the cheap propaganda being waged by the mining companies briefly discussed above and more. The traditional sharing of gold or gold revenue in Ghana was the “abusa” system or the 2 parts to 1 part system. The gold mined was divided into three parts. The gold miners would take two parts and the mineral owners would take one. That is, the ratio of sharing gold was – mineral owners (O) to miners (M) was 1 to 2; or O : M = 1 : 2. In other words, mineral owners would take 33.33% of the gold extracted or its revenue equivalent and the miners took 66.67%.

Ghana should have the option of either taking its third of the gold in metal or the revenue. The revenue should be based on average gold price or higher nothing less. I have done analysis where revenues received from sale of gold were below 80% of the average price for the year. That line of cheating will not be tolerated. Anyway all legal, fiscal and physical frameworks will be put in place to iron out everything by the various experts. I am here just putting a principle across.

There may be people who think 25% is too high and the mining companies and the so-called investors would go away. I ask, to where? No country in the world now especially poor developing countries should allow it its dwindling gold or any mineral resources to be taken for free. Yes some countries may make tactical withdrawal waiting to be called to return for better deal. If no such call is forthcoming and they need the gold, they will invite themselves back. Never forget the Fundamental Principle: THERE CAN NEVER BE ANY GOLD MINING OR ANY MINING WITHOUT THE MINERALS. Yet the mineral owners have been side-stepped for over a century, first by the colonial governments and now being treated like pests by the disingenuous, corrupt World Bank and its associates exploiting us under the guise of advising and providing economic guidance. Besides, I repeatedly keep on saying the world gold deposits are getting exhausted. That is why we are resorting to low-grade, high-tonnage mining with appalling environmental consequences. We can now extract gold from deposits as low as 0.5 grams per tonne or 0.5 parts per million (0.5ppm). It is the advances in extractive technology that is why we are still mining gold now.

On the other hand those who may think 25% is too small, I should let them know that we have been collecting 4.2% of the total revenue of the minerals produced. The highest I have so far estimated was about 12.4% based on the company’s own claimed total payment in the country data.

The miners will pay no royalty, no tax so there will be no need for any fiddling of accounts. The ill-conceived and ill-applied Stability Agreement will be dumped into dustbin where it belongs. There will be no need for Ghana to take any percentage in the concessions. The companies will be bound by Ghana’s mining laws/regulations; labour laws/regulations and conditions of service and environmental laws regarding cleaning after the mining projects. So far there have been lip-service reclamation programme. In order to ensure that the mining sites are properly reclaimed and the rivers and streams are cleaned up after the mining operation, the companies would deposit annual payment equivalent to 10% of their revenue; that is, 10% of 75% or 7.5% of their annually earned revenue with an international bank mutually agreed on with Bank of Ghana. On fully completion of the job and satisfied by mining reclamation consultants, BoG will allow the money with the accrued interests to be refunded to the company. If a mining company does not complete the environmental reclamation properly or does not even do it all, external or internal reclamation engineering firm should be employed. If the fund is not enough, legal action would be taken against the directors.

If the mining companies cannot accept this fair reasonable deal, they know what to do, pack up and go home. I keep saying, we are not going to feed the gold under the ground. We are going to consult our neighbours in ECOWAS to adopt the same strategy. There is worldwide shortage of easily accessible gold deposits. West Africa is one of the few regions in the world now that one can find gold mineralisation and be exploited at low costs – miners are paid low wages and energy costs compared to a number of gold producing countries in the industrialised countries and at low environmental costs. The Macondo accident in Gulf of Mexico which cost death of 11 people and very extensive oil spillage, cost BP $42.2 billion. If an accident of similar magnitude were to have happened in Nigeria or Indonesia, the company would be complaining if the overall cost was $500million. That is what I mean by costs differential.


* The author is a mining and research engineer and also a mathematician. He retired as a senior lecturer in mathematics and computer applications in London. He is the author of 256-page, THE METAL GOLD: Properties, World Production Statistics from BC 3900 to AD 2009, Units of Measurements & Trading and the USES. His second book is GHANA’S GOLD INDUSTRY: THE UNTOLD TRUTH. The publication has delayed for one important reason, which is the fluidity of the industry in the country. It is now on its way to the publishers and we hope it will be ready for the world by late this year to see what happened and is happening in the industry in full