Three million ounces of gold without a profit

Jul 20, 2011 Letters

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Dear Editor,
I refer to an article in the Kaieteur News of July 1, 2011 authored by “Peeping Tom.” It is a most unfortunate if not biased article at a time when Guyana hopes to capitalize and maximize its earnings from its natural resources — particularly gold.
Besides the value of exploiting ones natural resources, whether it is gold, a depleting or non renewable resource, or forestry or agriculture, aquaculture et al, the real value is the optimization of one’s human resources, the transfer of technology and the training of that human asset.
By that yardstick, Omai Gold Mines Limited and Guyana made a huge profit. Ask the 1,200 or more Guyanese who were employed for life, not just during the life of the Mine.
Those Guyanese human resources are in Canada, the Caribbean, Suriname, United States of America, not to mention Guyana and elsewhere holding down good jobs because of their exposure and training in skills learnt and honed at Omai.
That was tertiary education at its best in Drilling and Blasting, Truck Operations, Autocad Computer Imagery, Geology, Electrical, Mechanical and Civil Engineering, Procurement and Warehouse Management, Large Scale Catering, Financial Accounting and Management and I can go on and on.
Omai did not make a profit and the facts of that failure are well known so it is dishonest to make that claim as if it is a new discovery. Everyone in the industry knows that the price of gold on the World Market was in a “trough” at as low as US$260 per ounce.
Compare that to today’s World Market price of over US$1,600 per ounce. Guyana is not an island and we live in a Global Village where we compete.
At the height of Omai’s production of over 300,000 ounces per annum the price of gold was ranging between US$252 and US$300 per ounce. Many companies sought to “ride out” the trough by placing gold mining operations on what was called “care and maintenance” and await the upturn — Omai’s management did not.
To address some of the points in the article — Guyana is not “poorer for all the gold being taken out.” The country earned substantial royalty and other revenues estimated at over US$500 million. It was not “from the workers” although they must be given credit for paying Income Taxes because of the employment created by Omai and the level of wages and salaries paid.
There was some argument that it was a “sweetheart deal”; it was not. It was a sound international agreement with help for the Guyana Government coming from the United Nations Transnational Corporation and other agencies to craft the Mineral Agreement, including the percentage of Royalty which has stood the test of time.
Omai did not make a dime of profit in financial terms, but made a ton of profit in human terms. Even the spill produced an environmental benefit through the enactment of the Environmental Protection Agency (EPA) — it was a “gold mine.”
The article is contradictory. On the one hand it is claimed that “should we not be demanding more from both the mining companies? . . .” and on the other “the reason why gold is being smuggled is because of the relative differences in royalty between Guyana and those countries.” We are therefore faced with a conundrum.
Guyana has established a five per cent Royalty Regime whilst Suriname was a two
per cent regime, although I believe it is now 6.5 per cent, so the argument may be fallacious.
There are many other factors at work. Guyana has initiated for local miners a very unique and innovative policy where two per cent is retained from those earnings which relieves the miner of his/her obligation to pay Income Tax.
The article suggests that Government imposes a fixed resource tax instead of a royalty and that would solve the problem. Here is the problem — how do you arrive at a sound estimate, e.g. when Omai started the reserve estimate was 2.1 million ounces — the resource eventually won from the mine was 3.7 million ounces and what about a windfall tax?
Let me close this by wishing Mahdia Gold Corporation, the company which has the Omai concession the best of luck in that challenging undertaking. Whatever the formula it will be fraught with problems — this will be a new challenge for Guyana in a potential large scale underground mine — Risks and Mining go “hand in glove.”
Omai was a success story for Guyana. It put Guyana on the map in more ways than one and heralded the birth of the Environmental Protection Agency (EPA) and environmental duties and responsibilities which had been enshrined in its Mineral Agreement and which is now the benchmark and “yardstick” by which other Mining Companies will be measured.
Norman McLean
Major General (Retired)
Human Resources Manager

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