With prices on stronger ground in global markets, mining companies are starting to display renewed interest in gold mining. In Ghana, this precious metal represents more than 80% of mining activities, and an uptick in gold prices has led to flurry of activity, with companies signing agreements, initiating production and seeking land for exploration.
While a raft of fiscal changes aimed at increasing mining tax revenue have been introduced in recent years, the government has also sought to address sector challenges and ensure attractive investment conditions while promoting the development of sustainable mining. The implementation of measures like the recently adopted Minerals and Mining Policy will be key to strengthening the sector’s role as a pillar of economic growth and development.
Old Industry
Ghana is home to one of the oldest mining industries on the continent, and earned the title Gold Coast during its colonial years.
Gold mining continues to constitute the heart of the industry. Ghana is the second-largest producer of gold in the continent after South Africa, ranking 10th in the world and contributing some 3% of total global production in 2015.
Nonetheless, the country’s underground wealth is not limited to gold. Other commercially exploited minerals in Ghana include diamonds, manganese and bauxite, with the country once hosting Africa’s largest aluminium smelter.
Industrial minerals such as brown clays, kaolin, silica sand and mica have also long been exploited, albeit on a smaller scale, to supply local industries. In addition to this, Ghana is known to have under-exploited deposits of iron ore, limestone, columbine-tantalite, feldspar, quartz and salt. There is significant potential in solar salt production and, as Minerals Commission CEO Toni Aubynn told OBG, recent discoveries suggest further development potential in copper, nickel, zinc and chromium.
Economic Contribution
Despite its breadth of mineral reserves, exploration activities and mining potential, recent years have seen the mining sector’s figures decline. According to the Ghana Statistical Service (GSS), mining and quarrying, including oil and gas, accounted for 5.4% of GDP in 2015, down from 8% in 2014 and 9.4% in 2013. Foreign direct investment (FDI) in mining reportedly dipped by 17.6% in 2014, from $1.15bn in 2013 to $950m in 2014. Mining and quarrying, as a sector in itself, including oil and gas, displayed negative growth of 2.2% in 2015, against growth of 3.2% in 2014.
Several factors have contributed to these declines. One is that fluctuations in global commodity prices, especially in gold, have led to a subsequent retrenchment in mining activities globally. The average price of gold per ounce peaked at $1947 in 2011, but by December 2016 had dropped to $1174, according to the London Bullion Market Association.
This added to a series of domestic difficulties experienced in Ghanaian mining and its related industries in recent years, including – inter alia – limited access to energy supplies, rising utility tariffs and frequent changes to the tax environment. “Following the decline in gold prices in 2013, the contracting sector saw mining companies cutting costs, including reducing headcounts and, in some cases, streamlining exploration activities,” Eric Asubonteng, general manager and managing director at AngloGold Ashanti Ghana (AGAG), told OBG.
In terms of employment, there are an estimated 192,635 people working in mining and quarrying, according to the GSS. This number accounts for 1.6% of the country’s estimated 12m employees but 28% of formal private employment.
In keeping with the decline in mining activities, member companies of the Ghana Chamber of Mines (GCM) employed 9939 workers at the end of 2015 as compared to 12,382 in 2014. Employee attrition and rationalisation at various sites explains this 20% cut, according to the GCM. Ghanaian nationals, as per GCM data, account for as much as 98% of the labour force in GCM member companies.
Export Proceeds & Fiscal Revenue
Gold exports continued to decline in 2015, amounting to $3.2bn in revenue or 31% of total merchandise exports, against $4.38bn or 33.2% of total merchandise exports in 2014. More generally, mineral exports proceeds yielded $3.39bn in 2015, 13.9% less than the $3.94bn recorded in 2014.
Gold exports dipped 10% in volume, while manganese exports dropped by 5% and purchases of diamonds by 28%. Despite these declines, gold exports remained the chief source of foreign exchange in the country, and are seen as having contributed to the local currency’s relative stability in 2015. As in other areas of the sector, one of the main challenges is reducing illegal activity – in this case, undeclared exports. The Bank of Ghana has instructed gold exporters to channel their exports through the Precious Minerals Marketing Company (PMMC) in order to stem the trade of gold smuggling.
