Mining contract reviews in Africa - Guinea looks to exert itself
As the global rush for commodities surges ahead, so too do the number of African countries contemplating reviews of their mining agreements in place. Increasingly mineral producing countries are realising the potential, and indeed the need, to benefit from record profits derived from their resources. This month’s CAI Mining & Energy newsletter looks at the rising trend of contract reviews, and specifically discusses the most recent case of Guinea.
SETTING THE TREND
On 1 April 2008 Zambia launched its new mining taxation code in a move which is anticipated to earn the country a further US$ 650 million this year. This will largely be earned from Zambia’s extensive copper belt and is set to benefit from the continued climb in the metal. In a similar move, the Minerals Commission of Ghana announced that mining companies will soon be mandated to pay more royalties through a new regulatory framework. The Democratic Republic of Congo (DRC) has also just concluded their mining review process – re-working a total of 61 contracts which were signed between 1998 and 2003 during the country’s civil war. Following suit, Tanzania has begun discussions to include royalty levies on its 2 most lucrative minerals – gold and diamonds. Under new legislation, mining houses are to be taxed the current 30% corporate tax as well as a 3% royalty tax for gold and 5% for diamonds. Lastly, Sierra Leone has stated that it will complete a review of all mining contracts by latest end-June 2008. While this is aimed at resolving disputes over licenses that were awarded to mining groups by the previous government, the move is undoubtedly also aimed at boosting the coffers and generating much needed funds for development.
GUINEA’S TIME IS NOW
Following these trends, the Government of Guinea has now started discussing how to better leverage their commodities – and most importantly bauxite reserves – in the country. In addition to diamonds, gold, iron ore and uranium, Guinea holds the world’s largest proven reserves of bauxite from which aluminium is extracted and is picking up recognition in this area. According to the latest US Geological Survey of mineral commodities released in January 2008, Guinea’s bauxite reserve base holds around 27% of global stock, yet in 2007 produced a little over 7% - something which is likely to change soon.
Reports have called the announcement “long-overdue” and “expected”, but the move has definitely been accelerated by neighbouring countries actions, as well as through forums such as the one held in February 2008 by the World Bank. At the meeting, World Bank Manager Paolo Desea, told delegates that these more assertive attitudes were not surprising considering that the majority of African governments are unaware of the real value of their natural resources.
Meanwhile, despite the move to demand a greater share of revenues, the Government has argued that there are no plans to cancel any contracts. In an April 2008 report, a spokesperson for the committee responsible for contract alterations, Yamoussa Bangoura, was quoted by Bloomberg as saying “It is not our goal to cancel the agreement with any company" and that the committee does not foresee any “big difficulties (in reaching) solutions.” This was surprising, considering earlier statements by the Guinean Government to Russian firm Rusal, the world's largest aluminium producer, that they could lose the Friguia alumina and bauxite complex if they failed to renegotiate their contract in an amenable manner for the State.
Regardless of comments on either side, it would foolish of companies to risk losing their share of the market - from an earnings perspective, bauxite grew year-on-year by almost 9%, while aluminium reached record highs last year, doubling since 2002 to hit US$ 3,080/metric tonne.
While the new codes and its effect on the country’s industry are unknown, one thing is – Guinea plans to benefit from its wealth. As for the outlook, one can only guess that as is often the case in Africa nowadays, the new wave of Asian firms coming into the continent will look towards accessing Guinea’s underground wealth. As a core component of the automotive industry, assurance of bauxite supplies is integral in furthering Indian and Chinese vehicle production capacity in the long-term.
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| Consultancy Africa Intelligence - Africa Mining & Energy Newsletter - May 2008.pdf | 93.78 KB |
