Kenya: President Kenyatta to impose capital-gains and windfall tax legislation within months

Kenyan President, Uhuru Kenyatta, stated in a 2 August interview that Kenya will impose capital-gains and windfall taxes on oil, gas and mining companies within months to ensure the East African nation maximizes benefits from its mineral resources.

Enacting the laws this year will be a positive signal to investors that Kenya is keen on creating necessary conditions for the industry. “This is something that we are very clear about,” Kenyatta said from Nairobi’s State House, “We want to ensure that we as a country also are able to benefit from both the windfall and capital-gains tax.” 

Recently oil reserves have been found in northern Kenya, while gas exploration continues and the nation’s potential for gold production is being studied. 

Kenya hopes the new legislation will prevent similar situations to Tullow’s experience in Uganda, where the company is appealing against the state revenue authority’s demand that it pay capital-gains tax of about US$473 million following its sale of assets in Uganda. 

For an in-depth analysis of this issue and how it will affect the exploration companies operating in the country please see our upcoming issue of East Africa Politics & Security.

© 2014 Menas Associates

Ghana: Gold operators under pressure

 

The on-the-ground impact of falling gold prices will be serious for Africa's gold producers according to South Africa's Gold Fields. Company officials, announcing a major restructuring, are prepared to close mines if doing so would increase profits, including the major mine at Damang in south-western Ghana that is 90% owned (through share ownership of "Abosso Goldfields Limited") by Gold Fields with the remaining stake held by the government. This is even if the Gold Fields mine at Tarkwa would remain financially viable even assuming continued low gold prices of not much more than US$1,300 per ounce. It should be noted that Gold Fields, citing low gold prices and high operating costs, last week announced the slimming down of its board of directors from twelve members to nine.

By contrast, another major international gold operator in Ghana – the US' Newmont - emphasized last week at the Public Accounts Committee's public hearings that it remains "committed to Ghana for the long-term" and that it had kept around 80% of its Ghana gold sales earnings in Ghana during 2012. However, digging beneath this official picture of its Ghana operations, PAC members complained that "up to 100%" of earnings of gold companies could be held offshore under a rumoured in-progress "retention" agreement between Newmont and the government.

 

Under Ghana's current minerals and mining laws - particularly the 2006 Minerals and Mining Act which provides incentives to mining companies - retention account agreements signed by the relevant mining company, the Finance Ministry, and the Bank of Ghana, can allow greater offshore retention of earnings.

 

Given Newmont's emphasis on domestic earnings retention, and the spotlight being turned on natural resource companies, including IOCs operating in Ghana, such a scenario seems extremely unlikely, and likely reflecting concerns of domestic observers over what current mining laws could potentially allow. More information should be forthcoming from PAC proceedings, focusing on the Auditor General's 2012 report, in the coming weeks.

 

For more news and expert analysis about Ghana, please see Ghana Politics & Security.

 

© 2013 Menas Associates

Mauritania: Kinross strike ends

The 10-day strike, which began at Kinross' massive Tasiast gold mine on 8 August, has ended. According to the company, the strike had “minimal” impact on gold production. It has, however, been reported that amid the 10-day shutdown, rating experts at the Bank of Montreal downgraded Kinross and removed the expansion of the Tasiast mine from the company's production forecasts.

About 1,500 workers, representing 98% of the mine's labour force, were reported to have walked off the job on 8 August in demand of better health coverage and respect for Mauritania's labour code. The conflict seems to have begun when managers demanded the mine remain in operation during Eid al-Fitr. The strike, called by Mauritania's main trade union confederation the CGTM, has been resolved under terms that have not been made public.

 

The International Trade Union Confederation, with which the CGTM is affiliated, is demanding "urgent clarification" on the fate of one worker allegedly found dead under "obscure circumstances" near the mine site during the strike.

 

For more news and expert analysis about Mauritania, please see Mauritania Politics & Security.

© 2013 Menas Associates

Mauritania: Kinross lawsuit fails

 

It was reported on 23 March that Kinross Gold Corporation had failed to win the dismissal of a US lawsuit accusing it of defrauding shareholders over the Tasiast mine in Mauritania which has contributed to more than US$6 billion of company write-downs. The decision by US District Judge Paul Engelmayer stems from Kinross' US$7.1 billion 2010 acquisition of Red Back Mining which gave it control of the Tasiast gold mine and the Chirano gold mine in Ghana.

The judge, while calling the matter a “close question”, ruled that the shareholders may sue over losses between 10 August 2011, when Kinross delayed a feasibility study for the Tasiast mine, and 17 January 2012, which was a day after it took a US$2.94 billion non-cash, goodwill write-down related to the Red Back mines. Kinross took a separate US$3.21 billion write-down related to the mines on 13 February. 2013. The judge also let shareholders pursue claims against four Kinross executives, including Tye Burt who was ousted as chief executive last August.

Stanley Bernstein, a partner at Bernstein Liebhard, representing the plaintiffs, said: “We are gratified the court has sustained most of the complaint, and are looking forward to obtaining recovery for the shareholders who were defrauded.” In a statement, Kinross said: “The company believes that the surviving claims are without merit, and we will continue to vigorously defend against the litigation.”

Kinross shares fell more than 36% between 10 August 2011 and 17 January 2012 in both the US and Canada, and following further declines they are now roughly half their levels at the start of that period.

For more news and expert analysis about Mauritania, please see Mauritania Politics & Security.

© 2013 Menas Associates

Ghana: GMC announces an increase in gold production in 2012

The Ghana Minerals Commission (GMC) has announced a 17% increase in gold production in 2012, in most part due to rising prices that encouraged greater output by companies.

Last year gold prices averaged US$1,668 per ounce, which was up from around US$1,572 an ounce a in 2011. Production also rose from 3.6 million ounces in 2011 to 4.2 million ounces in 2012 which was an improvement on the GMC's forecast of 3.9 million ounces for the year.

Australian miner Adamus Resources started first gold production in Ghana in January 2012, while Newmont's Akyem mine, which is its second in Ghana and is situated around 80 miles north west of Accra, is expected to start commercial production of up to 450,000 ounces annually later this year.

For more news and expert analysis about Ghana, please see Ghana Politics & Security.

© 2013 Menas Associates