Mining deals and transactions, particularly for multinational companies, and the transfer or revamp of mine assets between companies are required to be well-scrutinised and hard questions asked to give assurance for prolonged life of mine operations, the sustainability of jobs and sustenance of impacted communities, as well as the guarantee of revenue streams to government.
This was the case in the following transactions:
- Newmont Corporation’s declaration in 2006 of an investment plan of some US$450million capital into the Ahafo Mine
- US$185million capital injection in a joint venture between Goldfields and Asanko Gold in March 2018
- About US$1.4billion capital when Goldfields had to expand the Damang Mine
- US$500million capital investment into the Obuasi Mine in 2018
But Golden Star Bogoso Prestea Limited’s (GSBPL) recent sale to Future Global Resources (FGR), is raising more issues than expected – which has piqued the interest of local and international stakeholders. One of the key talking points is the lack of experience of FGR – which is barely a year old in mining and extraction, despite the claim that its executives do have the requisite experience and expertise.
In the sale agreement published on 30th September 2020 (Golden Star – Golden Star Completes Sale of the Bogoso-Prestea Gold Mine to Future Global Resources (gsr.com), GSBPL had been sold to FGR for a staged payment arrangement of up to US$95million. Five months from announcement of the sale, despite a couple of press engagements, there is no sustained public engagement from either side concerning capital investment in Bogoso Prestea gold mine – unlike how similar deals by Newmont, Goldfields and AngloGold have unfolded. In addition to this, there is no declared payment that has been made by FGR in the sale agreement to GSR.
Unanswered question
Due to these issues, there are a few questions left to be answered:
- Does FGR have the financial capacity to operate the mine?
- What are the present commitments from FGR, if any, that could make the company still operate in the midst of challenges?
- What will FGR lose should they declare the mine bankrupt?
Per terms of the agreement, it appears FGR has nothing to lose as no investment has been made so far. Rather, FGR gains in many ways in this arrangement through the payment of its executives and recruited foreign staff.
Following the sale and in their Q3, 2020 financial report, GSR indicated that the sale of Bogoso-Prestea gold mine removed some US$53million dollars of rehabilitation provision from their balance sheet.
But another thorny issue yet to be answered is whether the US$53million rehabilitation liabilities can be borne by a new mining firm that is private and has not demonstrated any financial forte or investment in the business. Will the new owners be willing to address the handed-over liabilities, or is there a further plan to this?
Further scrutiny of the agreement points to the fact that any unpaid liability reverts directly or indirectly to the nation, and has to be borne by the government of the day. This shows that there is a high risk of losses (in excess of US$53million) to the nation. It will be of great interest if probing and accountability investigations are carried out by the relevant government agencies to avert usage of taxpayers’ monies to take care of the liabilities.
Government has 10% shareholding in the mi,ne as well as being the allodial owner of the gold mineral – and hence must be interested in the ‘Going Concern’ of FGR to operate the Bogoso-Prestea gold mine. Needful acts are required from the relevant agencies to protect and ensure the country benefits from the gold resource.
Ghana has been a hub of mining and can actually boast of a number of major mining giants operating in the country. Checks at Companies House, UK, indicate that FGR – the new company taking ownership of GSBPL (with the largest concession in Ghana) – was formed on December 30, 2019. FGR also indicates it is a subsidiary of Blue International Holdings and describes the Bogoso-Prestea mine as the “first asset within Blue’s mining portfolio [that] establishes the Group as the owner of Ghana’s largest mining concession”.
FGR, despite its boast as having qualified executives, is a novice in the mining industry because it has only operated projects in the energy sector for African governments.
A critical question that needs an urgent answer in this context is: “Was FGR formed for the intended purpose of the sale that was to occur within 10 months to offload the financial burden of US$53million from GSR’s balance sheet, and to relieve GSR from any responsibilities associated with the rehabilitation and capital injection required to revamp the Bogoso-Prestea Mine?”
