Investment analyst’s views on positives, concerns of Agyapa deal

An economic and investment analyst, Dr Theophilus Acheampong, has presented a detailed analysis of the Agyapa Royalties deal and has joined the many calling on the government to temporarily suspend the deal to allow for further consultation.

The positives

According to Dr Acheampong, the following are some of the positives of the deal:

- Government seeks to monetise relatively safer royalties to raise an initial $500 million in cash through offloading of 49% of shares (equity) in Agyapa Royalties Limited in both Ghana and the United Kingdom.

- The government would receive the $500 million upfront while limiting itself to any downside exposures but reaping the upside via the market capitalisation when gold prices go up.

- Setting up Agyapa as a Special Purpose Vehicle (SPV).

- The deal is an innovative approach to raise more financing for mining infrastructure investment to get a larger share of mining proceeds without burdening the public purse.

The concerns

These are some of the significant issues Dr Acheampong says need further attention or clarification from the government:

- How was the $1 billion royalty value for the deal arrived at? “Is this based on cash flow or price-to-earnings (PE) valuation? An off-the-hand cash flow calculation using an average $150 million royalty receivables per annum based on historical trends, then extrapolating this over 15 years and discounting at 5%, yields a net valuation of $1.6 billion in present value (PV) terms.”

- Why does the State want to lock itself into a 15-year plus agreement? “In any case, the proposed USD500 million that the government seeks to raise is equivalent to about three years' worth of minerals royalties at current prices so why does the State want to give away not only the minerals income but the rights and associated flexibility options?”

- Is there a guaranteed share buy-back option by the government (MIIF), once the investors have recouped their investment after some period?

- Regardless of any bankruptcy remote provisions or caveats, can the private shareholders, exercise their right to the underlying asset, which is Ghana's minerals equity interests for the duration of the respective contracts if something goes awry?

“The above are serious issues that require further policy considerations or at least some detailed explanation from the government.”

- The argument raised within some quarters of SPV tax jurisdiction being in Jersey (a tax haven) is neither here nor there so long as accounting and fiduciary protocols are followed.

- Any lack of transparency in governance can hurt well intended capital raising initiatives such as this.

- What is the strategic or transformation plan for the MIIF and the mining sector?

Way forward

Dr Acheapong presents six recommendations on the way forward on the controversial deal, among them, the suggestion that the government should temporarily suspend the deal to allow further consultation.

“This is because I don't see the need to rush this, and besides, it is too close to the December 2020 elections to allow proper scrutiny.”

Read the full report below.