16.I BASIC FEATURES
16.I.1 Contribution to the Economy
16.I.1.1 The mining sector makes invaluable contributions to
the country’s economy. It accounted for 17 percent of GDP in 1998; and, every
year since 1991, the value of its exports was higher than that of every other
sector, as were the amount of revenue that it engendered. Moreover, the industry
directly absorbs between 15,000 and 20,000 of Guyana’s labour force.
16.I.1.2 Indeed, the sector is both labour and capital
intensive, the high degree of mechanization requiring a considerable range of
support services. These include metal fabrication, machine construction and
repair, transportation, carpentry, plumbing, welding, pipefitting, and blasting.
16.I.1.3 The larger mining companies and the Guyana Geology and
Mines Commission (GGMC) are also involved in the construction and repair of
hinterland roads, thereby improving the quality of the country’s infrastructure,
and facilitating the penetration of its interior.
16.I.1.4 The mining sector has also contributed significantly
to the development and improvement of social infrastructure such as schools and
16.I.2 Guyana’s Mineral Wealth
16.I.2.1 In addition to its well-known deposits of gold,
diamonds and bauxite, Guyana’s mineral heritage includes occurrences of
industrial minerals such as kaolin, silica sand, soapstone, kyanite, feldspar,
mica, ilmenite, columbite-tantalite, and manganese; base metals such as copper,
lead, zinc, molybdenite, tungsten, and nickel; ferrous metals, of which iron as
magnetite and laterite is the main type; uranium; and semi-precious stones such
as amethyst, green quartz, black pearl, agate and jaspar.
16.I.3.1 Historically gold production has, almost exclusively,
been from alluvial and eluvial deposits. More recently, however, the large open
pit at Omai Gold Mines Limited has considerably increased the country’s gold
production. Indeed, while gold declarations from local producers have been
maintained at approximately 110,000 ounces per year, Omai produces, on average,
approximately 300,000 ounces per year. Gold continues to be Guyana’s highest
value export commodity.
16.I.3.2 Gold was first produced in Guyana by "porknockers"
using hand mining methods which revolved around ground sluicing, the long tom
and the battel or gold pan. This method was later supplemented and to an extent
mechanized with the introduction of couple jet dredges which had the capability
of mining the river bottoms under the guidance of aqualung equipped divers.
Couple jet units have now been largely superseded by the remote controlled,
diver-less gravel pumps or missile dredges, which possess the capability to mine
deeper channels and river banks, and to explore river-bottoms more efficiently.
However, because the river beds are becoming exhausted, a larger percentage of
the local production is increasingly derived from land dredges, which work large
pits in fossil placers, terraces and eluvial/saprolite hosted deposits.
16.I.3.3 There is only one established, locally-owned and
operated, open pit hard rock gold mine in Guyana which employs blasting,
crushing and gravity recovery circuits. In this system spent ores are being
stockpiled for additional treatment at a later date.
16.I.3.4 Omai Gold Mines Limited is the only large scale open
pit, hard rock mine now operating in Guyana. It is controlled by the Canada
based Cambior Inc. and the USA based Golden Star Resources Ltd., with the Guyana
Government holding a 5 percent equity interest. There are other large scale hard
rock gold deposits in Guyana: Marudi Mountain in the South Savannah, Eldorado in
the Kaburi Area, Peters Mine in the Potaro, Eagle Mountain in the Mahdia area
and Tassawini, Mariwa and Aurora in the Cuyuni; they are not, however, currently
16.I.4.1 Diamonds were first reported in 1887 from the Puruni
River Area and in 1890 from the Putareng River. Diamond production, mainly from
the Mazaruni River Basin, peaked in the 1920s with over 200,000 carats being
annually declared. The diamond sector has however been in decline since about
1970 and, in the last five years, the annual declaration of diamonds has been
only about 35,000 carats.
16.I.4.2 Most diamonds are found in fluviatile environments
either on the 25,000 square kilometres Roraima Plateau or within twenty five
kilometres of the escarpment. Some diamondiferrous gravels are also located at
distances of as much as 150 kms from the Roraima rocks. In such cases they are
associated with the deposits of the White Sand series which are thought to be
derived from the erosion of the Roraima sediments.
16.I.4.3 The diamonds produced in Guyana are eminently cuttable
octahedras and rounded dodecahedras; the production tends to be about 60 percent
gems, 10 percent near gems and 30 percent industrials; the average stone size is
10 to 13 points; and the average value tends to be about US$100.00 per carat.
While resources of the order of millions of carats are postulated, the relative
remoteness and inaccessibility of the diamond fields, the lack of roads, power
and labour, and the relatively small stone size and value, render most of this
resource sub-economic at this time.
16.I.5.1 Bauxite was first produced in Guyana in 1917. Until
1971, the industry was totally owned by two major North American integrated
multinationals, Alcan and Reynolds. However, the Alcan subsidiary, Demerara
Bauxite Company (DEMBA), and the Reynolds subsidiary, Reynolds Berbice Mines,
were nationalised in 1971 and 1975, respectively.
