Given the state of governance in our country and the long-held conviction that the country has not had enough benefits from mining, it is understandable that there is suspicion about a significant transaction such as the grant of a lithium mining lease to a subsidiary of an Australian-listed mining company whose significant U.S. shareholder will buy half the product of the mine and send it to its U.S. plant for processing.
This is especially so when the first time potentially affected communities and other significant stakeholders learn about the transaction in a manner which conveys the impression of a fait accompli.
The task, however, is to assess the terms of the transaction in a clear-headed fashion and determine whether it should be rejected entirely or improved.
After considering two areas in which we think improvements should be made to the terms of the transaction, we will address three widely publicised criticisms which are patently wrong, in our view.
We will also discuss longer-term measures for improving our knowledge about our lithium and green mineral resources and for developing policies around them.
The first area of improvement relates to the provisions for pricing of its main product, namely, the beneficiated lithium ore, and spodumene concentrate.
It is the sales price of this that essentially determines the company’s gross revenue. It is on that gross revenue that government royalties and the growth and sustainability levy would be calculated. That would also be the basis for assessing the company’s income tax liability.
It is clearly in the interest of Ghana for the company to obtain the highest prices possible for its products.
As we understand it, half of the concentrate which will have a lithium oxide content of six per cent (so-called SC6) will be sold through an off-take agreement to a US company, Piedmont, which has significant direct and indirect ownership interest in the Ewoyaa project.
The other half, having a lithium oxide content of 5.5 per cent, will be sold to others.
The agreement must require that prices obtained by the company are in line with market prices, and especially in the case of the sale to Piedmont, that prices are at arm’s length. Surely the government must insist on seeing the provisions of the off-take agreements.
The lithium market is very dynamic and in the last few months and weeks has been very volatile.
The government could by itself engage a commodities research company to regularly provide it with prices – both open market prices and where possible contract prices between unaffiliated companies – for its guidance.
Another way is for the government to have a side agreement with the company which would provide for the engagement of an independent and reputable company to provide, regularly, current data on prices which would be used for the gross revenue determination of the company.
The second area in which we would like to see tighter language in the mining lease and associated agreements is that relating to the possibility of establishing a plant to process concentrate from the mine.
Schedule 2 of the mining lease contains provisions requiring the company to undertake a “scoping study to evaluate the economic benefits of the downstream conversion of the concentrate in Ghana.”
It also provides that if the company “is unable to establish a chemical plant, the Company shall make concentrate available to any chemical plant(s) established in Ghana for refining on terms to be agreed.”
As we understand it, this relates to the possibility of establishing a plant to convert concentrate into lithium hydroxide or lithium carbonate. It would do no harm to be more precise about this.
In any case, it should be made clearer that the obligation is to make the concentrate available to any Ghana plant on terms no less favourable than those on which the mine supplies any other customer, including its shareholder/customer. This would be an important step along the path of achieving value addition in the country.
Some people have made computations of revenue the country is giving away under the terms of the current mining lease which, if true, would be scandalous and be a basis for rejecting the agreement.
