NDC’s gold royalty holding company

While alleging that Agyapa Mineral Royalties Limited as a plan by the governing New Patriotic Party (NPP) to loot from the state, documents sighted by The Finder reveal that the National Democratic Congress (NDC) government in October 2011 attempted to set up a similar company.

The opposition NDC is kicking against the Agyapa Minerals Royalty deal, claiming the country's mineral resources are being mortgaged through the arrangement.

The 2011 Budget Statement presented to parliament on November 18, 2010 captured the need for the establishment of what was described as a National Vehicle.

Ghana Gold Company

In a memorandum to both the Parliamentary Select Committee on Finance and the Parliamentary Select Committee on Energy and Mines, the NDC planned to set up Ghana Gold Company, responsible for all equity being held on behalf of the state.

Ghana Royalty Holding Company

In addition, the government proposed a separate company called Ghana Royalty Holding Company, which will purely be responsible for royalties trade to raise capital from private markets.

Ghana’s carried interests in producing and future gold mines The proposed Ghana Gold Company seeks to maximise the value of Ghana’s carried interests in producing and future gold mines in the country, as well as existing royalties coming of those mines.

Capital to be raised from private markets

The company is to deliver significant capital sum raised from private markets to the government.

Report dated October 30, 2011

The memorandum presented by the Ministry of Finance dated October 30, 2011 called for an act of parliament to be enacted to establish Ghana Gold Royalty Fund (GGRF).

Creating capital from future royalties and other assets

Creation of Ghana Gold Royalty Fund is seen as a national vehicle that can create capital from future royalties and other assets.

Increase Ghana’s stake in gold mines

According to the document, all of Ghana’s existing gold royalties and interest, including options to increase the country’s stake in gold mines, shall be transferred to Ghana Gold Company.

Provide financing to gold companies in exchange for royalties and equity

It said the company shall acquire gold royalties, receivable and interest directly, manage a portion of all royalties and interest, purchase from government the gold royalties and interest due the government from gold mines, and provide financing to gold companies in exchange for royalties and equity.

Raising of equity or debt capital to fund strategic initiatives

The Finance Ministry explained that the arrangement seeks to maximise the benefits and returns to its shareholders and facilitate the raising of equity or debt capital to fund strategic initiatives.

Primary goal of maximising returns

The proponents said the company shall conduct its affairs on sound commercial lines and implement best practices in corporate governance, financial and operational management with the primary goal of maximising returns (capital appreciation and current income) to shareholders in a prudent, non-speculative manner.

$3 billion equity and participating interest and royalty streams

The projections of equity and participating interest, as well as discounted present value of the royalty streams as at 2011 by the NDC government was valued at $3 billion.

$2 billion value of gold royalties stream

The Finance Ministry estimated that based on gold prices in 2011, the value of gold royalties stream at the time could be worth $2 billion.

$1 billion equity and participating interest

Similarly, it estimated that the equity and participating interest was in excess of $1 billion.

$1.1 billion indicative discounted present value of the royalty streams

In addition, the NDC government in 2011 said an estimate of the indicative discounted present value of the royalty streams was approximately $1.1 billion.

$1 billion for 30% shares

Therefore, the Finance Ministry said at these projected valuations, the sale of 30% shares could potentially rake in $1 billion.

Capital appreciation/ongoing dividends

The memorandum to the two parliamentary committees noted that the arrangement was expected to provide government with continued exposure to capital appreciation of a rational company, together with ongoing dividends. The NDC’s proposal contained examples from around the world, including some African countries.

What is a gold royalty

A gold royalty is a contract that gives the owner (a gold royalty company) the right to a percentage of gold production or revenue in exchange for an upfront payment.

Gold royalty companies use these contracts as a way to finance mining companies in need of capital.

This alternative form of mine financing is often more attractive than traditional debt or issuing equity.

Gold royalty companies also purchase pre-existing royalties as a way to build a diversified portfolio of royalty assets.

Since royalties typically cover the life of a mine, gold royalty companies benefit from the exploration upside that may extend the life of the mine and thus increase the amount of gold (or revenue) they receive from the mining company at no additional cost.

Between 2009 and 2019, royalties, including streams, contributed $25.8 billion to total mine financing.

Since their inception in 2004, gold royalties and streaming companies have grown exponentially, topping $47 billion in combined market capitalisation at the end of 2019.

Over the last 10 years, the gold royalty sector outperformed gold and gold mining companies, even in a gold bear market.

Over the last 10 years, total return on investments for the largest gold royalty companies was 183%.

This is four times more than physical gold. Gold mines actually generated negative returns.

Of the $23.4 billion in royalty deals made between 2010 and 2019, 74% ($17.2 billion) of them were streaming contracts.

The most common types of gold royalty are net smelter returns and net profit interest.

Net smelter returns royalty is an agreement where the mining company agrees to pay the royalty owner a percentage of the revenue, less costs financing. Net profit interest royalty allows the royalty owner a percentage of the profit from the mine.

Stream is a contract where the mining company agrees to sell the stream owner a set percentage of the gold produced.

The price per ounce is either a set price at a much lower rate than the gold sport price or it is a percentage of the gold spot price.

The royalty company makes money by selling the gold for profit at current market value.