Ghana Manganese Company ordered to stop work

The Minister of Lands and Natural Resources, Mr Kwaku Asomah-Cheremeh, has ordered the Ghana Manganese Company Limited (GMCL) located in Tarkwa in the Western Region to stop all mining, exploration and export of minerals with immediate effect.

The order came after a financial analysis of the company's operations between 2010 and 2017 revealed that it had caused revenue loss of about $360 million (GH¢1.94 billion) to the state.

Addressing a news conference in Accra yesterday, at which he announced the shutdown, Mr Asomah-Cheremeh said the country lost $12.8 million in royalties due, $79 million in corporate taxes due and $6.1 million in dividends.

"Additionally, revenue residing offshore for the period 2010 to 2017 also amounted to $259 million. The estimated losses were based on a fair pricing model, utilising best business practices, open source data, as well as information obtained from verifiable business intelligence centres," he said.

The minister explained that no transfer pricing audit was performed prior to 2017.

He stressed that the abundance of evidence of infractions by the company left him with no option but to order the closure of the company until the outstanding issues had been addressed.

Preliminary investigations

In February this year, Mr Asomah-Cheremeh gave a similar directive to the company to stop operating to pave the way for thorough investigations into its activities following the discovery of what was suspected to be underhand dealings at the company.

The company was later allowed to carry out its operations while the audit continued.

The investigations were to, among other things, analyse and review data and other related documents covering all transactions at the GMCL from 2010 to 2017, ascertain the pricing for manganese as declared by the company, determine the quantity of manganese shipped abroad and review the capital and operational expenditures of the GMCL to ascertain their impact on the payment of royalties, corporate taxes and dividends.

Background

The GMCL was originally owned by a Ukrainian but was sold to a Chinese company called Tianyuan Manganese Industry Group Co. Ltd (TMI), which took over full operations of the company in 2018. The government has a 10 per cent carried interest in the GMCL.

More findings

Mr Asomah-Cheremeh explained that the financial analysis had discovered an exclusivity agreement that allegedly appointed Manganese Trading Limited (MTL), a Chinese company registered in Ghana, as the sole off-taker of the total volume of manganese produced by the GMCL.

He said under the agreement, the transfer price of manganese ore had been fixed at $2.4 for every dry metric tonne unit (DMTU) for a period of three years, in violation of the mining lease.

“In the late part of 2014 and the beginning of 2015, 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.

“The calculated loss due to this price and production manipulation is conservatively estimated to be $3.64 million,” the minister said.

He added that although evidence showed that there had been a more than 100 per cent increment in production by the current owners of the company, compared with the previous ownership, the company failed to stick to its commitments.

“The drastic increase in production was not due to capital investment in mining assets, even though a formal letter of intent indicates that the TMI, the mother company, will invest up to $100 million,” he explained.

He added that the audit exercise had also revealed major infrastructural deficiencies resulting from the GMCL’s operation.
For instance, he said, it was found that the operations of the company had stretched roads and rail infrastructure beyond the required capacity.

Other breaches

“Aside from 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 for the GMCL are owed millions of Ghana cedis, even though the company continues to expand its export of manganese, with current figures available to the ministry suggesting that production and export are in excess of three million tonnes a year,” he said.

He stressed that the government would explore various options, including engagement with the management of the company, seeking legal redress and taking over the company, to get what rightfully belonged to the state.

Background

Mr Asomah-Cheremeh issued a directive to the GMCL on January 31, this year, to halt operations to pave the way for a thorough and uninterrupted technical and financial audit of the mining entity.

The company subsequently stopped mining operations on February 1, 2019.

In July last year, the then Minister of Lands and Natural Resources, Mr John Peter Amewu, indicated that the government was not going to renew the mining lease licence of the GMCL because the company was "flouting its mining agreement".

It had emerged that the GMCL had failed to involve the government in the pricing of manganese ore that was being sold to a firm in China for processing.