16.I.5.2 For the ten years immediately following its
nationalisation, the industry experienced a period of reasonable success. During
that time, production increased, positive net income was recorded, and
substantial contributions were made to the nation’s economy in the form of
dividends, corporation taxes, employment, and export earnings. The industry,
however, entered a period of steep decline after 1981 and, by 1991, was
technically bankrupt. Efforts by the Government to obtain international
institutional financing for its revival led to a commitment to its
16.I.5.3 A condition of the financing, which was received from
the World Bank to improve its performance before divestment, was the dissolution
of Guyana Mining Enterprise Limited (Guymine) which owned and managed the entire
industry, and the establishment of two separate companies – Linden Mining
Enterprise (Linmine) and Berbice Mining Enterprise (Bermine) centred around the
two operating divisions of Guymine, with Linmine being placed under foreign
management and an Initial Reconstruction Programme (IRP), while Bermine
continued under local management.
16.I.5.4 The IRP did not achieve the expected results: the
production of refractory bauxite (RASC), the pillar or the programme, fell
continuously over the next five years and, with falling prices, resulted in a
worsening of the company’s financial position. It was therefore decided by the
management that the market for the company’s only product, refractory bauxite
(RASC), had deteriorated to the point where the company was no longer a viable
16.I.5.5 Attempts to privatise Linmine in 1996 on a piece-meal
basis, with the core activity, the production of refractory bauxite, being
offered to interested parties, evinced little interest. The government therefore
decided to give the entity a grace period of 5 years to become profitable. If
profitability was not attained it was to be either sold or abandoned. Since its
performance had not improved, the Government, at the end of September 1998,
decided to advertise the company again for privatisation, with a view to
completing the process by the end of 1999. However, by the end of March 2000,
there were no offers to take over the company. Linmine’s fate is therefore still
to be decided.
16.I.5.6 Bermine’s performance after the re-structuring was
also indifferent. Although the company recorded a positive net income in 1993,
it made considerable losses over the next three-year period. And even though it
recorded a small profit in 1997, and shows prospects of becoming viable, that
company also had been identified for privatisation with the same schedule as
Linmine. In 2000, a tentative offer for a merger with Bermine was put forward by
the Aroaima Bauxite Company, (ABC) which is the third bauxite company existing
in Guyana. This offer was rejected by the government. A foreign company has
since expressed an interest in entering into a partnership with Bermine but no
decision has as yet been made on this matter.
16.I.5.7 The two producing companies comprising the state
sector control considerable bauxite reserves and installed production capacity
which are currently under-utilised. While much of the capacity is in a poor
state of maintenance, resulting in the effective capacity being significantly
below the installed capacity, some of this capacity could be restored with
relatively low levels of carefully planned and executed capital investments.
16.I.5.8 Both state-owned companies own production facilities,
which, in their current state of maintenance, are not capable of operating
anywhere close to their rated or installed capacity.
16.I.5.9 The third company, ABC, is owned jointly by the
Government of Guyana and Reynolds Bauxite Company. The equity in ABC, which was
established in 1989, is shared on a 50:50 basis. ABC pays neither taxes nor
duties. It has never distributed any dividends.
16.I.6 Miscellaneous Minerals
16.I.6.1 Manganese was discovered in 1903 in the Matthews Ridge
Area in the north-west of the country, but was not put into production until
1960. This operation closed in 1969, although substantial reserves still exist.
16.I.6.2 Columbite was mined in the Morabisi area of the
Mazaruni River from 1952 to 1959, when mining ceased because of a fall in its
price in the world market.
16.I.6.3 In the 1960s copper was discovered at Groete Creek;
lateritic nickle quantified at Blue Mountain; and molybdnemum (molybdenite, and
tungsten (scheelite) identified at Eagle Mountain. Numerous sulphide and iron
ore occurrences and industrial minerals such as talc, kaolin and magnesite have
also been identified over the years in different parts of the country. Uranium
was extensively prospected for in the early 1980s.
16.I.7.1 Guyana’s hydrocarbon (petroleum and natural gas)
potential was noted since the 1850s, with the first well being drilled in the
Waini Estuary in 1917. Exploration for hydrocarbons continues today in the
coastal onshore, coastal offshore and the Takutu Basin.
16.I.7.2 The Takutu Basin, which is situated in the southwest
of the country and straddles the Guyana/Brazil border, is the only area in which
petroleum has so far been found. The Guyana portion of the Takutu Basin is
approximately 10,300 sq. km. In 1979 Home Oil Canada conducted a seismic
programme and drilled two wells. The second well, Karanambo-1, was a discovery
well producing 400 barrels of oil per day, apparently from fractured Apoteri
Volcanics. Home Oil was hampered by the remoteness of the discovery area and the
absence of infrastructure.
16.I.7.3 Statistics such as gross unit thickness, net
sand/carbonate and porosity indicate good reservoir potential in the Offshore
Basin. For the offshore, the reservoir potential seems to be best in the
Tertiary Carbonates and clastics even though there is reservoir potential in
intra-Cretaceous formations such as the Stabroek Formation.
