Ghanaian Government Causing Headache For Mining Companies

Ghana is one of the most resource-rich countries in West Africa, and is especially well-endowed as far as gold is concerned. After the abolition of apartheid, South African mining companies in particular started expanding all over the continent. In the last decade exploration companies and gold producers as well as supply companies have invested a total of USD 6.5 billion in Ghana. But efforts on the part of governments across the continent to extract more taxes from mining companies have also been increasing – with worrying implications for many businesses. Concerns have centred on Zimbabwe and South Africa – in the former the government forced foreign investors to transfer their shares to a government fund – but companies operating in other countries are starting to feel greater pressure as well.

Analysts believe that these developments will boost the prices of precious metals such as gold, silver, platinum or palladium in the future, since the African supply situation could deteriorate quickly as geopolitical tensions increase and resources are used as political bargaining chips. Ghana's government also seems to be growing fonder of such ideas. Although at this point a complete nationalisation of the Ghanaian mining sector seems far-fetched, in December last year the government did announce a plan to significantly raise mining taxes.

In 2010 mining companies operating in Ghana paid a record $365 billion in taxes and reinvested approximately 70% of their gross profits into the Ghanaian economy, but as ever, government avarice isn’t easily satisfied. December’s bill proposes raising mining taxes from 25 to 35%. A 10% speculation tax is also to be included. Unsurprisingly, the South African miner Gold Fields – the world's fourth largest gold producer – announced that it was halting plans to invest $1 billion in the expansion of its Tarkwa and Damang mines in the country.

All in all, the relationship between African governments and mining companies is deteriorating. This could be one of the reasons why mining shares are struggling for traction at the moment.