'No-profit' Omai dug 2.85M ozs of gold in 10 years
Paid US$45.5M in royalties
By Gitanjali Singh
Stabroek News
April 27, 2003
Ten years after a total investment of US$253M and the production of 2.85M ounces of gold valued at about US$912M, questions still linger over the level of benefits to the country flowing from the Omai Gold Mines Limited (OGML) project.
A key issue for some is that the firm, almost at the end of its life, has paid no corporation taxes and is unlikely to do so by the time the current mine life expires in two years.
This is not because the firm benefited from any tax holidays, as its Human Resource Manager, Norman McLean is quick to point out. Rather, it is because corporation taxes only apply on profits and the firm has not shown any to date, says McLean, as it has to first recover the cost of its investment.
McLean sees the national treasury benefiting from such taxes once a new ore body is found by Omai's current exploration team to expand the firm's mining life. He expects that once mining commences at a new site, the investment by Omai would pay for itself and corporation taxes would flow at a rate of 35 per cent.
The investment by Cambior and Golden Star Resources Limited initially into Omai was premised on a forecast of gold prices being in the range of US$400 per ounce.
However, gold prices have fluctuated between annual averages of US$385 and US$271 per ounce between 1993 and now. Omai began to produce gold in January 1993.
At a production level of 2,859,033 ounces at the end of 2002, the value at an average sale price of US$400 per ounce would have been US$1.1B, a US$230M difference from the current value, which includes royalties payable. Cambior, however, forward sells gold in hedging activities, which would realise for the firm, in some instances, higher prices and in some lower prices than the current market price. Omai's current cost of producing an ounce of gold is US$214.
But again the big question remains what did Guyana get for giving up 2.9M ounces of a non-renewable resource?
No corporation taxes, but it did secure for itself, in a period when metal-mining royalties were declining and averaged under 1%, a five per cent royalty rate for the country.
As a result, Omai has paid to the government, US$45.5M in royalties at the end of 2002. The firm would have needed to make profits in the order of US$130M over the 10-year period for corporation taxes to have realised a similar amount.
Royalties, seen as the most regressive form of taxation by economists, are payable whether a firm makes a profit or a loss and are levied at the first stage of the gross production before any value is added to the ore by refining or fabrication. Metal prices, on the other hand, are set by worldwide competition and a mine operator is unable to increase his prices to offset royalties. Some countries have both a royalty and a corporation tax while others have only one.
Omai was given a 1.25% reduction on the rate of corporation taxes and secured a 6.25% rate of withholding tax - both of which expired after seven years. And like any other investment, Omai benefited from a zero rating of consumption taxes and duty on machinery and spare parts.
Omai initially employed 943 workers of whom 144, or 15%, were expatriates. At the end of December 2002, the firm had a workforce of 761 of which 43 or six per cent were expatriates.
The firm has paid over a total of US$36.6M in Pay As You Earn taxes for both local and expatriates and has paid US$3.992M in duty and consumption taxes and US$2.6M to government corporations and agencies.
It made purchases of US$250M in local services including fuel and food supplies. Total expenditure in these categories including royalties totalled US$339M. This sum does not include wages and salaries to workers, which stood at the end of 2002 at US$128.9M. These payments would have fuelled further economic activity.
Apart from these direct payments, Omai spent US$9M over the last ten years in infrastructure projects. Of this, US$2.9M was spent on the Mabura Road; US$1.2M on the Ya Ya Access Road; US$0.6M on telecommunications at Arisaru; US$3.9M on wharf facilities at Linden which includes dredging and a fuel terminal; US$0.37M on an airstrip and US$0.3M on the Essequibo Access Ramps.
At the end of 2002, the firm had sourced in Guyana 70% of its management skills, 80% of its professional skills, 100% of its clerical and unskilled staff and 90% of its skilled requirements.
McLean says, "No other company has made such a sterling contribution to the economy of this country."
However, he said, "the real success will come" if the company finds another ore body so that it can fully recover its costs and "realise profits." He noted that when the company enjoyed the largest production levels in its current mining life, it was faced with reduced prices.
In 1997, Omai's production reached 338,496 ounces but gold prices moved down from $387.82 to an average of $331.10 and went further down in the next three years when production remained over 300,000 ounces, to below US$300 per ounce. In 2002 when production began winding down and hit 319,600 ounces, gold prices rebounded to US$310 as an annual average.
McLean was not in a position to say whether a return to Cambior for its investment in Omai was being treated as an above line item in the profit and loss account, as Stabroek News was informed.
But many would remember Omai Gold Mines Limited for the 1995 cyanide spill, when a tailings pond was breached and millions of litres of sludge and cyanide spilled into the Omai and Essequibo rivers for three days. One hundred and fifty kilometres of the river were declared an environmental disaster zone. The government ordered the water unsafe to drink, cook, give to livestock, and banned the eating of fish. After 10 days the ban was lifted.
Omai says it still monitors its tailing ponds and says its environmental safety standards are well within the Canadian end-of-pipe standard of 1.5 parts per million and the US EPA receiving water standard of 5.2 parts per billion.
According to Seeta Moha-med, Omai's public relations specialist, the company continues to monitor as it did before the spill. There is 24-hour monitoring by an in-house environmental unit, which works with the EPA and the Geology and Mines Commission, which has a permanent representative on the site.
The company has prepared fact sheets to clarify the myths about cyanide and distributes these to visitors and anyone interested in knowing about cyanide to provide assurances that the mining operations are not environmental unfriendly.
Omai has set aside US$4.5M for an ongoing reclamation programme to return its mine site to as close a natural environment as possible.
The Wenot pit, which was closed last year, is now being used as a tailings pond and the first tailings pond is being refilled with rock and solid vegetation. As of now, the plan is to make the Fennell pit, the current mine being worked by Omai, into a source of aquatic vegetation when it expires in mid 2005.
On the social side, Omai has adopted the High School at Bartica and has furnished it with a computer lab. It has also built medical centres at Rockstone, Fort Island and Agatash and would leave supplies with these centres once it conducts medical outreach programmes which began in 1996. The company also has a medical evacuation service.
Additionally, the firm has a Deed of Covenant with the Linden Technical Institute, the Government Technical Institute and the University of Guyana Faculty of Technology.
It grants industrial attachment to university mining and engineering students. The firm has contributed G$5M to the University of Guyana endowment fund among other social acts during its 10-year life.