16.I.7.4 Ten exploratory wells have been drilled in offshore
Guyana since 1967. In that year Teneco drilled the first. Total drilled the last
in 1992. However the government of the country has recently entered into an
agreement with CGX Energy Inc. giving this company permission to drill offshore,
in the Corentyne area.
16.I.7.5 There is, as yet, no petroleum production in
16.I.8.1 Silica sands, which are widely dispersed in the
northeast of Guyana, cover about 5,000 square miles of the country. The white
sands are a vast resource of high-purity silica oxide.
16.I.8.2 In 1993, for the first time, silica sands were
exported to the Caribbean region, where their superior quality as a feedstock
for glass manufacture, as a construction and land fill material, and as a basic
input in golf course development has been recognized. Their future development
in this regard will, in large measure, depend upon whether the near intractable
large bulk transport problem which confronts the Caricom region is solved.
Environmental considerations, associated with the preservation of tourism
including beaches in Caricom, may make the nearly inexhaustible silica sand
deposits of Guyana a shared strategic resource of the region.
16.I.8.3 The sands are also critical to the civil works and
building sectors of the economy. Their utilisation as a land fill, concrete and
asphaltic base, and in other industrial processes, such as porcelain and
cultured marble manufacture, making them a resource without which development
could be seriously curtailed.
16.I.8.4 The sands were used, in the 1970s and 1980s, in the
production of glass at Yarrowkabra. However, the facilities were closed for
reasons totally unrelated to the quality and availability of the sand
16.I.9 Coarse grained aggregates
16.I.9.1 Coarse grained aggregates for roads and other civil
works, building construction and sea defences have been produced in Guyana for
well over a century.
16.I.9.2 Because of their relatively low value, and therefore
the necessity to access cheap transport, all of the rock quarries were located
along the Essequibo, Demerara, Berbice, Mazaruni, and Cuyuni rivers. Over the
passage of time, eight quarries were operated in the Essequibo River, nine in
the Mazaruni River, one in the Cuyuni River, four in the Demerara River, and one
in the Berbice river. At the present time, only the St Mary’s and the Monkey
Jump Quarries on the Essequibo River, and the Teperu/Itabu Quarry, now called
Mazaruni Granite Products Limited, on the Mazaruni River are being actively
16.II ISSUES AND CONSTRAINTS
16.II.1 Regulatory Regime
16.II.1.1 There is currently no dedicated Minister of Mines.
Although the Prime Minister holds the portfolio, he is not in possession of any
ministerial staff in support of the concept-utilisation formulation and
implementation of policy. This is an almost untenable situation, which often
appears to lead to the neglect of the sector at every level.
16.II.2 Investment and the Tax System
16.II.2.1 It is extremely important that we immediately begin
to mobilise the risk capital and investment funds that are needed for the sound
and early development of our mining sector. Investment, as we have repeatedly
emphasized elsewhere this document, is urgently needed if we are going to be
able to propel our economy into the 21st century. Over the last decade our
mineral growth has been achieved almost entirely by the private sector. Future
growth will continue to depend on our capacity to attract to our country foreign
mining companies with the technical and managerial capability to find new
deposits and develop new operations. Mining investments are capital-intensive,
and usually involve time-horizons of ten to twenty years or more. Investors
therefore require competitive terms and conditions, and solid assurances that
the investment environment will be stable.
16.II.2.2 Guyana’s current tax structure for the mining sector
is not, on the face of it, competitive. It includes charges of five percent
royalty on gold, three percent on diamonds, and a thirty-five percent corporate
income tax. Both the royalty and the corporate income tax are located in the
upper echelons of international norms. Indeed, the former is especially,
considered to be one of the highest in the Commonwealth.
16.II.2.3 In a comparative study of the mining tax regimes of
various countries, which was published in 1996, the following percentages of
pre-tax mining revenues, which would accrue to governments,
16.II.2.4 The study also analysed the Government’s share of the
profits repatriated to shareholders abroad. Those shares were as
16.II.2.5 The fact that Guyana ranks at or near the bottom of
both lists ought to be a matter for concern in terms of our capacity to attract
investors for mining activities. It is not necessary for Guyana to move to the
top of the list, but its present situation clearly puts it at a competitive
16.II.2.6 Both import and export duties are fiscal measures
used in Guyana to secure revenue. Although in recent years customs duties on
some major mining equipment have been waived, miners have expressed the opinion
that the 15-20 percent import duty, which is still charged on several mining
inputs, is excessive and burdensome. A more relevant concern may be the range of
variation in such duties.
16.II.2.7 Local miners experience great difficulty in obtaining
investment capital to develop their claims or permits. Mining requires extremely
high risk equity or loan capital, the potential returns on which are not easily
gauged because local miners are usually unable to provide quantitative
measurements and reliable estimates of the minerals located in their
enterprises. Moreover, their mining operations are located in remote areas which
are not easily accessible. These two factors make financial institutions
extremely reluctant to finance investment in mining.
16.II.2.8 Any Government of a mineral-rich developing country,
such as Guyana, that is interested in expanding the mineral sector with foreign
investor involvement, and that is eager to reap substantial benefits from it
while ensuring both technical and economic efficiency in exploitation, should
have in place a fiscal regime that satisfies, at least, the following
(i) as a general rule, the tax system should be so structured
that it may be expeditiously applied in a variety of projects and circumstances.
