Options for Developing Countries in Mining Development

206 Pages·1986·13.724 MB·English

by  Grantley W. Walrond, Raj Kumar (auth.)

OPTIONS FOR DEVELOPING COUNTRIES IN MINING
DEVELOPMENT
Also by Raj Kumar
THE FOREST RESOURCES OF MALAYSIA:
Their Economics and Development
FOREIGN DEBT MANAGEMENT ISSUES FOR DEVELOPING
COUNTRIES (with Nihal Kappagoda)
OPTIONS FOR DEVELOPING
COUNTRIES IN MINING
DEVELOPMENT
w.
Grantley Walrond and Raj Kumar
Palgrave Macmillan
ISBN 978-1-349-18103-2 ISBN 978-1-349-18101-8 (eBook)
DOI 10.1007/978-1-349-18101-8
© Grantely W. Walrond and Raj Kumar 1986
Softeover reprint ofthe hardcover 1st edition 1986
All fights reserved. For information, write:
St. Martin's Press, Ine., 175 Fifth Avenue, New York, NY 10010
Published in the United Kingdom by The Maemillan Press Ltd.
First published in the United States of Ameriea in 1986
ISBN 978-0-312-58692-8
Library of Congress Cataloging in Publieation Data
Walrond, G. W.
Options for developing countries in mining
development.
Includes index.
1. Mineral industries - Developing eountries.
I. Kumar, Raj, 1947- . 11. Title.
HD9506.D452W35 1986 333.79'15'091724 85-11918
ISBN 978-0-312-58692-8
Contents
List 0/ Figures viii
List 0/ Tab/es ix
Abbreviations xi
Exchange Rates xii
Weights and Measures Used in the Study xiii
Pre/ace xiv
Acknow/edgements xvi
INTRODUCTION I
Scope and Objectives of Study 2
Basis of Country Selection 3
The Mineral Sector in the Respective Countries 4
2 ORGANISATION AND ADMINISTRATION OF
SECTOR 9
Mineral Rights 9
Administration 9
The Licensing System 18
Conditions of Licence for Searching for Mineral Deposits 20
Conditions of Licence for Geologically Defining and
Assessing the Economic Potential of a Mineral Deposit 22
Conditions of Licence for the Development and
Extraction of the Ore Deposit 25
Other Licences 26
Mineral Rights and Surface Rights 28
Nationality of Mineral Rights Holders and Local
Participation 29
Termination of Rights and Dispute Settlement 30
Summary Comment 32
v
vi Contents
3 THE FINANCIAL REGIME 34
Poliey Implications of Instruments 35
Objectives of Govemment Poliey 35
Royalty 39
Ineome-related taxes 43
Resource Rent Tax 52
Other Fiscal Dues 55
4 ANALYSIS OF IMPACT OF REGIMES 56
the Model 56
Assumptions of the Model and Definitions 57
The Results 63
5 MINERAL DEVELOPMENT AGREEMENTS:
VARIATIONS FROM THE STATUTES 87
Issues in Mineral Development Agreements 87
Form of Agreements 87
Control and Management 93
Fiscal Provisions 95
Non-Fiscal Issues 104
Why have Mining Development Agreements been necessary? 105
Issues Inherent in the Charaeteristies of Mining 106
Issues Inherent in the Strueture of the Mining Industry 107
Negotiation of Mining Agreements 109
6 SUMMARY COMMENT AND CONCLUSIONS 111
}(ppendices 123
Appendix 1 Finuncial Provisions und Charges 124
Appendix 2 Requirements in Application for a Mining Licence 134
Appendix 3 Selected Computer Print-outs und Tables of Results 136
Appendix 4 Depreciation Methods 164
Appendix 5 Numerical Example of a Cash Flow Based Rem
Resource Tax 167
Appendix 6 Explanation of Some Basic Financial Concepts 171
Bibliography 177
Index 185
List of Figures
Chapter 4 Analysis of Impact of Regimes
4.1 Projects tlows and splits between government and investor 64
4.2 Government revenue mix based on gold price ofUSS450/oz for
case with 100% foreign investor equity participation 67
4.3 Government revenue mix based on gold price ofUSS450/oz for
case with 51 % government fully paid equity 71
Appendix to Chapter 4
A4.1 Depreciation methods compared 166
vii
List of Tables
Chapter 1 Introduction
1.1 Key economic indicators for mining in selected countries 8
Chapter 2 Organisation and Administration of Sector
2.1 Summary of mining legislative provisions 10
Chapter 3 The Financial Regime
3.1 Ad valorem royalty charges on selected minerals 40
3.2 Comparative basic tax rates 44
3.3 Capital allowance structure for mining
Chapter 4 Analysis of Impact of Regimes
4.1 Results ofmodel with 100 %f ully paid equity by foreign
investor 65
4.2 Project surplus as apercentage of total revenue 68
4.3 Difference in percentage government share of total
surplus from case where it does not participate 69
4.4 Results of model with 51 % government equity and 49 %
foreign investor equity fully paid 70
4.5 Results of model where 31 % of government equity is
fully paid and 20 % free 73
4.6 Change in government take under different equity
financing schemes 75
4.7 Results ofmodel with 31 % government equity paid out
of dividends and 20 % free 76
4.8 Sensitivity tests of selected regimes and price scenarios 79
4.9 Papua New Guinea: impact on additional profits tax of
immediate capital write-offs 80
Chapter 5 Mineral Development Agreements - Variations
from the Statutes
5.1 Selected agreements and government participation 90
5.2 A comparison offiscal arrangements in agreements and
statutory provisions 96
viii
List 0/ Tab/es ix
Appendices
A3.1 Zambia: 31 % of Govemment equity fully paid and 20 %
is free - gold price at USS450 an oz 136
A3.2 Tanzania: 31 % Govemment equity paid out of divid-
ends, 20 % free equity - gold price at USS450 an oz 140
A3.3 Malaysia: 51 % Govemment equity and 49% foreign
investor equity, fully paid - gold price at USS450 an oz 144
A3.4 Sierra Leone: 31 % Govemment equity fully paid, 20%
free equity - gold price at USS450 an oz 148
A3.5 Canada: 100% fully paid foreign investor participation -
gold price at USS450 an oz 152
A3.6 Papua New Guinea: 100% fully paid foreign investor
participation with capital allowance spread over Iife of
mine -gold price at USS450 an oz 156
A3.7 Papua New Guinea: 100% foreign investor participation
but with immediate capital write-off - gold price at
USS450 an oz 160
A5.1 Numerical example ofc alculating a rent resource tax that
is deductible for income tax purposes 168
A6.1 Future and present value tables 172