Even after the start of hydrocarbons production in the country’s offshore Jubilee field, minerals and mining continued to be the leading source of fiscal revenue, contributing GHS1.35bn ($348.3m) in taxes in 2015, according to the Ghana Revenue Authority (GRA). Although this amounted to an 8% increase, as compared to the GHS1.24bn ($319.9m) collected in 2014, the sector’s share of total direct tax decreased from 16.2% in 2014 to 14.8% in 2015. The sector’s fiscal payments were composed of GHS485.6m ($121.5m) in royalties, GHS463.12m ($115.9m) in corporate taxes, GHS404.74m ($101.3m) in pay-as-you-earn and GHS870,000 ($217,800) in other taxes.
Structure
The Ministry of Lands and Natural Resources oversees Ghana’s mining sector through the Geological Survey Department and the Minerals Commission. The Geological Survey Department is responsible for providing reliable and up-to-date geological information, while also serving as a repository of the country’s geo-scientific data. The Minerals Commission is responsible for regulating and managing mineral resources in Ghana, as well as coordinating policies related to the sector.
Following national independence in 1957, mining reverted to the state, which acquired full ownership of mining firms in the country, with the exception of the Ashanti Goldfields Corporation, in which it eventually obtained a 55% interest in 1972. In 1983, the government shifted its attention to privatisation, foreign investment and state divestment. Ultimately, the state kept a 10% free carried-interest share in most active large-scale operations in Ghana, with a few exceptions, namely those that negotiated and signed stability agreements with the government.
Today, there are two wholly state-owned companies in Ghanaian mining: Sankofa Prestea, a gold mining company, and the PMMC, which serves as a marketing wing for the small-scale mining sector.
Operations Scale
The mining sector is dominated by large-scale, foreign-owned operations. Foreign companies account for 76% of large mining operations, with these in turn accounting for roughly two-thirds of total gold exports and more than four-fifths of total mineral exports.
By contrast, small-scale mining (SSM), which bars heavy extraction equipment, was originally intended and designed for locals, initially covering diamonds only. Yet, in view of a growing interest in gold mining exploration at this scale, the government decided to extend SSM activities to gold. In 1989, Parliament passed the Small-Scale Gold Mining Act, which facilitated SSM registration and licensing, as well as the Precious Minerals Marketing Corporation Act, which provided the legislative authorisation for buying and selling gold from artisanal and small-scale miners.
SSM for gold has flourished in this context. By 2014, artisanal and small-scale mining exports represented 34% of total gold exports, while artisanal and small-scale mining exports accounted for 14.7% of the national total. According to the GHEITI, Ghana has over 1300 registered SSM groups engaged in the mining of gold, diamonds and industrial minerals. The Minerals Commission gives slightly different data, pointing to 1255 registered SSM gold mining groups, 70 quarrying companies (excluding renewal applications) and 13 salt operators.
Illegal Mining
Despite having rapidly reached a significant share of gold and general mining exports, as well as benefitting from direct state support and close oversight from the PMMC, artisanal and small-scale mining has in many ways remained largely informal and unstructured.
The rapid proliferation of illegal SSM activities in Ghana is a primary concern for stakeholders, who say that it negatively affects large-scale concessions and non-designated mining areas through invasive occupation of concession areas, destruction of arable lands, displacement of farmers, pollution of water, loss of lives and disruption of social life. As the problem grew, the government responded by taking steps to strengthen security. The 2009 establishment of the National Security Committee on Lands and Natural Resources was followed in 2016 by a set of amendments to the 2006 Minerals and Mining Act that more severely criminalised illegal mining.
Today, the law criminalises illegal SSM practised by both foreigners and Ghanaians without a permit. It makes it an offence for Ghanaians to employ or engage foreigners in illegal SSM activities, for foreigners to get involved in illegal SSM, or for anyone to take part in illegal minerals trade. Furthermore, it allows the state to confiscate equipment, and the courts are empowered to order the forfeiture of any extracted materials as a result of an offence. Convicted offenders are liable to a range of fines or imprisonment terms, with foreign offenders subject to harsher penalties than Ghanaians.
