The future of mining in Africa

The future of mining in Africa depends on the short to medium-term outlook of all commodity prices and government tax reform initiatives. These factors will determine whether gold and coal miners succeed in countries like Ghana and Mozambique, and can seriously affect the future growth of the industry.

The perception of Ghana as an investor-friendly mining destination may be challenged as the major tax reforms, that are either proposed or enacted, lack the kind of clarity and certainty that mining investors need around the Ghanaian government’s support of mining.

The tax burden

Below we detail some of the cost related challenges facing the mining industry:

  • Ghana’s tax reform: The full implications of this have not been considered. Among these is the 10 percent increase in the corporate tax on mining companies.
  • Windfall tax: A windfall tax, in line with increases in the gold price and global trends, could be another challenge
  • Power supply: the shortage of electrical power and the resulting significant increases in the cost of power in recent years.

Prospective changes in Mozambique

Earlier this year, Mozambique joined the ranks of countries suggesting and tabling amendments to mining law. Some of the changes and prospective amendments include:

  • A proposal for government to take stakes in major strategic projects – a possibility not necessarily out of line with the reforms being introduced in other mineral-rich countries.
  • Streamlining of the licensing process for exploration and mining. These should lower the industry’s barriers to entry. However, the new legislation would force companies to start production within two years of licensing. In contrast, existing legislation enable mining to start 15 years after a mining license is granted.
  • The draft new mining law proposes that business contracts involving rights and licenses for the country’s resources must be executed within the country.

Observers expect the draft to submitted to the Mozambican government before the second half of this year.

Other challenges

Mining companies in Ghana speak of needing a social license to operate, and must simultaneously confront significant pockets of illegal mining, while in Mozambique one of the most urgent challenges is a rail network equal to foreign demand for coal.

For more read this issue of New Frontiers.

This article was adapted from The Future of Mining in Africa, page 12 – 13. 

David Okwara

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  1. CA Mining Blog | Africa Mining forecast and projection - June 27, 2013

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