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Mining: Gold rush and its hidden costs

By Kwabena Mensah & Patrick Smith in Accra
Posted on Monday, 1 February 2010 16:40

Gold mining brings environmental degradation and underdevelopment to

mining communities, but Accra is pushing for higher mining revenues to

create more benefits

With gold prices having broken through $1,100/oz, Ghana’s gold production is rising at over 10% a year, faster than any other major producer – and it has some of the biggest reserves in the world. Director of the Minerals Commission in Accra, Joseph Aboagye, says more than 220 companies are looking for gold in the country.

There are many confrontations looming: battles over revenue sharing, environmental despoliation and the displacement of local farmers. In November 2009, Finance Minister Kwabena Duffuor proposed hiking the state’s minimum royalties to 6% from their current 3%, although most of the big mining houses say this breaks commitments by the previous government. According to Ghana Chamber of Mines CEO, Joyce Aryee, the seven biggest mining houses paid just under $150m to the state in royalties, taxes and dividends – around 7% of the ?sector’s declared revenues.

Activist groups such as the Wassa Association of Communities Affected by Mining say that the true earnings of the sector are hard to gauge because over half the revenues are routed outside of Ghana, often to offshore jurisdictions, and the biggest companies secured massive tax write-offs when they made their investment agreements. Even the cautious World Bank has concluded that the mining sector’s “true benefits” to Ghana are “unclear”, after reviewing the mining companies low-tax deals and their high import costs.

Duffuor’s instinct is to seek a renegotiation with the mining houses, with the state taking a bigger stake and sharing some of the financial risk.The stakes are highest for the two biggest mining houses, South Africa’s AngloGold Ashanti and the United States’ Newmont Mining.

AngloGold plans to double production at its biggest mine, Obuasi, within five years and in December 2009 appointed a Ghanaian, Kwesi Enyan, to run the operation. The mine’s public relations chief, Tony ?Aubynn, says the companies “cannot be blamed in any way for the underdevelopment of the mining communities. That development must be orchestrated by the government.”?

Meanwhile, Newmont has become a leading target for global human rights and environmental activists. They say Newmont’s planned 2.5km open-cast mine in 74 hectares of the Ajenua Bepo Forest Reserve means that 10,000 farmers will lose their land, and the compensation it is offering them is less than their cocoa trees would yield in a year.

COMPANIES TO WATCH

PERSEUS MINING: ?The Australian miner has been
awarded two 15-year licences at its Ayanfuri project??

AZUMAH RESOURCES: ?Azumah has begun drilling
its gold prospects at Kunche and Bepkong. Managing
director Stephen Stone is confident of world-class deposits??

PMI GOLD: The Canadian gold-mining company is
pleased with the results of January 2010 testing at its
Kubi mine and claims to be able to hit 50,000oz annually
once its financing is complete

Newmont’s public affairs director Chris Anderson argues that the areas of the Ajenua Bepo forest being mined were already degraded and that most of the local communities support the project.

The Akyem project is a test case for the government’s mining strategy. Newmont is planning to invest $700m to produce 7m ounces of gold annually for the next 15 years. Having inherited a comfortable relationship with Newmont, the government has to decide how hard it wants to play with the US company.

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