The process of formulating a unique fiscal regime for each project is not only
time-wasting, it often crates confusion. A standard fiscal regime is one of the
most attractive elements of policy to investors. This is not to say that the
same tax system should be applied to all types of minerals., What is being
stressed is that its rules should be the same for gold, the same for diamonds,
the same for bauxite, and so on;
(ii) the fiscal regime should also show a reasonable
sensitivity to the investor’s ability to pay the dues that are imposed, so as to
avoid, as far as possible, creating financial strains that may jeopardize the
viability of the project. At the same time, it must reflect the legitimate
aspirations of the Guyanese public;
(iii) stabilisation agreements should be included as a
cornerstone of the mineral policy. A thoughtful and well formulated standard
contract should amply serve the best interests of mining investors and relieve
the Government of what would otherwise be the potentially unmanageable burden of
negotiating untold numbers of such agreements; and
(iv) the investor and the Government should be able to foresee
the fiscal consequences of alternative actions in managing the project or of
events occurring in the international market that affect project operations.
16.II.2.9 From an investor’s viewpoint the royalty rate and the
free equity provision which have become standards in most mining agreements in
Guyana are somewhat controversial. The royalty rate of 5 percent, which as has
been pointed out is at the very top of the international scale, also causes
special problems in the case of gold, where it encourages leakages of the
product across the hinterland borders to neighbouring countries, and other forms
of evasion. In this case, a complicating factor is that the borders are quite
permeable. Indeed, access to neighbouring countries from some hinterland mining
districts is easier than access to Georgetown. Hence in practice the attempt to
sustain the royalty rate above that of Brazil’s, for example, results in reduced
16.II.2.10 Investors also contend that royalties, because they
are payable whether or not losses are incurred, are in some respects unfair. It
should be noted that many mining countries have no royalty provisions, and those
that do typically have a rate of 2 or 3 percent.
16.II.3.1 Because it is difficult for large vessels to dock at
the local ports trading opportunities are adversely affected. The high cost of
shipping also contributes to making Guyana’s exports uncompetitive, particularly
in the bauxite subsector. For example, it is cheaper to ship bauxite from
Australia and Jamaica to Europe than from Guyana. This obviously serves as a
deterrent to the attraction of foreign direct investment. The reason for this
high cost is the depth of the approach channels to the Demerara and Berbice
rivers from which bauxite is shipped. Until recently, these channels, even after
substantial dredging, have had depths of 30 feet and 18 feet respectively,
allowing vessels to load a maximum of 22,000 tons capacity. The proposals in
this Strategy for the construction of two deep water harbours would go a long
way towards the alleviation of this problem.
16.II.4 Poor Accessibility to Services in the
16.II.4.1 Guyanese residents in the hinterland do not have
proper access to essential services such as education and health. This is caused
in part by poor connectivity and accessibility, in terms of both quantity and
quality, and the high cost that this engenders. This issue hinders investment in
resource extraction activities in the interim. The net effect is to compromise
significantly hinterland and, indeed, the entire country’s development.
16.II.5 Gold Marketing
16.II.5.1 Considerable controversy has arisen over the role of
the Guyana Gold Board which is a holdover from a different era of economic
policy. Independent miners resent the monopoly position of this Board, the
necessity to travel from their hinterland sites to Georgetown to declare and
sell their gold, and the high royalty rate applied to those sales. These
circumstances are unfavourable for all concerned in that they tend to promote
evasive behaviour, especially when the difficulty of monitoring border crossings
for transactions in other countries is taken into account.
16.II.5.2 Transportation Costs
16.II.5.3 Some mining areas are located on the periphery of our
national borders while others are found in equally remote areas. As a result,
access to these areas (all lacking in infrastructure) is only possible by
chartering private aircrafts. Because of this, small miners are unable to make
regular flights in or out of the interior. Consequently, a not inconsiderable
amount of the nation’s gold and diamonds is not sold to the Gold Board and to
local licenced diamond traders, but is leaked into the economies of our
16.II.5.4 Moreover, there appears to be no policy to build new
roads to service either areas with mineral endowments, or those in which mineral
discoveries have already been made. Indeed, not much effort is displayed even to
maintain and repair those that do exist. The wheel and hub concept can be
developed where a few airstrips, capable of handling large aircraft can serve as
staging points for distribution by smaller planes thus taking advantages of the
cost effectiveness of the larger aircraft.
16.II.6 Availability of Suitable Labour
16.II.6.1 The mining industry is faced with shortages of local
geologists, engineers, and drillers among others, basically because the
University of Guyana is not currently attracting, and is not capable of
adequately training, a sufficient number of candidates in fields relevant to the
mining sector. Moreover, very few scholarships are being offered. In addition,
the graduates from the University of Guyana have limited field experience.
16.II.7 Land Titling and the Mining Sector
16.II.7.1 Under the Mining Act all minerals are vested in the
State. In relation to the demarcation of Amerindian lands, under the current
laws of Guyana different enterprises could have rights to different minerals
within the same land unit. This provision could potentially cause problems.
