The apparent lack of transparency in the operations of some mining companies in Ghana has been a source of serious concern to the Ministry of Lands and Natural Resources (MLNR). It may be recalled that sometime in January this year, Ghana Manganese Company Limited was directed to halt its mining operations to enable the State undertake a thorough and uninterrupted technical and financial audit of the company’s operations. Subsequently, my Ministry agreed with the company that the audit could be carried out whiles mining operations are ongoing. Preliminary Audit has been completed and I wish to share with you the findings and further measures that the Ministry plans to take.
The main objectives for the audit were as follows:
• Analyze and review data and other related documents covering all transactions in relation to the operations of GMCL from 2010;
• Ascertain pricing for manganese as declared by GMCL;
• Examine the grade of ore mined including review of data and limited drilling within the pits of GMCL where necessary to ascertain effective head grade;
• Determine the quantity of raw manganese shipped abroad which shall require but not limited to the audit of historical export data, transport and export through the port of Takoradi;
• Review the capital and operational expenditures to ascertain their impacts on the payment of royalties, corporate taxes and dividends paid on the 10% free carried interest held by the government of Ghana;
• Review the compliance with local content legislation including but not limited to contracts or agreements relating to the provision of mine support services to GMCL; and
• Analyze the financing structure including loans arrangements between GMCL and the parent company and any other third party.
• To understanding the contents of the mining license as the license provides guidance on financial and operational requirements.
The findings have confirmed huge losses to the State. For instance, estimated losses to Government of Ghana for the period 2010 to 2017 based on Fair Pricing Model utilizing best business practices, open source data as well as information obtained from verifiable business intelligence centers include:
• Additional royalty taxes due ($12.8M);
• Additional corporate taxes due ($79M);
• Loss of dividends declared ($6.1M);
• Additional revenue residing offshore for period 2010 to 2017 no transfer pricing audit performed prior to 2017 ($259M).
Also, an exclusivity agreement allegedly appointed Manganese Trading Limited (MTL) as the sole off-taker of the total volume of the manganese produced by GMCL.
The agreement fixed the selling price (transfer price) of manganese ore to US$2.4 for every Dry metric ton unit (DMTU) for a period of 3 years.
In late 2014 and early 2015, just before the expiry of the sales agreement reached in April 2012, there was a manipulation of the sales in order to stockpile ore prior to adjusting the price downwards by $0.65 for every DMTU, contrary to section 13 of the mining lease agreement governing their operation. Calculated loss due to this price/production manipulation is conservatively estimated to be $3.64Million.
Financial analysis indicates that since the change in ownership that production and sales increased from 2017 to 2018:
- 65% increase of production tons mined;
- 80% increase in sales.
However, it is noted that after change of ownership the production increased by more than 100% percent in comparison to the average monthly production under the prior ownership. This drastic increase in production was not due to capital investment in mining asset even though a formal letter of intent indicates that Ningxia Tian Yaun Manganese Industry Co Ltd (TMI), the mother company will invest up to $100million.
The Audit has also noted major infrastructural deficiencies as a result of GMCL operations. Primarily, road and rail infrastructures are stretched beyond capacity and are close to complete failure.
Aside the findings of the audit report, there is also ample evidence of lack of compliance and circumvention of the local content policy following complaints to the Ministry by local contractors. Ghanaian contractors providing services to GMCL are owned hundreds of millions of Ghana Cedis even though the company continuous to expands its export of manganese. Current figures available to the ministry suggest production and export in excess of 3million metric tonnes.
One of the major policies of the Akufo-Addo Government is to add value to the minerals that are produced in the country.
This is demonstrated by the establishment of the Ghana Integrated Aluminum Development Corporation Act, 2018 for the Bauxite Industry as well as the Ghana Iron and Steel Development Corporation Bill for the Iron industry. In the case of Manganese however, GMCL has not shown strong commitment to value addition, in particular the establishment of a smelter.
There are also defaults by the company in the payments of Annual Mineral Right Fees in excess of $4million.
These and several other infractions leave me no option as the sector minister than to close down the operations of GMCL until further notice. The company is therefore instructed to stop all mining, exploration, and export of minerals effective 6th August, 2019. The Ministry together with the Minerals Commission and other relevant stakeholders will immediately commence discussions with Ghana Manganese to resolve these and all other outstanding issues in the course of the shutdown.