Mr Franklin Cudjoe, the founding president of Imani Africa, has stated that the arguments raised by civil society organisations opposing the Agyapa transaction were not heard by the Economic Community of West African States (ECOWAS) Court of Justice.
To that aim, he has urged the public to disregard the 'noise' being created regarding the court's ruling that the Agyapa Royalties contract proposed by the Nana Addo Dankwa Akufo-Addo government was not unconstitutional.
The ECOWAS court dismissed an application to prevent the Akufo-Addo government from proceeding with the transaction on the grounds that it was not in Ghanaians' best interests.
Three anti-corruption organizations in Ghana sent the case to the court: Transparency International, Ghana Integrity Initiative (GII), and Anti-Corruption Coalition.
The court, presided over by Justices Sengu Mohamed Koroma, Dupe Atoki, and Ricardo Cláudio Monteiro Gonçalves, found that the three anti-corruption groups had failed to show proof that the contract would deprive Ghanaians of their commonwealth.
Following the ruling, the New Patriotic Party's (NPP0) Director of Communications, Richard Ahiagbah, stated in a statement, "As a party and government, we are particularly pleased that it was the ECOWAS Community Court of Justice that adjudicated the issue and concluded that there was no wrongdoing with the Agyapa deal."
"This landmark verdict unequivocally vindicates the Government's stance that no wrongdoing occurred in the intricate affairs surrounding Agyapa Royalties," he continued, "thus affirming the transaction's legitimacy and integrity."
In a Facebook post, Mr Franklin Cudjoe remarked, "Ignore the noise over some ECOWAS court ruling over Agyapa." Here are some technically valid economic arguments given by civil society organizations opposing Agyapa.
"None were brought before the ECOWAS court, and none have been adequately addressed by the deal's promoters three years later!"
Mr Cudjoe offered a list of "technically sound" economic arguments advanced by CSOs against Agyapa...
On September 24, 2020, IMANI collaborated with ACEP for the first round of public consultations being conducted by the CSO Alliance advocating against the listing of Agyapa on the London Stock Exchange as early as next month.
While the Ghanaian government remains obstinate, civil society organizations (CSOs) are tireless in their efforts to draw widespread attention to serious flaws in the deal's structure.
IMANI will draw on the insights gathered during the recent public webinar to highlight the ten most concerning issues with Agyapa that were listed below. Many of Ghana's most knowledgeable professionals in resource governance, accountability, and transparency attended the webinar.
The briefing material utilized during our consultation forum (available here:) provides a more in-depth examination of these problems.
1. The government calculated the deal's value by assuming that the average annual gold production volume throughout the 48 leasing areas will be 2.9 million ounces for the period of the agreement. This is grossly underappreciated. A detailed examination of the 2019 data supplied by the Ministry of Finance to the CSOs to support this viewpoint finds worrisome omissions, missing numbers, and a misunderstanding of the fact that gold output in Ghana has grown at an average of 7% per year since 1990.
A closer look reveals that gold production in the 48 lease areas is already on track to reach 4.2 million ounces in the near future. Over the agreement's conservative 21-year life (the agreement has no definite term because any renewal of the leases covering the relevant areas automatically extends the tenure), output will average 4.9 million ounces per year, assuming a 4% annual growth rate over the next two decades.
2. The government claims that the arrangement will end when the final of the 48 mining leases expires. This demonstrates a lack of understanding of Ghana's mining business, where existing agreements are designed to provide for continual renewal as long as gold is discovered and commercially mined. Leases at Anglogold's Obuasi activities have been in place for over 100 years.
As a result, the government is grossly underestimating the amount of gold that can be found in the large swaths of land that comprise these leases. AngloGold's lease areas have previously exceeded 400 square kilometers. Some leaseholders currently have less than 10% of their concessions affected. As the price of gold rises, they will aggressively a) expand deposit development and b) begin mining lower quality deposits. The government's low estimates of "reserve life" are based on a misunderstanding of how pricing aids in the conversion of "measured resources" into fresh reserves.
3. Some of the reserve estimation work is muddled. Take, for example, AngloGold. The government calculated output in terms of 2019 reserves and a 15-year output duration, forgetting that it was the same government that went to Parliament in 2018 to seek significant relief for the mining giant on the basis that the company would be extending mine life by an additional 22 years, and that after 10 years, the company expected to hit much higher grades of ore. The concessions granted to Anglogold were based on lower output now and higher output in the next ten years. The calculations of the government are clearly unclear.
4. The government's use of $1300 as the long-term average price of gold is, to put it mildly, foolish. Gold has risen from $393 in January 2001 to well than $1900 now. Except for a few retreats, its trajectory has been generally upward since then. Thus, the long-term picture for gold has been mostly positive. Every credible analyst predicts a long-term average above a new support level of $1800. When this fact is combined with the proper treatment of the production forecasts available in the mining company's own disclosures, a present value calculation of more than $3 billion is obtained. It is outrageous to try to sell this priceless resource for $1 billion.
Read the CSOs' presentation on the Agyapa acquisition.
