There are two signs here. Country greed and reasonableness. The 8% royalty is non competitive and disappointing. The tax level is an attempt to be comptetitive. Is is competitive? Sweden, Mexico and Canada have NO metal royalties. Total tax load does not exceed 30%. The extra 8% in Guyana's case is an actual increase in taxes. It means although they have clawed corporate taxes back by 25% from 40% to 30%, the increase in Royalties from 5% which is high by world resources, is up to 24% of profits. What are profit levels one might ask? In a large scale copper gold mine, running at say 30,000 tonnes per day. the costs per tonne may be as low as $12 per tonne. I think the costs at Osisk'o's Lamaque are $8 per tonne all up. I am allowing a coupla bucks more for infrastructure improvements, such as port, briges and road. SSP will have to build about 40 - 200 tonne bridges from Omai down to their location. Road improvements as well. This will be more than a dollar. This means that the gold royalty would be about 10 to 12% of profits. The costs go up from say $373 per ounce to $516 per ounce, an increase of 42%. Government's like Guyana may not stop SSP from producing and probably feels itself generous in reducing tax levels..
While the increase royalty, among the world's highest is a disincentive to other people doing business it is my bet the government is patting themselves on the back for grabbing the cash. They need it desperately sans doot. The country is basically broke. They turned the screws where they knew they could. But what is the effect? If a placer miners wants to make a deal on a group of claims and has an off the top local royalty can be afford 8% off the top AND the standard 10% cash demand of the sub owner? It will give one pause. Look at the facts. In a 0.6 gram per CM placer, the government will grab 0.0480 grams, and the owner a further 0.055 grams. Almost $6.00 per CM in this case. This royalty structure equals the costs to produce. Add in the standard 40% taxes and we have a royalty and cost structure in the above case of 39%. Add in the corporate taxes of 40% and we have a net after tax profit level of 23.41%. Not auspicious.
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GEORGETOWN, GUYANA -- Nov. 10, 2011) - Sandspring Resources Ltd, SSP/TSXV, is pleased to announce
that it has signed a mineral agreement (the "Mineral Agreement") with the government of Guyana during
ceremonies at the Office of the President on November 9, 2011 in Georgetown, Guyana. This is the first
comprehensive Mineral Agreement in the gold sector in Guyana since the Omai Agreement in 1991.
The Mineral Agreement details all fiscal, property, import-export procedures, taxation provisions and other
related conditions for the continued exploration, mine development and operation of the open pit mine at
Sandspring's Toroparu Gold Project ("Toroparu").
The key fiscal terms are:
-- a newly implemented two-tiered gold royalty structure of 5% of gold
sales at gold prices up to US$1,000/oz. and 8% of gold sales at gold
prices above US$1,000/oz.;
-- a royalty of 1.5% on sales of copper and other valuable minerals;
-- a corporate income tax rate of 30% and no withholding tax on interest
payments to lenders; and
-- duty and value added tax exemptions on all imports of equipment and
materials for all continuing operations at Toroparu, including the
construction and operation of a planned port facility, road and power
improvements and the construction and operation of the mine at Toroparu. Under the Mineral Agreement, there are two pre-conditions to the issuance of a mining license for Toroparu: (i)
issuance of an Environmental Authorization by the Guyana Environmental Protection Agency and (ii) delivery
of a feasibility study to the government of Guyana. Sandspring is in the final stages of securing the
Environmental Authorization for mining operations at Toroparu, pre-feasibility work has commenced, and
subject to a positive pre-feasibility study the Company intends to proceed thereafter through to feasibility
.
Rich Munson, CEO, stated: "We are very pleased to have completed negotiations with the Guyanese
government of a complete Mineral Agreement, bypassing the MOU process. The Guyanese government, along
with Sandspring and its advisers, spent significant amounts of time not only on the key fiscal terms but also on
procedures for land acquisition rights and other operational features necessary for successful development,
construction and operation of a large scale gold mine. While the government secured its desired increased royalty on gold sales in excess of US$1,000/oz., it agreed to maintain its historic royalty rate on the copper
component at Toroparu and also agreed to reduce the corporate income tax rate to 30%. We compliment the
government and its team working on the Mineral Agreement for their willingness to create a complete regulatory
plan for Toroparu and the related off-site facilities to be developed in conjunction with this gold mine. This marks
a major milestone for Sandspring in its history of operations in Guyana and sets the stage for construction and
operation of a major mining operation in Guyana."
Sandspring will host a conference call for anyone interested in addressing questions to management regarding the Mineral Agreement on Monday, November 14, 2011 at 11:30 AM EST. |
