Miners haunted by tax-hikes

Ghana’s mineral tax regime has become unfavourable to investment, and mining is not as rewarding as other industries, new president of the Chamber of Mines Johan Ferreira has told the B&FT.

Reflecting the mood among mining executives in recent years, Mr. Ferreira, who heads Newmont Mining Corporation’s operations in Africa, said low gold prices and spiralling production costs have blighted the future of mining companies.

“As an industry we do have a view that we need to have an environment where we can invest and attract investment; but with the current tax regime it does not play well for the mining industry in Ghana compared to other types of industry.

“While we are fully aware of the economic challenges facing the government, care must be taken to protect the proverbial hen that lays the golden egg.”

As their revenues come under pressure due to weak gold prices, miners have been courting government sympathy for their plight, arguing for lower taxes and less stringent investment conditions.

This period of stress for the industry follows strong attempts by government since 2012 to increase its take from mining -- by boosting the corporate tax rate from 25 percent to 35 percent, and raising royalties from a previous sliding range of 3-6 percent to a fixed rate of 5 percent.

At a conference in Accra last week, Alfred Baku, who heads Gold Fields’ West African operations, made a case for lower taxes because of the falling gold price, which has dropped by around a quarter since 2013.

Mr. Baku said Gold Fields’ all-in cost of production is US$1,200 an ounce, while the gold price has been below US$1,300.

The chamber president did not explicitly say whether government should reduce mining taxes for the whole industry, but stressed the current regime is unfavourable and that the chamber will be “proactive, collectively determine a strategy and move forward”.

“The industry is facing many challenges; some that we can do nothing about, such as the gold price. But there are other challenges that we can do something about. In an era of low gold prices, the minerals industry is reeling under an unfavorable fiscal regime coupled with the high cost of production. The fortunes of mining companies have further been blighted.”

Almost all the major firms in the industry have been cutting jobs to rein-in the rising cost of operations and restructure their business models.

Newmont retrenched 240 workers at its Ahafo Mine last year, and is sending home up to 600 more staff in the first half of the year. AngloGold Ashanti said last month that a large number of its 6,500 workers at the Obuasi Mine will be retrenched as the company revamps the mine’s operations.

President Mahama has said threats of job-cuts have caused the government to hold back plans to introduce a 10 percent windfall tax on the mining industry.

Speaking to the B&FT about whether the industry’s ongoing problems warrant a loosening of the tax regime, Mohammed Amin Adam, ‎Executive Director of energy think-tank Africa Centre for Energy Policy (ACEP), said lowering the tax rate will not be prudent since investments have continued to flow in under the current regime.

“If you rush to reduce taxes because of a lower global metal price, what will happen if the price begins to surge on the world market?” he said, adding that what is needed is a stable fiscal regime that enables planning and prediction of investment returns.

For his part, Mr. Ferreira said the chamber will continue to collaborate with government to foster an environment that will make the industry create more value for its stakeholders.

“Whether it is growing the pie or providing thought-leadership to government, the question of what we can do to assist the government and our people always arises. We need the support of all our stakeholders to help us scale our present challenges and be able to continue improving the lives of our communities.”