Despite these measures, illegal mining remained a challenge in 2015 and continued to grow in 2016, as evidenced by illegal-miner invasions at several large-scale concessions, including incidents at the Perseus Mining site in Ayamfuri, the Owere Mines site in Konongo and the AGAG site in Obuasi. AGAG drew headlines in February 2016 when its communications director, John Owusu, was killed as a company vehicle attempted to escape an attack by illegal miners. In April 2016 AGAG lodged a claim against the government at the International Centre for Settlement of Investment Disputes calling for the military to provide extra protection at the Obuasi site, arguing that despite the signing of a memorandum of understanding between the GCM and the Ghanaian army, inadequate security had been provided.
Comprehensive Approach
Faced with an escalating situation, the government is seeking to shift towards a more comprehensive approach in its fight against illegal mining and, more broadly, in the promotion of sector development (see analysis).
“The government’s efforts today reflect a combination of complementary measures, including a reclassification of SSM activities, introducing medium-scale mining as a new category in mineral exploration and the deployment of an illegal miner registration campaign oriented towards the creation of cooperatives,” Aubynn told OBG. “They are also seeking to provide technical and financial assistance, as well as vetted land and the development of a heavy extraction equipment tracking system.”
Laws & Regulations
Ghana developed its first comprehensive piece of mining legislation in 1989 with the assistance of the IMF and the World Bank, as part of an effort to support large-scale investment in the sector and, more generally, to strengthen the value of domestic currency through promoting exports and increasing FDI inflows. Subsequent legislation and reforms have sought to achieve a range of objectives, including regulating SSM, establishing key mineral governance institutions, offering favourable terms to investors, improving transparency, deepening local content, reforming SSM to tackle illegal mining and promote sustainable sector development, and strengthening regulations on management of mineral revenues.
Today, the 2006 Minerals and Mining Act and related regulations govern Ghanaian mining. Recent amendments to the act, approved in November 2015, changed royalty payments and criminalised illegal SSM, as previously described.
Ghana also adopted two changes to the sector’s legislative and policy framework in February 2016, focusing on the promotion of mining sector contributions to sustainable development, namely the Minerals Development Fund Bill and a Minerals and Mining Policy (see analysis).
Fiscal Changes
The Ghana mining sector is said to have enjoyed a fairly stable fiscal regime since the 1980s, with major changes only occurring in recent years. In 2010 the government increased the royalty rate and corporate tax and changed the structure of the capital allowance recovery regime via amendments to the 2006 Minerals and Mining Act. The capital allowance recovery regime shifted from 80% up-front to a straight-line annual depreciation of 20% over a period of five years.
Furthermore, the corporate tax increased from 25% to 35%. Mining companies are exempt from paying import and export duties on a specific list of items, but must comply with a 10% withholding tax and a 15% capital gains tax.
With the Fees and Charges Amendment LI 2216, adopted in December 2014, ground rent also increased massively, from GHS0.50 per sq km ($0.13) to GHS3459.47 ($892.54) per sq km. Overall, these changes reflect a broader attempt to increase fiscal revenue from the mining sector.
Stability Agreements
To help attract substantial investments in mining, Ghana’s Minerals and Mining Laws allow for the negotiation of stability agreements, which provide fixed conditions for taxes and royalties over the lifetime of the agreement – which can be up to 15 years.
“With investments above $500m, investors can request and negotiate stability agreements with the government, through which they may obtain special tax conditions, generally over a span of time not exceeding 15 years and depending, among other things, on the proposed mine life,” Aubynn told OBG.
Three companies in Ghana have stability agreements; AGAG, Newmont and, more recently, Gold Fields Ghana. The government concluded renegotiation talks with Newmont Mining Company and Parliament ratified the resulting agreement in December 2015. At the time of writing, the renegotiation of AGAG’s agreement was still pending. “We would like to see law and order restored in Obuasi, as a matter of priority,” Asubonteng told OBG. “Unless and until the company’s concession areas are fully cleared of illegal miners and the company can assess the damage caused over the past nine months, the company remains subject to a state of force majeure, as declared in February 2016 at the outset of the crisis.” Gold Fields Ghana, the largest producer of gold in the country, announced a new agreement with the government in March 2016, leading the company to a commitment to invest $2.5bn into its two concessions, Tarkwa and Damang, by 2027.
