Gold Fields Says Ghana’s Windfall Tax Plans Could Halt $1 Billion Projects
Gold Fields Ltd. (GFI), the fourth-biggest producer of the metal, said Ghana’s plan to raise tariffs on mines and introduce a windfall tax could force it to halt expansion projects worth $1 billion in the country.
“The tax situation is a big concern,” Chief Executive Officer Nick Holland said at a presentation in Johannesburg today. “Frankly, unless we can see some flexibility on tax, I don’t see the projects built as proposed, if at all,” he said, referring to plans to expand the Damang and Tarkwa mines.
The West African nation will start charging a 10 percent windfall tax on mining companies next year and boost their corporate tax rate to 35 percent from 25 percent, Finance Minister Kwabena Duffuor told lawmakers in his annual budget statement Nov. 16. Companies will be allowed to write down 20 percent of capital spending each year for five compared with a current 80 percent writedown on taxable income in the first year now.
Ghana is the latest African commodity producer planning to benefit from higher international prices for its products. Guinea and Zimbabwe have sought greater stakes in mining assets while Zambia has doubled royalties on minerals. Gold exports from Ghana in the nine months to September were worth $3.7 billion, according to the central bank, and Duffuor said the country earned 148.8 million cedis ($91 million) in royalties in the same period. Gold prices have risen 23 percent in 2011.
Higher Royalties Unsustainable
“If the proposed taxes stand as is, it will make these projects very difficult,” Holland said. “There needs to be a better dispensation for us to proceed.” It isn’t sustainable for Gold Fields to be paying higher royalties than other gold producers in the country, he said, declining to elaborate on the changes the company wants.
“There are positive signs that we may get relief on the windfall tax and capital allowance,” Peet van Schalkwyk, executive vice-president for the West African region, said in the presentation.
Gold Fields on April 15 agreed to buy Iamgold Corp.’s interests in its Tarkwa and Damang mines in Ghana for $667 million to increase its output and reserves. The company’s operations in Ghana comprised 26 percent of Gold Fields’ 900,000 ounces of output in the third quarter through September.
It plans to spend initial capital of as much as $600 million to extend its life of mine at Tarkwa by 2015 and add 1 million ounces of production. The board is expected to approve the Damang Super-pit project, which aims to double production to 450,000 ounces a year, early in 2012, Van Schalkwyk said.
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