The current tax regime does not support the growth of the mining industry because the ‘real’ cost of production is not properly understood, Augustine Wireko Asubonteng, Acting Vice President and Head of Finance, Gold Fields West Africa Region has said.
According to him, perceptions of high profit margins has placed heavy burden on mining companies saying: “There is an impression out there that the mining guys are making huge profits but it is not true. Some companies are actually making losses.
Asked whether the industry is honest about its margins, he said: “It is not a matter of telling them what the cost situation is, they know. It is about the impression that is out there. The perception that the government and the communities and other stakeholders have that there is a big margin out there.”
Speaking at a forum dubbed ‘mining for development,’ organised by the Ghana Chamber of Mines in Accra, Mr Asubonteng said mining is a very capital intensive activity that requires the need for stakeholders to properly understand the cost metrics of the industry. “It is a tough industry and I am not trying to get sympathy but as a country, we make decisions based on non-factual information.”
He said the prevailing conditions are not attractive to investors: “I believe as a nation we need to sit down and understand what we want. Do we want investment in the country or we don’t want. If we want a mining industry then we need to attract the investment.”
“The fiscal regime is not conducive for investors and this is something the government has to look at because there are so many things you can do. You can even decide to apply sliding skills taxation policy where when there is lower gold prices, your tax come down and when there is higher good prices the tax goes up in accordance with it. But that one is up to the government,” he added.
Gold price has seen a slump in recent years and even though the price of the commodity has started picking up, Mr Asubonteng says it won’t be able to recover back to its old price, saying: “We cannot rely on the gold price anymore because if you look at the experts in the market, they don’t expect the gold price to recover to its old peak.
Going forward, he said it is important for mines to be able to operate and manage the production efficiently to ensure they can survive in these hard times, adding that: “in terms of the tax, that’s in the hands of the government.”
Sulemanu Koney, President of the Ghana Chamber of Mines also added: “Given the importance of cost in the mining industry, there is the need for us all to have a common understanding of the definition of the metrics of cost in the sector. Although most businesses will refer to concepts such as fixed and variable costs so to speak, the mining industry has adopted a set of metrics which reflects the unique nature of the sector.
These are cash cost, all-in sustaining cost and all-in cost. Until recently, the cash cost has been the primary reference metric reported by the gold mining industry to its publics, particularly the investor community”
The Chamber noted that the aforementioned metrics are pervasive and created the incorrect perception that it reflected the total cost of production. And that reporting on this metric unwittingly gave some interested parties the impression that mining companies were “neck deep” in money or were creaming off tidy margins.
Mr Koney explained that whilst cash-costs allows comparability in the global gold mining industry and enables investors to make informed decisions. It was clearly an inadequate and incomprehensive measure of the cost of gold production.
This metric has however, been replaced with an updated cost metric developed in 2012 by the World Gold Council, a market development organisation for the gold industry. This metric deals with the all-in-sustaining cost and the all-in-cost to reflect the cost of mining gold on a sustaining basis as well as the total cost of production.
“If you look at the comparatives, we are one of the high-taxed regimes and it’s one of the things we will continue to engage government to see whether something could be done. It is necessary to look for a more flexible fiscal regime.
“Mining companies, host governments, suppliers and other stakeholders should be interested in optimising cost in the mining industry given its strategic importance to the economy,” the President of the Chamber added.