Readers may recall that in a publication wherein La Mancha Group acquired majority shares in GSR (Wassa and Bogoso/Prestea Properties) when Wassa Mine was already making profit in 2018 (La Mancha announces the investment of US$125.7million in Golden Star Resources and the creation of a strategic partnership). GSR in 18 months then offloaded the Bogoso/Prestea Mine to FGR to concentrate on the Wassa profits. There are more questions than answers.
- Should there be concern that requires probing by government as to how and why FGR was formed, selected; and the intent for GSR in selecting such an entity from among all the other mining giants?
- Was any of the mining giants contacted for the sale bid? If the new company will invest nothing to sustain/grow the mine, couldn’t the same arrangement be made for locals (Ghanaians) to own the mine?
Government agencies must conduct the due diligence with focus on ensuring the new company (FGR) delivers on extending life of the mine, protect the environment, and adequately sustain the communities which depend on the mine.
Below is a chronology of events since La Mancha’s arrival in Ghana
- In August 2018, La Mancha purchased a 30% share of GSR amounting to US$125.7million – declaring this was a strategic plan to revamp Prestea Underground Mine and to help accelerate development of the Wassa Mine (La Mancha announces the investment of US$125.7million in Golden Star Resources and the creation of a strategic partnership). Wassa Mine was making profit and Bogoso-Prestea mine making losses at the time of the share acquisition. Andrew Wray, CEO of La Mancha stated: “We have worked closely with Golden Star to understand the potential of its asset base and to agree this transaction, which will help to unlock the value of the world-class Wassa and Prestea ore bodies through accelerated exploration and resource definition drilling and the injection of development capital to fast-track the expansion of high-margin production at both operations.
- Beyond this announcement in August 2018, in excess of 80% of the capital investment was injected into expanding Wassa Mine while Bogoso-Prestea Mine’s improvement was hampered.
- From August 2018 to June 2019, La Mancha – as the major shareholder of GSR – made significant changes to the GSR management team; replacing the CEO, COO and other management team members, primarily with La Mancha’s team
- October 2019, GSR announces the relocation of its corporate office from Toronto, Canada, to London, United Kingdom
- December 2019, Future Global Resources (FGR) was incorporated in the United Kingdom
- In July 2020, GSR proceeds to announce binding agreement with FGR for the sale of Bogoso-Prestea Mine and concluded the sale deal with the sector minister’s approval on the final day of the sale closing on 30th September 2020
- In their 2020 Q3 report, GSR then published that: ‘The Bogoso-Prestea disposal removed US$24m of negative working capital and a $53m rehabilitation provision from the company’s balance sheet. With the cash generation from Wassa no longer encumbered by losses at Bogoso-Prestea, the infill drilling of the Wassa underground ore body and exploration of the wider license areas are expected to be accelerated in 2021.
- So, what is the next stage in this strategic plan of GSR?
The sale deal between GSR and FGR will see the paying of a deferred reclamation bond of US$5million (against the US$53million published) at the end of March 2021, while all other payments are staggered (US$10million and US$15million payable to GSR on July 2021 and 2022 respectively). Staggered payments are commonplace in every business transaction, but the structure of this deal has the potential to allow FGR shift liabilities onto the government of Ghana if it is unable to sustain operations at the mine.
As a closing question, the sale required approval from government as a 10% shareholder of GSR – and this was publicised in an earlier press release on July 27, 2020 by Golden Star. We are however not familiar with any Parliamentary level effort that conducted due diligence and endorsement of the sale prior to government granting approval.
- Is it possible for the sale of an asset with government ownership to occur without the necessary institutional perusal prior to approval at the relevant ministry?
- Should there be a post-sale audit of the transaction to determine if proper procedures were followed, since the public is not familiar with any parliamentary level consideration of the sale prior to ministerial approval.
In an industry like mining, critical decisions must be made according to the laws of Ghana by stakeholders. Politicians and lobbyists (representing businesses) bringing pressure on technocrats and government officials to inappropriately bend the rules, or turn a blind-eye altogether, has huge impacts on the mining industry at large, job security, communities, the environment, among others – this should be foremost in the minds of – and a caution to – all government agencies and their representatives.