The agreement provides the Johannesburg-based firm with a $33m tax exemption deal, granting Gold Fields a larger margin of manoeuvre for investment. Some in the media and civil society have criticised its lack of transparency, seeing as the full details of the contract have not been made public.
Licensing
Ghana has a first-come, first-served licence and concession awarding system, with licences issued by the Minerals Commission. Ghana Extractive Industries Transparency Initiative (GHEITI) recommends the adoption of an open round bidding system, aimed at ensuring greater transparency. The government is working on introducing a tendering process. “Going forward, we will continue to employ a first-come first-served approach to greenfield areas; however, when it comes to brownfield grounds, such as explored areas with significant data returned to the state, we will be promoting a tender process,” Aubynn told OBG.
Community Development
One key component of existing regulations relates to local communities. Parliament passed a Minerals Development Fund bill in February 2016, providing a clearer legal framework for the disbursement of funds to communities involved in mining, for development purposes.
The bill also comprises provisions on the development of the Community Development Fund that complements the existing corporate social responsibility (CSR) guidelines on environmental issues.
The establishment of the Community Development Fund, coupled with the deepened implementation of the CSR guidelines developed a few years ago by the Minerals Commission, should help consolidate support to the development of mining communities. “Some companies already have well-developed CSR activities, including foundations, in Ghana,” Aubynn told OBG. “The development of common CSR guidelines can draw inspiration from existing best practices, including CSR activities in the country.”
To this end, the GCM has called on the government to increase the share of royalty dedicated to communities from 9% to 30% and adopt a Mineral Revenue Management Act. The GCM has also engaged authorities on the issue of the New Income Tax Act of 2015, to review concerns regarding ring-fencing, waste stripping cost and the non-recovery of VAT.
Local Content
Ghana adopted Minerals and Mining General Regulation LI 2173 in 2012, codifying and formalising an already existing system of local content requirements designed to establish and develop domestic capacity in this sector.
According to GHEITI, LI 2173 requires prospecting licence holders to respect an expatriate threshold of 10% in skilled staff and 5% in technical and supervisory staff at the start of operations, and 5% in technical and supervisory staff after two years in operation. For operators who are in possession of mining leases, the threshold is initially drawn at 10%, declining to 6% after three years in operation. Mining lease operators are also expected to submit detailed supports plans, in line with a local procurement list drawn up by the Minerals Commission.
This has helped to maintain a comparatively elevated level of local content in the mining value chain in Ghana. Authentic local sources of goods and services, GHEITI reports, amounted to $143m out of a total $183m spent on procurement in 2014, or about 78% of total mining procurement that year.
According to a July 2015 report by GCM and ICMM on the future of mining in Ghana, a 25% increase in local procurement could translate into $50m in terms of value-added and an additional 9000 jobs. Yet the development of local procurement, especially if linked to a broader industrial development policy as envisaged in the report, would require addressing challenges currently affecting local industries, including, inter alia, the emigration of skilled local labour, limited local production capacity and product range, unreliable power supply, frequent tariff increases and the high cost of capital.
Transparency & Accountability
Ghana has been an EITI member since 2010, with GHEITI working as the country’s subset of this global initiative to promote transparency and accountability in extractive industries, a category which includes oil and gas as well as mining. GHEITI has already published more than a decade’s worth of reporting on reconciled mining company payments and government receipts spanning from 2003 to 2014.
For Hannah Owusu-Koranteng, CSO representative at GHEITI, achieving greater contract transparency is a key challenge. Parliament is expected to review a draft bill on GHEITI in 2016, aimed at providing a stronger legal framework for the organisation’s work in Ghana. If and when approved, the bill would compel mining companies to disclose contract terms and conditions to the public.
