Killing the golden goose

Chief executives in the mining industry told PricewaterhouseCoopers (PwC) in a recent survey that they feared cash-strapped governments would increasingly look to mining companies as a source of additional tax revenue.

“Mining and politics are intertwined, but the industry has recently moved even further up the political agenda, with (the) focus on matters such as taxation, carbon and sovereign influence,” penned the authors of PwC’s survey Mine: back to the boom.

Indeed, the Australian government’s move to impose a Resource Super Profits Tax has spooked miners around the globe and now countries like Ghana may follow suit in various ways.

Reuters news agency reported on May 26 that Ghana is following through on plans to boost royalties on mining, taking them to 5% from 3% effective from March 19.

Joyce Aryee, chief executive of the Ghana Chamber of Mines, told a Reuters reporter during a conference in Accra that the new royalty regime will not “immediately apply” to AngloGold Ashanti or to Newmont Mining, however.

Newmont Mining’s executive head of communications, Omar Jabara, told The Northern Miner that the company has an existing investment agreement with the government of Ghana, ratified by parliament, that establishes the terms of Newmont’s royalty payments. The company’s operations were designed and structured, in large part, around the terms of the agreed upon royalty payment, he explained.

“Under the royalty regime, as the gold price increases, so do royalty payments to the government, and so may taxable profits,” he said. “We are happy to meet with the government to discuss our existing contract in its entirety. In the meantime, we will continue working with the government and local communities to create additional sustainable development opportunities through responsible mining and investment.”

When asked if Newmont sees Ghana’s royalty move as part of a broader trend in which cash-strapped governments are seeking to enhance their revenues, Jabara replied: “That’s a good question. I can’t say if it is a trend. In Ghana’s case, they’ve been talking about doing this for some time.”

Kim Harris, chief executive of Torontobased Midlands Minerals, which owns the Sian gold project in Ghana, could not be reached for comment.

It’s clear that taxes have already risen substantially in many jurisdictions. In a separate PwC study of the total tax contributions of the mining sector released in May, the total taxes of 22 companies from 20 different countries were assessed. The study looked at operations during the fiscal year ended Dec. 31, 2008, and concluded that the average total tax rate (the tax cost as measured in relation to profitability) rose from 32.2% to 39.3% since the first study was conducted in 2007/2008.

The reason is that though taxes on profits may fall with lower profitability, other taxes and contributions that, are not linked to profits become relatively more expensive, the study explained.

“Taxes and contributions borne by mining companies are equivalent in size to 10.8% of their turnover,” the study found. And corporate income tax makes up just 40% of all taxes and contributions, demonstrating that mining companies pay “substantial government levies just by operating, even when less profitable.”

“On average mining companies pay $15,349 ($14,875 for 2007) per employee in employment taxes,” the study added. “These taxes are an indication of the direct benefit brought to the public finances for each job created or maintained by these companies.

“Miners will still be paying payroll taxes, infrastructure funding, royalties and other levies which are not based on income; therefore the total economic contribution to the government remains substantial while profits earned by miners decreased.”