Furthermore there is currently no clear land use policy. As a result, conflicts
among rights holders, in general, but particularly between those who possess
surface and sub-surface rights, are common. In addition, there are numerous
examples of agencies granting rights for which they have no mandate.
16.II.8 Alienation Schemes and Practices
16.II.8.1 The system of Property Rights associated with
industrial minerals is adequate. There is, however, an unclear definition of the
manner of the treatment of competing land uses. The area of conflict surrounds
what priority use if any is accorded the surface rights holder viz-a-viz the
mineral rights holder, if in fact they are separate. No guidelines or mechanisms
are in place to help in predicting with some assurance the optimally beneficial
16.II.8.2 Silica sand which is a very low-value product is
being treated in the same manner as high-value gold. The rental rate on
large-scale silica developments is punitive and should conform to comparable
rates, as in the aggregate business.
16.II.8.3 Exhorbitant import duties continue to be applied to
machinery, equipment and supplies that are bound for the quarry sector. These
constitute a barrier to the flow of investment in an industry which needs new
investment for retooling and expansion.
16.II.9.1 Most countries that are endowed with bauxite almost
exclusively produce the ore for the manufacture of alumina and aluminium. Guyana
has, however, acquired the status of being a diversified bauxite producer with
bauxite that is meant for aluminium production – (metallurgical bauxite (MAZ))
accounting for the smaller percentage of its total production. The major
proportion of the sector’s output was in non–metallurgical bauxite, especially
Refractory bauxite, for which it had a monopoly and which was more profitable.
In assessing the future market prospects for the industry it is, therefore,
necessary to evaluate the different markets for its products, especially since
they are affected by different economic, technological and market forces.
16.II.9.1 The specifications for metallurgical bauxite and its
mineralogical composition have changed considerably over the years. These
developments have widened the choices of the aluminium producers for sourcing
bauxite, and have resulted in bauxite prices falling in absolute terms over the
past 20 years or so.
16.II.9.2 Guyana’s bauxite has always ranked among the highest
quality metallurgical bauxites in the world. In addition to being consistently
high in recoverable alumina, it possesses a pure gibbsite, and has excellent
settling characteristics. The only disadvantages are its low iron content. This
is especially significant because of the increasing emphasis that is now being
placed on high purity aluminium. However, while Guyana’s bauxite in its current
form would hardly be used as the total feed for an alumina refinery, it is
highly desirable as a sweetener in the alumina process.
16.II.9.3 The supply of world bauxite is going through
significant changes. Because most of the world’s low-cost, high-grade bauxite
deposits are nearing exhaustion, a high percentage of the increase in bauxite
demand, by those alumina refineries that are dependent upon imported bauxite,
has come over the past 15 years, from the expansion of existing bauxite
mining capacity. Indeed, Aroaima Bauxite Company (ABC) has been the only new
project undertaken over that period. However, the two existing projects
providing the bulk of that increase are approaching the limit of low-cost
expansion, hence new projects could become competitive. Moreover, certain
technical deficiencies make the bauxite that is produced by those companies
which had earned the bulk of the supply unsuitable for low temperature digestion
refineries and costly for high temperature ones.
16.II.9.4 With all these developments pointing toward higher
cost and, to some extent, lower quality bauxite, Guyana’s bauxite which is still
of the highest grade, both in terms of recoverable alumina and mineralogy, has
become most competitive. For example, ABC has demonstrated that Guyana is in the
lowest percentile of new bauxite developments, in terms of capital cost per
annual tonne of capacity – ABC being under US$30 per tonne, compared with an
estimated US$46 to US$70 by other producers. ABC has also shown that with a
project of the appropriate scale of production and efficient management, Guyana
could become competitive in the metallurgical bauxite market. The establishment
of the Berbice deep-water facility has also significantly reduced the freight
disadvantage suffered by Guyana, thereby widening the country’s markets and
enhancing its competitiveness.
16.II.9.5 It should also be noted that all experts agree
that there will be a most significant increase in the demand for aluminium,
which is based on metallurgical bauxite, over the next 15 years or so. Indeed it
has been estimated that an additional 60 million tonnes of metallurgical bauxite
would be required by the year 2015. Regardless of the location or strategy for
the increased aluminium capacity, the additional bauxite would have to come from
countries with bauxite resources. It is therefore more than probable that Guyana
would be in an excellent position to meet some of the world’s growing demand for
MAZ, provided that its companies are adequately financed.
220.127.116.11 The production of Refractory bauxite constitutes its
second largest application. However, with the lack of growth in the Refractory
bauxite market and the dramatic fall in RASC sales over the past 10 years, the
industry needs to reassess its positioning in the refractories market, and
consider itself as a supplier of High Alumina Refractory raw material rather
than just a producer of Refractory bauxite (RASC). The rationale for this form
of product diversification exists in the raw-material, in the technology, and in
the production base available to Linmine. However, data on the production and
consumption of high and special alumina refractory materials are limited. A more
detailed study would therefore have to be undertaken. Evidence suggests,
however, that Guyana might be able to compete also in this area.