While there is still room for improvement, Ghana appears to stand out in this area of mining policy, particularly in contrast to many of its continental competitors. In February 2016 Ghana was rewarded with a global extractive industry transparency award, as a result of series of measures adopted by the government, including fiscal changes concerning the royalty rate, the capital allowance recovery regime, and the corporate tax rate, as well as an EITI-recommended increase on ground renting.
Through this award, EITI also acknowledged the development of further guidelines on the usage of mineral royalties at the sub-national level, the re-negotiation of stability agreements with AGAG and Newmont, and the overall enhancement of collaboration between the various sectors that play a role in the mining industry.
Online Access
Other areas of the sector are being targeted for improved efficiency and transparency. The Minerals Commission is developing an online mining cadastre administration system, with support from the Australian government.
The commission has already launched an online portal, in August 2016, where investors can access available information regarding existing concessions and new applications. The system is expected to be fully operational by April 2017, helping prevent disputes over concession boundaries.
Together with the approval of the GHEITI bill and subsequent improvement of public access to contract content, this initiative is likely to reflect positively on Ghana’s reporting practices in extractive industries. The National Resource Governance Institute (NRGI), which assesses governance in developing countries’ extractive industries, ranks Ghana’s reporting practices at 25th out of 58 countries.
Gold
US Geological Survey data put Ghana’s gold reserves at 1200 tonnes in 2015, representing 2.14% of the estimated world total of 56,000 tonnes. Ghanaian gold production, however, declined 7.7% from 91 tonnes in 2014 to 85 tonnes in 2015, accounting for 2.83% of estimated world production that year, compared to 3.04% in 2014. Other estimates suggest a faster decline but from a higher base: according to the GFMS Gold Survey 2016 report, gold output in Ghana shrank by 12%, from 107 tonnes in 2014 to 95 tonnes in 2015.
Retrenchment of gold mining at AGAG’s Obuasi site, alongside a persistent curtailment in electricity supply and a general rise in the cost of doing business, explain the decline in gold production, GCM argues in its 2015 sector performance report.
Despite this, a number of factors suggest that there is still room for growth in gold mining. Indeed, new gold mining operations, agreements and long-term investments are gradually appearing on the horizon, signalling increased interest in the sector’s development potential, as gold prices reach more stable ground in global markets (see analysis).
The government, for its part, is working to tackle such challenges as the proliferation of illegal SSM and its encroachment on large-scale operations, as well as showing a commitment to sustainable development through the adoption of a comprehensive sector approach (see analysis).
Manganese
Ghana has one manganese-producing mine, located at Nsuta in the Western Region. The Jersey-based Ghana Manganese Company (GMC) owns 90% of the operation, with the remaining 10% belonging to the government. According to the GMC’s 2015 annual report, Nsuta holds 45.01m tonnes in manganese reserves and 101.3m tonnes in resources. Only 3% of GMC’s 175-sq-km and 30-year mining concession has been mined so far.
Manganese production levels have declined in recent years as a result of a slowdown in international demand, particularly from China. Despite this setting, GMC has decided to keep Nsuta active, a strategy that paid off when exports rose by 28%, from 1.17m tonnes in 2014 to 1.5m tonnes in 2015.
Nsuta exports manganese carbonate, a specific type of mineral with a relatively high manganese-to-iron ratio, making it suitable for alloy and electrolytic manganese metal production. This type of manganese is said to be a good replacement for low-grade carbonate ores originating in China. In 2015, GMC production in Nsuta totalled 1.47m tonnes of manganese ore, reflecting a 1% decrease as compared to the 1.49m tonnes registered in 2014.
Diamonds
The PMMC is in charge of transparently marketing all diamonds, rough and polished, in Ghana, in compliance with the Kimberley Process Certificate Scheme (KPCS).
Created in 1989, the company set up a $480,000 diamond cutting and polishing facility in 2012 as part of an effort to add value to the Ghanaian diamond industry and eventually become a hub for diamond cutting and polishing in the region.
