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