Mining in Africa: Tax Regimes and Companies Profits

 THIS POST WAS ORIGINALLY PUBLISHED MARCH 27, 2009

Mining in Africa: Tax Regimes and Companies Profits

 A group of African and international non-governmental organizations collaborated in making  a study – “Breaking The Curse” –  on mining taxation and transparency in seven African countries. The countries are Ghana, Tanzania, Sierra Leone, Zambia, Malawi, South Africa, and the Democratic Republic of Congo (DRC). Each country study examined past and present mining tax laws, tax rates, and the forces driving tax changes, and compared the tax terms of mining contracts with national tax laws. 

The companies that participated in the report are: Open Society Institute of Southern Africa, Johannesburg; Third World Network Africa, Accra; Tax Justice Network Africa, Nairobi; Action Aid International, Johannesburg; Christian Aid, London. 

The pamphlet makes an analysis of tax regimes in the countries, as well as some recommendations as to how increase revenue and transparency in mining. Of practical value for investors and mining professionals are the tables, provided

The report discusses transparent reporting by the companies The Extractive Industries Transparency Initiative (EITI) initiated by the UK government in 2002 as well as IFRS requirements.
The EITI is about the following:

EITI company reporting template

The EITI requires mining companies to report publicly the following information for each financial year. The details of the information are to be negotiated with companies in each country, depending on the national tax law and other considerations:

I Revenue and profit for each concession or license

– Total production by value and quantity.

– Total sales by value and quantity.

II Taxes and fees paid to the state

a) Taxes paid: corporate income tax, VAT refunds deducted, Customs duties, Windfall taxes, Real estate taxes, Excise taxes, Fuel levies, Vehicle taxes, Taxes on dividends paid, Taxes on interest paid, other

b) Royalties paid

c) Fees paid: exploration, license, land rent, mineral resource use, other

c) Charges: stamp duties, other

d) Dividends

e) Other: donations to government, community expenditure

III Sum of discounted taxes

Capital expenditure, staff development expenditure, exploration costs, environmental fund

Contributions

Interesting to note that earlier this month the Government of Indonesia has announced its intention to work towards EITI compliance and to make an application to become an EITI candidate.  

Thus, this is another good add-on to professional mining bookshelf….

It can be downloaded HERE

2011 Africa - Investment Destination for Miners - PART II

 THIS POST WAS ORIGINALLY PUBLISHED DECEMBER 20-24, 2010

Legal

As every cautious investor, those looking for Africa, understand quite clearly all perils and advantages of this business. Here, I would like to pinpoint to a few of them.

Key Challenges arising when investing in Africa

• Lack of clarity of some energy, mining, company and tax laws and their interpretation, or no relevant law
• Erratic publication of regulations and case law and lack of consistency in the interpretation of the law (by local courts and administrative authorities)
• New trend of "resource nationalism"/creeping expropriation (due to unstable governments or volatile price of natural resources)
• Implied laws and mandatory laws mean that there may be more than the contents of the contract
• Difficulty in finding viable local lawyers to advise on international projects
• Corruption/transparency issues
• Payment default risks for economic transactions with companies in African states
• Influence of NGOS

Source: Strategies for achieving "Bankability" for mining projects in Francophone Africa

 WSJ: Investing in Africa - Political Risks

The Wall Street Journal in today's feature: AFRICA RISING presents an interesting overview of the latest developments on the continent. One of the articles directly discusses mining investments:

Mining Fight Shows Pressures on Multinationals . Rio Tinto's Troubles as Guinea Seeks Iron-Ore Riches Reflect Tensions at Play Across Continent
Analyzing the recent situation in Guinea, the author points:
"That tension illustrates a common challenge to conducting business in Africa. Even as elections and transparent governance become more widespread, political risks remain significant for investors big and small. Changes in government frequently change the tilt of a country's playing field, bringing some investors into favor while ushering out others."
There is a reproduction of an useful graph here:

And a lot of interactive material, like this page:

this is a highly recommended reading for those interested in African business developments.

