Ghana mining - wisdom is wealth

Materials World magazine
4 Sep 2014

Ghana has a lot to offer the mining sector, but investors need to be aware of a range of issues before looking to set up projects there. Guy Richards reports.

Close your eyes and stick a pin in a map of Africa, and there’s a good chance you’ll pick a country caught up in some form of civil or economic turmoil. From the North African states still locked in political transition after the Arab Spring, to the sub-Saharan region where the Nigerian Government is struggling to contain anti-West Islamist militants, down to South Africa, whose economy has been severely damaged by the recently ended miners’ strike – the longest in its history.

Add to that the years of conflict, corruption and dictatorship in countries such as Sierra Leone, the Democratic Republic of Congo and Zimbabwe, and it’s arguable that safe bets for investing in mining across the continent are few and far between. However, one country that differs by comparison is Ghana.

The West African republic has been a stable, multi-party democracy for more than 20 years and in 2013 it was ranked the seventh-best governed nation (out of the 52 covered) on the continent by the respected Ibrahim Index of African Governance. As such, according to a spokesperson for consultancy KPMG, which has a mining services centre in Ghana, ‘The economic and fiscal policies in the country are generally sound. Relative to the sub-Saharan African norm, Ghana is fairly welcoming to foreign investment and has an accommodative business environment.’

The country is Africa’s second-largest gold producer (after South Africa) and is ranked 10th in the world. Ghana is also a major producer of diamonds, bauxite and manganese, and in the past few years deposits of phosphate, nickel, chromium and uranium have been discovered, although the size of these are as yet unknown. In addition, there is a now a high-resolution geological map of the entire country, the data for which is available from Ghana’s Geological Survey Department (visit the website by clicking here).

Untapped resources?
With these credentials, it would be easy to assume that the country is brimming with mature projects crowded around known deposits – but that isn’t entirely true. Sulemanu Koney, CEO of the Ghana Chamber of Mines, explains, ‘There is definitely room for new projects in gold, diamond, bauxite and manganese. Ghana has one of the longest and richest gold-bearing rocks in the world, while diamond, manganese and bauxite are largely underexploited, although their occurrence in economic quantities is not in doubt.’ However, Koney concedes that in terms of the newly discovered minerals, potential investors would have to carry out further prospecting to determine their economic viability.

Other factors in Ghana’s favour – at least from the UK and Europe’s perspective – are that English is the country’s official language and its time zone lies just one hour ahead of Greenwich Mean Time.

That said, there are issues in the country that potential investors need to be aware of. Despite the generally sound economic and business environment described by KPMG’s spokesperson, currently the most serious issue regarding investment in Ghana’s mining sector is its government’s fiscal policy. In recent years, there have been worrying indications of fiscal slippage, and this has had an effect on exchange and interest rates.

‘To address the budget deficit – which stood at 11.8% GDP in 2012 – the Government has reduced subsidies and increased taxes, raising the cost of doing business,’ says KPMG. ‘VAT rose from 12.5% to 15% in 2013, and there is talk of introducing a windfall tax. These new burdens, coupled with wage demands from workers who see their purchasing power being eroded by inflation, are making the operating environment increasingly difficult for miners, and some mining companies have already had to mothball parts of their operations.’

There is also a raft of other taxes payable (see end of article), and Ghana’s government is entitled to a free-carried equity interest of 10% in all mineral ventures. Investing in infrastructure Infrastructure is an issue as well. According to KPMG, the road network carries about 98% of freight and 97% of passenger traffic, but in August 2013 only 41% of the network was considered to be in good condition. Meanwhile, most of the rail network is concentrated in the south west of the country, and is dedicated to transporting bauxite and manganese from mines in the area. Rail infrastructure in the west, meanwhile, although extensive enough to benefit the mining industry, is in poor condition. That said, port logistics are fairly well developed and are considered adequate.

However, the Government is making a concerted effort to improve infrastructure. In its 2014 budget, it announced the Ghana Infrastructure Fund to which it will allocate almost six billion Ghana cedi (GHS), the equivalent of around £1bln, from the VAT increase. Of course, even with this investment it will take time for improvements to be seen.

Electricity supply is an equally serious issue, but again, it is being addressed. KPMG says that although supplies are currently intermittent, Ghana’s total installed capacity will have nearly doubled to more than 5,000MW by 2016. ‘That figure is respectable and is considerably higher than those in any other sub-Saharan country with a comparable population.’

The Government is also focusing on transmission and distribution, with several power lines and sub-stations now being built, and it is establishing interconnectivity of supply with neighbours Burkina Faso and Mali.

Such investments, along with its political stability, are expected to bolster Ghana’s economic growth in the medium term, according to the African Development Bank. Although growth fell from 7.9% to 4.4% between 2012–2013, it expects that figure to rise to about 8% in 2015.

If all of this is enough to whet investors’ appetites, then it should also be reassuring to know that the process of setting up a mining project in Ghana is broadly the same as in many other countries. However, Fui Tsikata, senior partner at law firm Reindorf Chambers in Ghana’s capital, Accra, has some advice for new investors in the sector. ‘After identifying the preferred area for a mining operation – by applying for a vacant area, say, or through a joint venture or buying an existing mineral right – you need to carry out the appropriate legal and other investigations to ensure that the property is valid, unencumbered and can be acquired. You need to understand the broad legal context and institutional arrangements’.

Furthermore, Tsikata advocates becoming familiar with the key Ghanaian mining institutions, in particular the Minerals Commission, the Environmental Protection Agency and their respective supervising ministries. After that comes the need to identify the potential for co-existence or conflict with land users, owners and communities in the chosen area, and then to incorporate as a local company – a recently introduced requirement – and register with the tax authorities. The final step is applying for the appropriate mineral rights and environmental permits.

According to KPMG and also indicated by the Minerals Commission, the licensing sequence starts with a reconnaissance licence (granted for up to a year and limited to 5,000 contiguous blocks or 1,050km2), followed by a prospecting licence (for up to three years and up to 750 contiguous blocks) and then a mining lease (for up to 30 years, renewable for a further 30 and limited to 300 contiguous blocks).

Tsikata, however, argues that this is not quite the case. ‘You can obtain a prospecting licence without first having acquired a reconnaissance licence. Both licences grant exploration rights and, of course, you need to carry out exploration to prove mineral resources for mining. Exploration can only be conducted under a reconnaissance or prospecting licence.’

He continues, ‘To obtain a mining lease, of course you need to submit a bankable feasibility study, but where the area of interest has already been explored – and found to be viable or bankable – you can apply directly for a mining lease over the area.’

Mines also need equipment, and although various global studies in 2013 point to Africa showing some of the greatest demand for machinery over the next few years (see Here is the forecast, p46, May 2014 Materials World), details for Ghana are lacking. But Koney says, ‘Given that there is small as well as largescale mining in Ghana, and that both feature the widespread use of earth-moving equipment, we can infer that this equipment is in high demand.’
Like many countries, Ghana has its issues, but it is a stable and mining-friendly nation with good growth prospects. And how many other parts of Africa can that be said for?   

Ghana: mining taxes

Mining companies in Ghana have to pay the following taxes:
Corporate tax 35%
Capital gains tax 15%
Withholding tax 15%
Capital allowances 20% for five years

In addition, there is an extra 2.5% National Health Insurance Levy on domestic and imported good and services, and a proposed windfall tax on extraordinary profits, which could amount to around 10%.

However, miners can enjoy some tax incentives, such as exemption from customs import duty for plant and equipment, staff income tax (in some circumstances) and tax on money transferred by ex-pats out of the country.