Ghana Chamber of Mines : Chamber of Mines responds to erroneous report by ACEP

The attention of the Ghana Chamber of Mines has been drawn to a research publication by the African Centre for Energy Policy (ACEP) on the contribution of mining to Ghana's economy. The publication has subsequently received generous reportage in both the print and electronic media.

While we encourage independent systematic and robust analysis of the mining sector, we are of the considered opinion that the findings and conclusions of ACEP's study diverge from the documented outflows from the mining sector to the national kitty. Again, we regret ACEP's inability to share its research findings with the Chamber prior to publishing it, especially on account of our leadership in the mining industry and healthy relationship with ACEP. In the light of these developments, the Chamber wishes to remedy some palpable deficiencies in the report as published extensively by the media and reported bywww.myjoyonline.com.

We wish to respond to ACEP's publication as follows:

1. The report stated that the country earned $ 1.7 billion out of the total receipts of $ 23 billion realized from the export of gold from 2016 and 2013. While we are inclined to ignore the error in the time period stated in the reportage (2016-2013), the implied conclusion of the analysis is misleading. Certainly, the country's take from mining transcends the fiscal revenue that accrues to the state. It includes the indirect and induced value that are elicited as a result of the presence of the mine. For instance, a recent study by Steward Redqueen and African Center for Economic Transformation suggests that for every job on the mine, a further fifteen (15) jobs are created indirectly. Consequently, it will inaccurate to account for the benefit of mining without taking into consideration the value that is created on account of the symbiotic relationship between the mineral and non-mineral economy.

Further, the statement compares the share of mineral revenue returned to the state with the total receipts from the export of gold and not the profit reported by the mining companies. Since profit is measured as the excess of revenue over cost, it provides a good barometer of the health of any business. Outflows to government, community members and shareholders are predicated on the profit reported by the company and audited by tax authorities. Consequently, it will be erroneous or misleading to draw any conclusion on the government's returns from mining based on revenue realized from the sale of gold.

Nonetheless, the Chamber regularly publishes data on the distribution of mineral revenue to various stakeholders in the mining sector on its website and in its annual report and newsletters. Although the information provided in Table 1.0 reflects the schedule of outflows from the Producing Members of the Chamber, who account for nearly 70% of gold output, it clearly shows that the revenue that accrues to the state is relatively higher than that of the equity shareholders. On the average, the state received 12% of mineral revenue as compared to the latter's share of 3% from 2011 to 2014. This observation is in line with the findings of a study by Steward Redqueen and African Center for Economic Transformation (ACET), which submits that the host government benefits more from mining relative to investors over the life cycle of a mine.

Table 1.0: Distribution of Mineral Revenue (2011-2014)

	2011	2012	2013	2014
CAPEX	19%	25%	6.7%	12%
Local Purchases	18%	29%	21.4%	20%
Imported Consumables	15%	17%	7.6%	6%
State	13%	14%	11.8%	11%
Electric Power	7%	14%	17.2%	17%
Employees	7%	8%	14.3%	10%
Amortizing loans, including interest	7%	1%	2.5%	11%
Other Shareholders	5%	2%	1.1%	3%
CSR	1%	1%	0.3%	1%

2. Furthermore, the report attempts to measure the unit revenue realized from the sale of gold by comparing the market price with the cost of production. While this is a proven and standard methodology, the data on cost cited by ACEP refers to 'cash cost' instead of 'all-in- cost' (AIC). Cash cost measures only the on-site cost incurred by a mine in producing an ounce of gold. This does not take into consideration other associated production costs such as exploration, development, depreciation, depletion, amortization and closure and post closure. In view of its tendency to overestimate profits, the mining industry has shifted away from the use of 'cash cost' as a measure of net revenue. In tandem with this development, the Chamber regularly publishes data on the true cost of mining, which is AIC, in its annual report. In essence, the net revenue from the sale of an ounce of gold can only be established by juxtaposing the sale price with AIC.

3. Again, the report contrasts growth in the mining sector against overall economic growth and suggests that the latter was expanding at a decelerated rate while the growth rate of the former was considerably high. A careful analysis of the data published by the Ghana Statistical Service does not support such a conclusion. Mining and quarrying comprise three sub-sectors, namely, mining, quarrying and oil & gas. Naturally, the reported sectoral growth rate will be a summation of the average rate of these sub-sectors. In order to ascertain the growth rate of the mining sector, we would have to isolate quarrying and oil/gas from mining. However, we are unable to determine the precise growth rate of the mining sector based on the data published by GSS. Nonetheless, we can infer or deduce this statistic by simply subtracting the growth rate of the oil and gas sub-sector from the sectoral growth rate. In this case, the GSS indicated that the former expanded by 18% while the entire mining and quarrying sub-sector grew by 11.7%. Based on these figures, it is obvious that the mining sector contracted in 2013, which is in consonance with the Chamber's position on the declining fortunes of the mining industry.

4. In principle, the Chamber is not opposed to the suggestion by ACEP that the government should introduce a resource rent tax to 'capture a share of excessive profits and introduce other exempted taxes without negatively affecting long-term mining investment'. However, the thrust of our argument on this proposal is that the so-called resource rent tax regime should accommodate the mood swings of the bullion market. In this way, investors will not be made worse-off during periods of downturn and thereby guarantee the continuous operation of the mine as well as steady flow of revenue to the state to support its development activities. As alluded to earlier, the recent past and indeed, the current climate shows a contraction of the industry and a consideration of resource rent will not bode well for the country.

5. On the other hand, the Chamber fully supports ACEP's proposition for a mining investment law to guide the collection, disbursement and utilization of mineral revenue. As a founding member of the Extractive Industry Transparency (EITI), which is a preeminent transparency and accountability-driven extractive industry initiative, the Chamber has relentlessly urged the government to promulgate a Mineral Revenue and Management Act. This law will be analogous to the Petroleum Revenue and Management Act in promoting transparency and accountability in the mining sector.

The Chamber wishes to therefore indicate its willingness to continue working with civil society organisation and the media to provide information on the industry through open engagements.

Thank you

Sulemanu Koney

Chief Executive Officer

Editor's Note:

Kindly contact the Director of External Relations and Communications, Mr. Ahmed Nantogmah, via email [e-mail] further information. Alternatively, you can visit our website for reports and information on the mining industry in Ghana.

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