Gold price and tax reform to mould state of mining sector
Original article by Yolandi Booyens published in Mining Weekly on 13 April 2012.
The future of mining in Ghana is dependent on the short- to medium- term outlook of the gold price, which will determine whether gold miners in the country are successful, and the government initiatives around tax reforms that have the potential to seriously affect the growth of the industry.
Ghana has been viewed as an investor-friendly mining destination in the past, but this perception may be challenged, says KPMG energy and natural resources advisory practice director and Mining in Africa services head, Ian Kramer.
Investors in the mining industry require clarity and certainty around the government’s support of the industry.”
Major tax reforms, similar to those proposed and currently enacted in Ghana, do not assist in providing such certainty.
The full implications of tax reforms have not been considered in full.”
The mining industry faces consequences over wholesale changes in Ghana’s tax regime that are in the process of being enacted and consist of a 10% increase, from 25% to 35%, in the corporate tax on mining companies.
This change was partially aimed at bringing the tax regime in line with Ghana’s oil industry and to eventually create a uniform regime within the Economic Community of West African States, or Ecowas, region, says KPMG partner Nathaniel Harlley.
An additional windfall tax, in line with increases in the gold price and global trends, could also be a potential challenge.
Challenges faced by Ghana’s mining industry
Another challenge faced by the mining industry from a cost perspective is the shortage of power supply and the resultant significant increases in the cost of power over the past couple of years, which has significantly affected mining operations.
Mining companies are introducing power cost-saving initiatives and entering into significant negotiations with power suppliers around their electricity needs and plan to combat this challenge.
Further, from the perspective of having a social licence to operate, mining companies are affected by significant pockets of illegal mining in Ghana. This affects nearby communities and safety initiatives introduced by mining companies at their operations.
Illegal mining remains a concern in Ghana and should continuously be managed by mining companies through regular interaction with the local communities in which they operate as well as the regulatory authorities,” says Kramer.
Additional challenges centre on land valuation and compensation. Current uncertainty surrounding amounts to be paid and litigation has the potential to create challenges.
Steps have been taken to involve the Land Valuation Board and the Ministry of Lands and Natural Resources to facilitate the process and overcome any potential issues,” says Harlley.
Kramer adds that there is a significant drive in the country to ensure that mining companies operate in an environmentally responsible manner and there is close scrutiny of this aspect of mining operations by regulatory authorities and communities.
Continued compliance with environmental regulations will be required for mining companies to continue their operations.”
Gold is biggest driver of growth
Over the past few years, there has been a significant increase in mining activities in Ghana.
Ghana has always been a resource-rich country,” says Kramer.
Gold forms the backbone of the industry and the increases in the gold price over the past two to three years have resulted in a renewed interest in this commodity on a global level.
The biggest benefit for Ghana from the increased mining activities, in addition to the financial upside, is job creation. Such job creation is not limited to the mining industry alone, as ancillary businesses, like suppliers to the industry, also reap the benefits.
One of Ghana’s biggest drivers of growth is the gold industry, concludes Kramer.