5. When the government asserts that "it is the market that shall value" the royalties it is giving away, it is mistaken on numerous counts. There are two levels of analysis in this case. First, the government is putting the country's future gold revenues into a business. Second, it is currently attempting to sell half of that company for cash up front through an IPO. Before we can talk about anything else, we must first determine how much Ghana is investing. Only then can the returns be valued: upfront cash and shares entitling Ghana to future dividends.
Ghana will invest at least 5 million ounces of gold over the next 21 years (or more gold over a longer period). How much is this gold worth in exchange for how much return? For 2.5 million ounces of this magnitude, the government wants $500 million up front. These figures are set in the contract and have nothing to do with the "market." According to the CSOs, Ghana may earn more over $500 million by selling forward fewer than 1 million ounces. The government's existing structure means that it is selling Ghana's gold forward at a price of $200 per ounce, although current prices are around $1900 and similar sell-forward arrangements have recently priced gold at $500 on average (taking into account time value of money).
The following stage of the study entails evaluating the shares in the company in which Ghana intends to invest an additional $100 million (as working capital) and a further 2.5 million ounces of gold (minimum) over a 21-year period in exchange for 51% of the shares. The price of these shares has already been determined by the underwriters with whom the government has been working for over two years and has been fixed at $500 million. That is the entire purpose of a bookbuilding IPO. The bookrunners determine the final price and make the shares available to the market. There will be no auction for the "general market" to decide, and the government will not be able to profit on the secondary market because it must retain 51% of the shares for the long term.
6. The government is perplexed about the short-term price increases that will occur following the stock's initial public offering. These will not translate into capital gains until the government sells a significant portion of its 51% holding in the days following the debut. The government is prohibited from doing so by market rules and its own policy. The underwriters, the investors to whom they distribute some of the shares during bookbuilding, and the brokers/dealers will profit as a result. We estimate that these individuals might easily make $350 million as a result of the asset's deliberate underpricing. After the initial price increase, the stock will return to its mean. All of this is on top of the large fees they will receive (approximately 10% of total money raised, making this form of raising upfront cash significantly more expensive than any debt government has raised on international markets in the last decade).
7. The government's assumption of paying out 50% of retained revenues as dividends is based on nothing. This is a firm that is starting out with only $100 million in working capital, no experienced management, and no operating history, and is looking to invest in the highly capital-intensive gold mining sector. To compete, it will need to borrow large sums of money at relatively high interest rates and invest all Ghana gold revenues. For a long time, it will be unable to pay out substantial dividends to anyone. As a result, future governments will be "robbed" of a highly stable royalty income stream, which accounts for more than 90% of resource revenues (other than oil) that the government can utilize to sustain the budget. In fact, a low initial valuation implies a weak starting balance sheet, which almost always results in this scenario.
8. Worryingly, because the government also agreed to relinquish effective control of the firm to minority shareholders and their selected independent directors, it cannot impose a dividend policy or even force the corporation to invest in Ghana. Despite the fact that listing as a "sovereign controlled commercial company" would have allowed the government to retain significant control, the government was happy to agree to this as part of the process of admission to the standard listing of the Main Market of the London Stock Exchange.
The tactic at work here is the same one that was used to convince Ghana to sell its gold stake in AngloGold on the grounds that doing so would unlock additional value. Before the listing of the then-Ashanti Goldfields in 1994, Ghana owned a 55% stake in the firm valued $880 million in bullion. It now owns 0.01% (having given up even the statutory 10% stake in all local gold enterprises) for a meager $110 million in equity. Actual earnings are only $22 million, although dividends and royalties combined amounted to $115 million in 1996. Poor "internationalisation" policies have never been beneficial to Ghana's sovereign commodities interests.
9. In addition to selling gold at $1900/oz today, the government added a highly valuable option to the deal. Agyapa has first refusal on any future royalty agreements Ghana signs into. A basic financial rule is that options are always valuable and must be priced. Ghana provided this potent negotiation chip for FREE.
10. The notion that the listed vehicle (Agyapa Royalties) had to be incorporated in the tax haven of Jersey in order to comply with the MIIF Act's tax efficiency standards is implausible. While returns to the SPV are not taxed, investors who earn from purchasing SPV shares during the book-building period must be KNOWN and TAXED. Even if an IPO is required, there are many jurisdictions with significantly higher transparency rules, some of which have double-taxation treaties with Ghana. Using a BEPS method in one of these other places would have resulted in the same tax-efficient conclusion.
By incorporating in Jersey, where the laws permit notoriously impenetrable trusts, it has become all too easy for the underwriters to underprice the vehicle (and, by extension, Ghana's gold royalties), allot the shares to investors hiding behind trusts, and when the stock debuts, join these crony investors to pocket hundreds of millions of dollars without any of us knowing because such trusts are usually "trusts of trusts," and effectively impossible to unveiled. Despite the government's protests, there is little the government can do to prohibit the underwriters from doing this. Can Ghana withstand this risk?
Should any of the above be tolerated in Ghana?