Is perception reality in gold mining foreign investment?

Earlier in the year, I was privileged to collaborate with Chris Gemell (Wood Mackenzie) and Allan Trench (The University of Western Australia) on a paper and presentation discussing previous research for the International Mining for Development Centre (IM4DC) into the fiscal attractiveness of various African and South American countries for gold mining investment.

The paper was entitled “Is Perception Reality? Evaluating the Fiscal Attractiveness of International Jurisdictions for Gold Mining Investment” and was presented at the AusIMM International Mine Management Conference in Brisbane, Australia on the 24th August.

The abstract of the presentation is included below, whilst the paper can be downloaded from ResearchGate and the presentation from Slideshare.

“The perceived and actual impact of government mineral policy upon the government share from gold mining revenues is assessed for ten key countries in which the gold sector is of relevance in advancing economic growth. Five African and five South American jurisdictions are considered, namely Burkina Faso, Ghana, Mali, South Africa and Tanzania from Africa; and Brazil, Chile, Colombia, Guyana and Peru in South America.

Both the headline corporate income tax rate and royalty level are identified as poor indicators for the total government share. In addition, significant differences between industry perception and actual government tax levels are identified by this study. The quantitative financial analysis shows that there is no clear relationship between individual taxation rates, taken in isolation, and the overall average effective tax rate (AETR) paid by the project over its life. Neither companies nor governments should use individual taxation rates, or industry perceptions, in isolation to assess the overall competitiveness or equity of a country’s minerals taxation regime – such analysis can be very misleading.

In this study, the perceived impact is determined from the well-established Fraser Institute survey published each year, and in 2014 compared 122 minerals jurisdictions globally. The actual impact is determined from quantitative modeling of the financial performance of a hypothetical gold mining project in each country. The technical parameters of the project are held constant; instead the differing mineral policies in each jurisdiction are applied to determine the resultant impact upon the relative share of the economic rents delivered to both private and public sectors. In the quantitative analysis, the total government share varies from 36.3 percent in South Africa to 66.5 percent in Ghana.”

A copy of this summary article was also published on the Greenfields Research website.