16.II.9.7 Although there has been a fall in the demand for
chemical bauxite from around 600,000 tonnes in 1980 to the current level of
300,000 tonnes, Guyana satisfies about 75 percent of the market.
16.II.9.8 The scale of operation of both Linmine and Bermine is
well below the minimum for a viable operation in a mining activity involving the
stripping of overburden, with overburden to ore ratios in excess of 4:1. The two
operations are probably the smallest in the world, except for a number of small
chemical and cement grade bauxite operations in a number of countries that
satisfy small domestic demand. The companies are forced to maintain, to some
extent, an infrastructure established for operations three to ten times their
current levels. Moreover, in spite of a significant reduction in personnel, the
companies still carry staff two to three times that of operations of similar
size. To put it plainly, the current scale of operations of both Linmine and
Bermine is too low for them to be efficient and to become financially viable.
The companies are involved in a highly capital intensive industry and must
achieve a certain minimum scale to be efficient. While Bermine has recently
earned a small profit and is operating just above break-even-point, it needs a
substantial increase in the scale of its operations to earn an acceptable rate
of return. Linmine continues to make losses and would also need substantially to
increase its scale of operations if it is to become viable. The two companies
also compete with each other. Their operations therefore cry out for
16.II.9.9 The most fundamental issue which faces LINMINE is
that its cost of production is above the price received for its product. As a
result it annually incurs net losses which are met by the Treasury. This high
cost of production is, in great part explained by the presence of a thick
over-burden which must be removed before the bauxite ore is reached. The other
reasons for LINMINE’s relatively high cost of production are (i) the high cost
of transportation, particularly because of the absence of a deep water harbour
and the consequent necessity to transport smaller than optimal loads; and (ii)
the cost of still providing a number of community services, even though the
company has been relieved of the duty of supplying many of them.
16.II.9.10 Moreover, it is reported that because it is now no
longer in charge of its electricity supplies, the cost has increased, and
regularity in supply is no longer assured.
16.II.9.11 It cannot be over-emphasized that a major
disadvantage in exploiting Guyana’s reserves is the depth of overburden. Indeed,
this was the major factor behind the country’s loss of competitiveness in the
MAZ market and, hence, the virtual stagnation and later decline in production of
this product. This depth of overburden also has an impact on the competitiveness
of RASC, which is now in competition with Chinese and Brazilian refractory
bauxite, fused aluminium oxide and calcined alumina made from bauxite produced
in countries with low mining costs.
16.II.9.12 RASC, upon which heavy dependence was placed in the
past, now faces a static and fiercely competitive market. The possibility
exists, however, that Guyana could enter the wider high alumina market,
producing along with regular RASC, materials with lower and higher alumina
content for which there is substantial market. Investment in additional
processing facilities is needed for this development, but the main advantage
lies in the fact that the raw materials for production of those materials
currently form part of the overburden which is removed and discarded in the
16.II.10.1 The demand for, and the price of, gold are projected
to rise from their relatively low state in the medium and long term. The
International Monetary Fund has forecast that the American economy will sustain
its remarkable economic growth, at least in the medium term. Moreover, the
European economy has begun to recover and the signs are that this recovery will
be prolonged. In addition, the emerging economies which were so badly
financially battered in 1997 and 1998 are already displaying strong resilience.
All this suggests that the prospects for gold are most
16.III.1 The overall objective of the national strategy for
mining is to establish the foundations for the continuing growth of the sector
so that it may contribute to the economic growth of the country, the equitable
geographical distribution of economic activity throughout the nation, the
diversification of our economy, the penetration of our hinterland, and the
eradication of poverty, particularly in depressed interior areas.
16.III.2 Put in another way, the sector’s primary objective is
to consolidate the gains it has made over the years, to set the stage for the
expansion of production of both existing as well as new commodities, and to
diversify and increase the value of its primary products by value added
manufacturing and other down stream processing.
16.IV THE STRATEGY
16.IV.1.1 There will no longer be any special agreements in
respect of the mining sector. The fiscal regime will be so structured that it
could be applied to a variety of projects and in a number of circumstances
without wasting time and resources in devising a unique set of arrangements for
16.IV.1.2 There will be a standard regime for each mineral or
set of minerals.
16.IV.1.3 The royalty rate for gold will be on a sliding scale
based on a maximum of 3 percent of the prevailing price of gold.
16.IV.1.4 A half percent royalty will be paid, for exploitation
on Amerindian lands, into an Amerindian Development Fund, from the existing
16.IV.1.5 The corporate income tax rate will be fixed at 30
percent for all mining projects.
16.IV.1.6 Export duties on minerals will be reduced to zero.
16.IV.1.7 The consumption tax on fuel will be 10 percent CIF. A
coupon system for miners will be put in place.
16.IV.1.8 The consumption tax and duty on mining equipment,
spares and supplies will be zero rated.
16.IV.1.9 The withholding tax on repatriated dividends will be
fixed at 6.25 percent, which is the rate applied in the case of Omai, rather
than the 15 percent rate that is normally applicable.
