Mining in Ghana Q & A

with:

  • Ian Kramer, Director in KPMG’s Energy and Natural Resources advisory practice and head of Mining in Africa services at KPMG
  • Nathaniel Harlley, Partner in KPMG’s Ghana practice.

 Q1: Major mining projects in Ghana

[Ian] Gold mining companies have the most significant mining opportunities and projects in the country. A number of smaller players in addition to the likes of Gold Fields, AngloGold Ashanti and Newmont have exploration projects; start up or smaller operations in the country.

Q2: Major challenges faced by the mining industry in Ghana

[Ian] Effectively the mining industry faces three major challenges in Ghana.

Firstly, from a cost perspective, operations are significantly affected by the shortages of power supply and resultant exorbitant increases in power costs over the last couple of years.

Secondly, from a social license to operate perspective, mining companies are affected by the occurrence of significant pockets of illegal mining, which not only affects nearby communities, but also safety initiatives introduced by mining companies at their operations. Additionally, there is a significant drive in country to ensure that mining companies operate in an environmentally responsible manner and a lot of scrutiny is placed on this aspect of the operations by regulatory authorities and communities.

Lastly, the industry is faced which a serious issue around some wholesale changes in the tax regime of the country that is in the process of being enacted, most notably a 10% increase in the normal tax rate from 25% to 35%.

[Nathaniel] Further challenges facing mining companies in Ghana centre around land valuation and compensation as current uncertainty surrounding amounts to be paid and litigation concerning has the potential to create issues here. Steps have however been taken to involve the land valuation board and the Ministry of Lands to facilitate the process and overcome such issue.

Additionally, with regards to the 10% increase in the normal tax rate from 25% to 35%, it is said that this change was partially aimed at bringing the tax regime in line with the Oil industry and the vision of an eventual uniform regime within the Ecowas region

Other potential tax challenges include an additional windfall tax to reflex the Government thinking as aligned to increases in the gold price and global trends. The planned withdrawal of investment allowance and switch from accelerated capital allowances may also present key challenges when mining in Ghana.

Q3: How does the mining industry plan on dealing with the above-mentioned challenges?

[Ian] With regards to power increases, most mining companies are introducing power cost saving initiatives and entering into significant negotiations with the power suppliers around their electricity needs and plans. Illegal mining remains a concern and will have to be continuously managed by the mining companies through regular interaction with the local communities in which they operate. Continued compliance with environmental regulation will be required in order for mining companies to continue with their operations. Lastly, significant time and effort will be required to interact with government on the tax changes and proving to government the possible detrimental effect the huge tax reforms can have on the industry as a whole.

Q4: The reason behind Ghana’s increase in mining activities

[Ian] Ghana has always been a resource rich country and until now has been viewed as one of the more investor friendly countries on the continent to do business in. The recent increase in scrutiny around environmental regulation compliance and significant tax reforms currently being enacted does affect this perception. Also bear in mind that gold forms the backbone of the industry and the increases in the gold commodity price over the last 2 to 3 years showed a renewed interest in this commodity, not only in Ghana, but globally.

Q5: How has the increase in mining activities benefitted Ghana?

[Ian] The biggest benefit for Ghana out of increased mining activities in country, in addition to the financial upside, is the increased job creation generated by these activities. Such job creation is not limited to the industry itself but ancillary businesses like suppliers to the industry also benefits by the increased activity.

Q6: What does the future look like for mining in Ghana?

[Ian] In my view, the future of mining in Ghana is dependent on 2 matters. Firstly, the short to medium term outlook of the gold price will affect the ability of gold miners in country to be successful or not. Unfortunately, this matter is not under the control of the industry of the country as it is a clear view of most of the industry that supply of gold plays a negligible, if any, role in the determination of the gold price. Secondly, the government initiatives around tax reforms in the country have the potential to seriously affect the growth of the industry in the country – I am not sure the unintended consequences of the tax reforms have been considered in full.

Q7: What is the demand for education and skills development in the mining industry in Ghana?

[Ian] Everywhere in the world where there is a growth in the mining industry, a vacuum quickly develops around education and skills development. Simply put, there is simply not enough human resources in the mining industry globally to cater for the significant growth in the industry. Ghana is not escaping the huge pressure its mining industry faces when it comes to education and skills development.

Q8: Where does the biggest potential for growth in the industry lie?

[Ian] The biggest potential from growth remains in the gold industry.

Q9: Anything you would like to add

[Ian] I am of the view that Ghana, as a country, is at a tipping point, when it comes to foreign investor decisions as to whether the country is a friendly or hostile investment destination. As everywhere else in the world, investors in the mining industry require clarity and certainty around government’s support to the industry. Major tax reforms similar to the ones proposed and currently enacted in Ghana does not assist in providing such certainty.

David Okwara

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