Analysis: Miners fear tax hikes, uncertainty in Burkina mining review

Renegade Gold

09/12/2014 13:51

* Burkina review to focus on Compaore-era permits 
    * Miners worry Burkina could lose its mining lustre 
    * Review could bring clarity to the sector - analyst 
 
    By Mathieu Bonkoungou and Bate  Felix 
    OUAGADOUGOU/DAKAR, Dec 9 (Reuters) - A plan by Burkina 
Faso's new leaders to review the mining industry after years of 
opaque management is spooking operators who fear losing tax cuts 
that they say make operating in the landlocked nation 
attractive. 
    Over the last decades Burkina Faso has cultivated its gold 
mining industry. Two dozen firms operate in the sector, 
including Semafo  SMF.TO , IamGold  IMG.TO  and Avocet Mining 
 AVM.L , enjoying corporate tax rates lower than other nations 
in West Africa. 
    However, one of the first announcements of the interim 
administration was an audit of the sector, in line with the 
demands of protesters who toppled former president Blaise 
Compaore after 27 years in power. 
    The interim government, which is meant to guide the nation 
to elections within a year, has not given any details on when 
the review will commence and how long it will take. But miners 
are unnerved.     
    "We have seen across Africa in the last couple of years that 
governments have increased the fiscal burden on the sector and 
have made it harder for investors to make a return," said Jim 
Wynn, a vice-president at Avocet Mining. 
    Wynn said a number of factors - including the low price of 
gold, the small size of Burkina Faso's assets and the relatively 
low quality ore - would make the country uncompetitive if taxes 
were significantly raised. 
    The relative stability before the uprising and a favourable 
tax regime saw six gold mines start production while several 
others are at various phases of exploration.  
    Gold output reached 32 tonnes in 2013 and was expected to 
hit 40 tonnes in 2016 as new projects come on stream, putting 
Burkina Faso fourth behind South Africa, Ghana and Mali as 
Africa's top gold producers.      
    Doug Reddy, senior vice-president at Endeavour Mining, also 
said that Burkina Faso's 10 percent discount on corporate tax 
for miners, which lowered corporate tax bills to 17.5 percent, 
was a key factor.  
    "If that was to change that would be one less incentive to 
developing a mine in Burkina," he said. 
    New Mines Minister Colonel Boubacar Ba told Reuters there 
was a need to clean up the sector where an individual close to 
the former regime is holding as many as 60 mining exploration 
permits which are not in use. 
    The minister did not say whether the tax breaks will be 
removed but added that mining was an important sector for the 
economy that had to be properly managed so that the population 
could also benefit.    
     
    UNCERTAINTY AHEAD 
    The other concern for miners is the uncertainty surrounding 
a review, and the length of time it may take. 
    Tom Wilson, head of intelligence and analysis at Africa 
Practice, a London-based consultancy, said a "house-keeping" 
review was probably needed given the length of Compaore's 
presidency and the opacity surrounding certain permits. 
    "If handled well, the review can have a positive impact - 
cleaning up the land register, cancelling unused or expired 
exploration permits and opening up those concessions to new 
potential investors," Wilson said.  
    However, he said the review must be swift and transparent, a 
sentiment echoed by the miners. 
    "Trying to review the dubiously awarded licenses that's fair 
enough and we have nothing to fear," said Avocet's Wynn. 
    "However often these things can drag on and can be time 
consuming and can act as a retardant when you want to move to 
next stage." 
    Elie Justin Ouedraogo, president of the Burkina Faso Chamber 
of Mines, said the balance was crucial. 
    "If when reviewing the mining code we don't pay attention 
and create conditions to enable our mining sector to remain 
competitive, it will only be natural for investors to move 
places where they can get better terms," Ouedraogo said. 
 
 (Additional reporting by Susan Taylor in Toronto and Silvia 
Antonioli in London; Writing by Bate Felix; Editing by David 
Lewis and Michael Urquhart) 
 ((bate.felix@thomsonreuters.com; +221 33 864 5077; Reuters 
Messaging: Reuters Messaging: 
bate.felix.reuters.com@reuters.net)) 
 
Keywords: BURKINA GOLD/