A simple guide to the Agyapa Royalties deal

The national conversation recently was  dominated by one topic, Agyapa Royalties Ltd.

Our airwaves were awash with information about the company, what it intends to do and various opinions about how viable it is.

For the politically inclined, the conversation was steered mostly in the direction of the ties of individuals involved in forming the company.

Many people, however, have not been able to grasp fully what the company was created for and the benefits it would bring to Ghana. Indeed, certain political actors have taken advantage of this to spread falsehoods about the entity and what it intends to do.

It is in the light of this alarming trend that this simple guide is offered for our assessment, for the benefit of those who cannot comprehend the financial jargon but want to gain a basic understanding of the deal and the benefits to be gained from it.

What are mineral royalties?

Mineral royalties are payments to the owner of mineral rights for the privilege of extracting the mineral from the ground, based on a lease agreement. The royalty payment is based on a proportion of earnings from production; it varies depending on the type of mineral and the market conditions.

In Ghana, all mineral rights are vested in the president to hold on behalf of the Republic of Ghana. The royalties paid by mining firms are pegged at between 3% and 6% of the total revenue from minerals the firm made in a year. The mineral royalties are used primarily by the government for development projects.

A mineral rights regime in Ghana?

The Minerals Income Investment Fund Act was passed in 2018 to monetise better the royalties the government receives from mining operations in the country.

The law allows for the creation of a Minerals Income Investment Fund (MIIF), with the key objective of maximising the value of Ghana’s income from its mineral wealth for the benefit of Ghanaians.

In performing its functions, the MIIF is allowed to create a special purpose vehicle (SPV) in any jurisdiction to further its objectives and to list the SPV on any reputable stock exchange that the MIIF considers appropriate.

Novelty of a gold royalties company

It is interesting to note that this is not the first time an attempt has been made to set up a gold royalties company in Ghana. It was announced in the 2011 Budget that there were plans in place to create a Ghana Gold Company to control and manage the mineral royalties that the country would generate in future.

These plans, however, never translated into reality. It is therefore quite strange that the creation of a gold royalties company now seems to have drawn such vociferous condemnation from the same party that championed a similar arrangement a few years ago.

One does wonder if the said party is doing this to protect the interests of the nation. Or is it just to score cheap political points?

What is Agyapa Royalties Ltd?

It is a special-purpose vehicle created under the Minerals Income Investment Fund (MIIF) Act for the Minerals Income Investment Fund (MIIF). The MIIF, as part of its functions, is setting up a company with minimum risk, Agyapa Royalties Ltd, and vesting in the entity royalties to be received from a group of gold mines, of which 12 are already producing gold and four are under development.

The entity, Agyapa Royalties, has been set up in Jersey, in the Channel Islands. This is to ensure that the royalties due the company do not attract corporate taxes, and also to attract investors.

Agyapa Royalties will be listed on the London Stock Exchange (the stock exchange of choice for mineral interests) and the Ghana Stock Exchange. It will be selling 49% of its shares, which are valued at US$1 billion. It being a company listed by shares, the company’s share price is expected to rise with increasing productivity. The good news for shareholders is that with increased trade shares, the value will increase and so will the subsequent dividend payment.

This is in an effort to raise non-debt capital – that is, capital which can be raised without adding to the country’s debt stock, which will be used for its development needs. It is important to note that the company will still be majority-owned by the MIIF, which will still hold at least 51% of shares after the initial public offering (IPO) concludes.

Four agreements govern this deal: an investment agreement, a relationship agreement, an operations management agreement and a revenue management agreement.

The benefits to come out of the transaction include:

1. A significant sum of money derived from the sale of these shares will be channelled into investments in areas such as infrastructure, health and education.
2. Some of the money derived will also be used to invest in local gold mining companies to hasten the development of gold concessions and increase local participation in the mining sector. This will create jobs and stimulate the growth of the economy.
3. Ghana, being the majority shareholder through the MIIF, is also able to reap huge dividends that will come out of stocks in the entity.
4. Ghana is also able to raise capital which will neither attract interest payments nor require the provision of a sovereign guarantee, which could turn into a potential chokehold in the future.
5. Ghana also stands to benefit from potential capital gains which can accrue on shares in the entity.

Although the transaction, all things considered, is a good one for the nation, certain political actors and other individuals have taken advantage of the confusion that has arisen to propagate falsehoods, cast innuendos and place negative tags on government individuals. This does nothing but confuse Ghanaian citizens even more.

What we must interrogate is what the nation stands to benefit from this deal and how we ensure that the benefits of the deal trickle down to the bottom.

To conclude, one must applaud the government’s move to engage and listen to the concerns civil society organisations and other stakeholders have about the deal. It will help assuage their concerns and build consensus and shows that the government is open to citizens’ participation in governance.

We must support our government in this history-making deal.

* Asaase Radio 99.5 – tune in or log on to broadcasts online.
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