16.IV.1.10 A special commission will be convened to determine
new, land rental rates in mining and to develop a sliding scale which correlates
rental rates with the length of time the claim is held without beneficial
16.IV.1.11 However, rental rates on mineral land during the
exploration stage will be fixed at
US $ 0.12/acre -
US $ 0.175/acre -
US $ 0.225/acre -
US $ 0.275/acre -
US $ 0.325/acre -
16.IV.1. 12 A special tax will be applied to the purchase and
to the operation of missile dredges, the proceeds of which will be deposited in
a special fund to be used for the rehabilitation of river banks. The
Environmental Protection Agency will oversee the management of the fund and the
16.IV.1.13 A special reduction of the income tax to 25 percent
will be offered to any company that sets up a regional gold processing mill,
receives ore from independent miners for processing, and uses technologies that
minimise the environmental impact of the processing (e.g., that do not result in
discharges of mercury in the waterways). While exceptions to the tax code should
be strictly limited, this one is justified because of its beneficial
environmental externalities. Mercury is particularly long-lasting and pervasive
in its transmission through the food chain, thus endangering public health.
16.IV.1.14 Because mining operations deplete mineral resources,
up to half of the royalty income from mining will be allocated to a Fund for
Guyana’s Development that will be invested appropriately in long-term
instruments and whose interest earnings will be allocated to projects concerning
infrastructure, the environment, poverty alleviation, housing, and health care,
according to special regulations formulated for the utilisation of the
16.IV.2 Gold Sales
16.IV.2.1 There will be a system of licensed and bonded buyers
of gold. Each person or corporation that wishes to become a licensed buyer must
submit financial statements, provide bonds against liabilities for royalty
remittances, and must show a programme that involves a physical presence in the
interior for at least part of each year. The buyers will be responsible for
remitting the royalties to the Government. Buyers will invoice all purchases and
sales of gold and will be tightly supervised by the GGMC.
16.IV.3 The Environment
16.IV.3.1 As noted above, Government will take steps to
mitigate the harmful consequences to the environment of some types of mining
operations, through the fund for the restoration of riverbanks and the fiscal
incentives for regional gold processing mills.
16.IV.3.2 In addition, GGMC will make inspections on a
continuing and regular basis to assess the state of the art in mining and
milling technologies, with the aim of ensuring that the most appropriate and
up-to-date environmentally-friendly methods are utilised in Guyana. In mining
contracts, fines for incidents of negligence such as the collapse of tailings
dams will be significantly increased.
16.IV.4.1 The GNRA will be abolished and all its relevant
authority transferred to an adequately staffed and equipped Ministry of Natural
16.IV.4.2 The GGMC will be completely reorganized and
restructured with a separation of roles; the Ministry will deal with legal,
administrative, financial and policy issues and the GGMC with technical,
monitoring and regulatory issues. The GGMC will divest itself of all service
functions. These will be outsourced to organizations better capable of providing
quality and cost effective services.
16.IV.4.3 The mining industry will be overseen by a standing
committee of parliament.
16.IV.4.4 The GGMC will commission a national mineral resource
inventory and assessment, and publish the results for wide dissemination.
16.IV.5 Security of Titles and the Nature of
16.IV.5.1 The 1989 Mining Act contains sound dispositions with
respect to mining titles. Nevertheless, in practice, confusion continues to
arise and there appears to be too great a discretionary element in the awarding
of these titles. These discretionary elements will be removed. A tighter set of
regulations for the Act, in this area, will be formulated. This is a crucial
issue from the viewpoint of investors and it is in our own interest to eliminate
the ambiguity surrounding it.
16.IV.5.2 A related issue concerns the uses to which a
concession may be put. Once the concession has been issued, different kinds of
minerals may be discovered or, on the other hand, some concessionaires may be
disappointed in the quality or quantity of the deposits and decide that the
forest resources on the land are more valuable than the minerals. Accordingly
(i) if the additional minerals occur in association with the first ones, then
the original mining contract will continue to apply; and (ii) if the additional
minerals occur substantially separately, and require a separate mining operation
on the same land, a new contract will be drawn up.
16.IV.5.3 In the event that the concessionaire wishes to
transfer all or part of the concession to a non-mining use, then he or she may
freely do so, negotiating a price with a new concessionaire, and paying a
transfer fee to GGMC. This policy is exactly that adopted by the forestry
sector, for the reverse case of forestry concessions, or part of them, being
transferred to mining uses. This policy helps to ensure that land is optimally
utilised, and that the appropriate regulatory agency is adequately informed of
the transfer process.
16.IV.6 Social matters
16.IV.6.1 An indepth study of the industry will be jointly
undertaken by the Government and the private sector. This industrial profie
will, inter alia, provide all relevant information on the technologies that are
utilised and applicable to the sector, its profitability, its contribution to
the national economy, and its demographic, social and cultural attributes.
16.IV.6.2 GGMC will collaborate with the Ministries of Health
and Education in undertaking social surveys in the mining communities. The
results of the surveys will be distributed to mining operators and miners
associations. Medium and large operators will be encouraged to make special
contributions to health and education projects in the communities where they are
16.IV.6.3 GGMC will collaborate with the Ministry of Health in
the design and implementation of an urgent and massive programme of malaria
control in the hinterland.