PMMC buys diamonds from large-scale miners, such as the privately-owned Great Consolidated Diamond (GCD) and a number of small-scale miners. Small-scale miners operate under a tribute system run by GCD, selling rough diamonds to either local winners in mining areas or to licensed diamond buyers at PMMC’s Diamond House. According to PMMC, there are 11 licensed diamond buyers at present. Based on GCM data, diamond production displayed a year-on-year decline of 28%, from 241,120 carats in 2014 to 174,188 carats in 2015, generating a revenue of $6.4m in 2015, against $10.7m in 2014. Diamond exports, as recorded by KPCS statistics, declined from 224,821 carats and $10.03m in 2014 to 185,376 carats and $6.9m in 2015.
Iron Ore
According to the Minerals Commission, Ghana has three major iron deposits, including the Opon-Mansi lateritic iron deposit in the Western Region, with 150m tonnes, the Shieni sedimentary iron deposit in the Northern Region, with a proven reserve of 1.27bn tonnes, and the Pudo titaniferous-magnetite deposit in the Upper West Region, with 5m tonnes. Minor deposits include the Adum Banso deposit in the Western Region and the Akpafu deposits in the Volta Region. The government wants to attract investment in iron ore, reportedly hoping investors will demonstrate leadership in converting extracted iron ore into steel for local companies, which rely on scrap for product manufacturing.
The Sheini reserve, located in the Zabzugu-Tamale District in the Northern Region, is being developed by Emmaland Resources in partnership with Canada’s Cardero Resources. Following exploration work initiated in 2012, in April 2016 Cardero Resources announced it would soon commence surface mining in the Sheini Hills. However, according to local media outlets, these efforts have come up against civil society and community resistance on the ground, as Sheini Hill residents demanded social auditing and accountability from mining companies.
Bauxite
Ghana Bauxite Company, of which Bonsai Minerals of China owns 80% and the government owns 20%, operates the country’s only active bauxite mining site, at Awaso in the Western Region. However, Ghana has several other major deposits, specifically in Kibi, Kyinahin and Ejuanema. While Awaso is connected to the Western railway, poor conditions and lack of maintenance have forced Ghana Bauxite to transport the extracted ore via the road network at a reported cost increase of 50%.
According to GHEITI, Ghana produced 798,114 tonnes of bauxite in 2014, reflecting a 12.16% year-on-year decline in production. Production has been rather volatile over the past decade, registering its lowest level in 2011, at 400,000 tonnes, and peaking in 2013, at 908,586 tonnes. Bauxite exports accounted for 0.6% of total minerals exports and 0.22% of total merchandise exports in 2014.
Established in 1964, the state-owned Volta Aluminium Company (VALCO) operates the only smelter in Ghana. The plant has five pot lines with an annual production capacity of 200,000 tonnes of primary aluminium. However, VALCO has suffered difficulties over the years, especially in negotiating electricity supply, leading it to shut down on several occasions. In February 2011 the government reopened the plant, which has been operating ever since, with two pot lines in operation at present. VALCO reportedly sold 6171 tonnes of product in 2015, down from 7947 in 2014. In July 2016 news emerged of an impending $25m deal between Aluworks and UK-based Vedanta Resources, aimed at investing in bauxite mining and developing alumina refineries, returning VALCO to full operational capacity and installing a foil line to get into value-added products and out-compete cheap Chinese imports.
Outlook
The overall outlook for the sector is positive, despite existing challenges. The government is taking measures to tackle illegal mining while promoting transparency and sustainable development. The approval of the Minerals and Mining Policy and the tabling of GHEITI and Minerals Development Fund bills are encouraging and near-term implementation will accelerate progress for the sector.
In the meantime, as gold prices stabilise, emerging production sites, stability agreements and longterm investments signal renewed investor interest in Ghana’s mining potential. Sector diversification through new discoveries in copper, nickel, zinc and chromium would greatly improve prospects.
However, developing downstream industries and producing greater value-added products will require addressing a series of challenges, starting with access to affordable energy. Upstream, greater consideration needs to be given to environmental and social concerns, as well as improving transport infrastructure. Developing corporate social responsibility guidelines, as foreseen in recently-approved legislation, would result in a business environment more closely in line with international benchmarks.
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