CHINA

The issue of Chinese investments in Africa is well studied – on the Internet one may find a lot of academic and political papers on it. Indeed. It seems that China pays a very close attention to Africa – and this is proven by just released by the Government a White Paper on China-Africa economic and trade cooperation: China-Africa Economic and Trade Cooperation (full text)

By the end of 2009 China’s investment in Africa reached $9.33 billion USD. Since 1980-ies China  accelerated  investment over 49 African countries. China has signed bilateral agreements with 33 African countries to promote investment and agreements with 11 African countries to avoid double taxation. While the mentioned White Paper examines all aspects of the issue, I would highly recommend to download and read this 400+ pager monograph Chinese Investments In Africa: A labour perspective from African Labor Research Network. This is a very detailed analysis featuring most of the African countries. This interesting table shows the shift in accents in natural resources:

A survey on investment of China in Africa is given in this presentation: Chinese Mining Investment in Africa with this graph explaining the process:
When looking at destinations – it is well depicted in this graph:

Source:   Chinese Trade and Investment Activities in Africa by The African Development Bank Group
More visual is the graph depicting China’s Overseas Direct Investments (ODIs) represented by The World Resources Institute

This week some worth reading news was released on China’s investments in Zambia:

“… Chinese investment turnover in Zambia has been projected to hit US$1.4 billion at the end of December and rake in $40 million revenue for the Zambian Government. Currently more than 300 Chinese companies operate in Zambia, increasing the total value of investment from $500 million in 2006 to $1.26 billion in 2009. Chinese enterprises now account for 60% of Zambia’s infrastructure market, 50% construction materials market, 20% mining projects and 10% of agriculture and service market…”

Those interested may look into Chinese Aid and Investment in Zambia National Consultation Workshop Report
More resources:
An academic analysis is provided by these two gentlemen:   Yin-Wong Cheung and XingWang Qian
China’s Outward Direct Investment in Africa
China’s Pursuit of Africa’s Natural Resources by  Center for Strategic Leadership, U.S. Army War College

2011 Africa - Investment Destination for Miners (Part I)

  THIS POST WAS ORIGINALLY PUBLISHED DECEMBER 16, 2010

2011 Africa - Investment Destination for Miners (Part I)

The end of 2010 is marked with a noticeable shift in M&A transactions into Asian and African Region. This recent Bloomberg’s report mentions: “Larger-cap miners are cash-rich and looking for new revenue pipelines,” said James Holt, who helps manage about A$40 billion ($40 billion) at BlackRock Investment Management (Australia) Ltd., including BHP and Rio shares. Africa could be a focus, he said.” It further analyses current announcements about Russia’s Rosatom Corp. buyout of Mantra Resources Ltd. for A$1.6 billion to gain access to the Mkuju River uranium project in Tanzania; transactions of Freeport-McMoRan Copper & Gold Inc. in the Democratic Republic of Congo; of Rio Tinto in Mozambique; Xstrata’s in West Africa.

In our previous posts we tried to look into some specific countries in regards to mining investments:  Investments in Mining: South Africa, Investments in Mining and Energy: Zambia , Zambia: Another Look on Mining Investments . Here let us have a closer look at Africa in general.
A while ago, the United States  produced this scheme that denotes Africa and its challenges:

 Source: U.S. Africa Command Mission Statement UNCLASSIFIED
However, the times, they are-a-changing and now The Standard Bank provides this slide:

And resources-oriented opportunities:

Generally speaking, investments in mining companies are subject to the following risks factors:

Source: The Equator Principles - David Glenister, International Sales Manager, Systems & Services Certification, SGS
Standard Bank  analytics summarize the following financing availabilities for different types of commodities at this time:

Source: Funding for the African Miner Today - Vaughan Wickins, Mining and Metals, Standard Bank

 

If you are interested in the subject, the same Standard Bank’s presentation concludes that currently the debt financing is prevailing in financing of mining companies. However, when we talk about equity financing there is an interesting table that shows African mining companies in the Toronto Stock Exchange Presentation:

 

These results are summarized in the Toronto Stock Exchange Presentation:
New Financings for African Projects First Nine Months 2010:

• Red Back Mining: $600 million for gold in Ghana, Mauritania
• Semafo: $120 million for gold in Guinea, Niger, Burkina Faso
• Nevsun Resources:  $117 million for gold/silver/copper/zinc in Eritrea and Mali
• Perseus Mining:  $91 million for gold in Ghana, Côte d'Ivoire
• CGA Mining:  $86 million for gold/copper in Nigeria and Zambia
• Volta Resources:  $34 million for gold in Burkina Faso
• Avion Gold:  $28 million for gold in Mali
• Canaco Resources:  $25 million for gold/silver in Tanzania
• Hana Mining:  $24 million for copper/gold/silver in Botswana
• MagIndustries:  $23 million for potash in DRC

From investor’s point of view African Mining companies perform pretty good:

Source: Funding for the African Miner Today - Vaughan Wickins, Mining and Metals, Standard Bank