16.IV.7.1 Miners will be compensated either by being permitted
to charge user fees or by a reduction in the fees they are legally obliged to
pay the government, or by any other arrangement entered into with the GGMC,
whenever the roads which they build form part of a centrally approved national
road network plan, and on condition that the extraction routes are constructed
to specific requirements and are maintained to those specifications.
16.IV.7.2 The use of secondary roads by other parties will be
regulated by private agreements between the concessionaire and those
16.IV.8.1 As has been pointed out, it is essential in
formulating a strategy for the development of the bauxite sector in Guyana that
certain factors be taken into account. Among these are (i) the importance of the
bauxite industry to the social and economic environment of the areas in which
the industry is located; (ii) the extent and quality of our bauxite resources;
(iii) the status of future markets; and (iv) the international structure of the
16.IV.8.2 Because the quality of life and the standard of
living of the inhabitants of almost an entire region depend upon the existence
of the bauxite industry, the companies which mine, and process and sell the ore
should not be allowed to collapse without a further effort being made to rescue
and revive them, provided that it can be demonstrated that the companies can be
made profitable within a reasonable period of time.
16.IV.8.3 Recent studies have indicated that there exist more
than sufficient reserves of bauxite in our country, of the highest quality, to
permit both national bauxite companies, LINMINE and BERMINE, to produce a range
of types of product, for which there are ready markets. Moreover, the available
evidence strongly suggests that both companies can be financially viable
provided that they expand their operations, and provided that they receive
adequate injections of capital.
16.IV.8.4 The bauxite–alumina–aluminum industry is falling more
and more under the control of a small group of multi-national corporations. In
other words, the industry is essentially managed and controlled by private
enterprise in the form of the multinational grants. It might therefore be to our
advantage to try to involve one or other of these multinationals in the funding
and ownership of the two national companies.
16.IV.8.5 It cannot be too strongly emphasized that if the
formulators of this National Development Strategy did not consider the industry
to be potentially profitable it would have been allowed to wither away and die,
and other non-bauxite strategies would have been put forward for the region’s
development. This, however, does not appear to be necessary, at this stage,
because of the arguments adduced in the preceding paragraphs.
16.IV.8.6 Accordingly, both BERMINE and LINMINE will be
supported for a maximum period of four years, beginning on 1 January 2001. This
support will be in the form of loans from commercial banks that are guaranteed
or otherwise underwritten by the Government of Guyana, or in any other form that
can be negotiated either with bi-lateral or international donors. The Government
will seek the approval of the Bretton Woods institutions to enter into any such
arrangements, if, by so doing, their conditionalities will be breached.
16.IV.8.7 While this essential expansion and rehabilitation
process is proceeding, further efforts will be made to privatise the two
companies. However, the necessarily long and tedious privatisation process will
not be followed. Instead, prospective investors, selected from the major
multinationals, will be directly approached with proposals for them to enter
into joint ventures with the government and the management and workers of the
enterprises. The proposals will embrace two options: they will be given the
choice either to capitalise LINMINE or BEMINE separately, or to take them over
and run them as a single entity.
16.IV.8.8 If acceptable offers are obtained for the separate
purchase of the enterprises, then the ownership models will be different.
Because BERMINE lends itself to a joint venture agreement in which the foreign
financier, the government and the management/workers will be owners, with the
controlling interests being held by the foreign participant, this will be the
arrangement. However, in respect of LINMINE, the participation of the
management/workers in equity holdings will not be pushed.
16.IV.8.9 In all these options, there will be five-year income
tax holidays; the importation of machinery, equipment and spares will be
duty-free; as will be the importation of Bunker C fuel oil and diesel fuel.
16.IV.8.10 While the fate of the bauxite companies is being
settled, urgent steps will be taken to diversify the economy of the region in
which they are located. This will be attained through the provision of a range
of incentives for investment in the area, the provision of micro-credit to
develop a cadre of small and medium scale enterprises in agriculture, commerce
and manufacture; and the improvement of its social and physical
16.IV.8.11 In addition to the arrangements which have been
proposed for LINIMNE and BERMINE, an intensive sales campaign will be mounted to
attract investment in an entirely new bauxite mining operation, for which there
exist ample reserves. This course of action is not directly linked with the
possible privatisation of the two enterprises. It might however, assist in the
redeployment of labour, should the worst occur.
16.IV.9.1 Guyana will continue to utilise the Production
Sharing Contracts (PSC) in its arrangements with oil exploring and production
companies. The PSC is almost a standard in the petroleum industry today. The
important distinction between the PSC and concessions is that under PSCs the
state retains ownership and control of the resources. In Egypt the government
retains 85 percent of the profits, while the Libyan government keeps 81 percent.
However, the ratio between the Government of Guyana and CGX, Energy which is to
begin oil explorations off the Corentyne coast by mid 2000, will be on a 50:50
basis, if commercial quantities are discovered.
16.IV.9.1 Although committed to the PSC, extensive studies of
the share that has been negotiated by other government in these types of
activity will be undertaken in order to ensure that while we remain competitive,
we do not make unnecessary concessions.