Uranium mining in Africa: radioactive revenues
For African countries, the revenue derived from the uranium mining operations of multinational corporations is -despite the high price of uranium- minimal, uncertain and volatile. The financial agreements that these countries make with the uranium producers regarding their share in the profits are the primary reason for this state of affairs. This is the conclusion of a new report from WISE and the Centre for Research on Multinational Corporations (SOMO): Radioactive Revenues: Financial Flows between Uranium Mining Companies and African Governments.
The report Radioactive Revenues analyses the financial aspects of uranium mining in the main African uranium producing countries -Namibia, Niger, Malawi and South Africa- and examines the activities of the four largest multinational uranium mining companies in Africa: the French AREVA group, the English-Australian Rio Tinto, the Australian Paladin Energy and the South-Africa-based AngloGold Ashanti.
Currently, one-fifth of all uranium worldwide is mined in Africa, and production is expected to double in the next two years. Nevertheless, uranium mining remains an uncertain source of revenue for African countries given the unstable price of uranium and the dependence on corporate profits.
The predictability of revenues
The most important revenues for host states from uranium mining in Africa are corporate income taxes, selling rights, mining royalties and, to a lesser extent, employment taxes, but there is a great deal of difference between the predictability and stability of these sources of revenue. Selling rights and royalties are generally more stable than corporate income tax as they do not depend directly on the profits of the mining companies, which can be highly volatile. The revenues from mining royalties depend primarily on uranium prices on the world market, but also on agreed prices and quantities in long-term contracts signed with customers.
Of all of the potential sources of revenues, those related to corporate earnings are the most volatile. These sources include corporate income tax (a percentage of taxable profits), taxes on dividends, and benefits from holding a stake in the mining company (dividend, retained earnings). These revenues are affected by uranium prices, production costs and by companies being able to reduce their corporate income tax liability through mechanisms that compensate them for losses in earlier periods and/or through the accelerated depreciation of investments.
In general, corporate income taxes may be further reduced by multinational corporations through the use of intra-group transactions that move their costs and earnings to jurisdictions where the corporate income tax rate is most favourable to the company. This study does not investigate the use of such (legal or illegal) tax avoidance/evasion mechanisms, but the frequent use of these mechanisms by multinational corporations in general likely reduces the contribution of corporate income tax as a source of revenue for host states and contributes to its unpredictability.
Niger’s right to sell a percentage of the uranium produced directly on the global market uranium provides an additional and somewhat stable source of revenue for the Nigerien government. This revenue stream is of course dependent on the market price.
Many of the sources of revenue for host states depend heavily on the price of uranium on the world market. The period 2007–2009 was somewhat unique in this respect. During the period 1990- 2003, prices were much lower. Beginning in 2004, prices rose sharply, peaked in 2007, and have been slowly decreasing since then, although 2010 saw prices rise again slightly over 2009 levels.
The high prices during the 2007–2009 period caused earnings and profits of mining companies to rise as well. As a result, revenues for the host states from mining royalties and corporate income taxes increased as well. However, there is no guarantee that prices will not fall back to the low levels seen during 1990–2003, which would mean a significant reduction in revenues from royalties and corporate income taxes.
Changing regulations on revenues for host states
The study finds that some African host states have recently moved to strengthen their financial regulations on uranium mining in order to receive greater revenues from these operations. In 2007, Namibia decided that uranium mining companies should pay royalties of 3% of sales. In 2010, South Africa introduced mining royalties of 1.75% of gross sales when profits are 10% of gross sales.
However, the move that has been the most remarkable in generating additional revenues for the host state has been Niger’s acquisition of uranium selling rights, first negotiated with AREVA in 2007. During the years 2007, 2008 and 2009 the revenues received by the Nigerien government from this revenue stream amounted to Euro 9.1 million, Euro 27.5 million and Euro 20.9 million respectively. From 2013/2014 onwards, the Imouraren mine, with AREVA as the main shareholder, will enter into production. The government of Niger will have the right to sell 33.35% of the uranium produced, which is estimated to reach 5,000 tons annually. Also, for the existing mining operations by SOMAÏR and COMINAK, since 2010 Niger has the right to sell uranium according to its stake in the mining company (i.e. 36.6% and 31%, respectively).
Comparison of taxes and other contributions
Per kilogram of uranium sold, the study finds that Paladin in Malawi and AngloGold Ashanti in South Africa pay less taxes and other financial contributions than Rio Tinto in Namibia and AREVA in Niger. With a relatively low percentage of mining royalties to be paid and many opportunities for Paladin to reduce its corporate income tax in the early years of operations, Malawi is not expected to obtain much revenue from Paladin’s uranium mining operations if uranium prices decline. However, given the physical and operational differences between mines (e.g. uranium ore grade, capacity, production costs, lifetime, etc.), it is difficult to make a judgement about the regulations relating to revenues for the host states with regard to each mining operation.
In the period 2005 – 2009, the revenues received by Niger from the AREVA-owned mining operations amounted to Euro 225 million. In the same period, Namibia received Euro 181 million in revenue from the Rio Tinto-owned mining operations. A notable difference is the royalty rate, which is 3% in Namibia and 5.5% in Niger. In the period 2005 – 2007, Namibia received more revenue than Niger from corporate profits, but Niger has been catching up through the acquisition of selling rights.
Transparency of companies
Of the four companies reviewed in the study, Paladin appears to be the least transparent. It is the only company in the research that does not support the Extractive Industries Transparency Initiative (EITI) and was the only company unwilling to answer requests for information for this study. Payments such as employment taxes and customs duties could not be found in its annual reports, while payments of corporate income taxes and royalties were not listed on a country-by-country basis.
Rio Tinto is transparent with regard to taxes and other contributions to the Namibian government by its majority owned company Rössing Uranium. Rio Tinto, along with AngloGold Ashanti, reports its tax payments on a country-by-country basis. AREVA cooperates in the EITI-related process of comparing company payments and government revenues in Niger. Among the four countries examined in this report, Niger is the only one that participates in the EITI.
The agreements (investment contracts) that uranium mining companies sign with host states can have a law-making function and often include tax exemptions and stabilization clauses. Such mining agreements are generally not made public. Paladin has signed a mining agreement with the government of Malawi, including tax exemptions and a clause which guarantees that the company will not face any increase in taxes or other contributions in the coming ten years. The fiscal details of this mining agreement have been made public. For Niger, most fiscal details of such agreements could be found without gaining access to the mining agreements themselves. The agreements between AngloGold Ashanti and South Africa and Rio Tinto and Namibia did not seem to contain specific clauses on taxes and other contributions that differ from national laws.
Source: Radioactive Revenues. Financial Flows between Uranium Mining Companies and African Governments by Albert ten Kate & Joseph Wilde-Ramsing. SOMO, WISE 2011.
The report can be downloaded at: http://somo.nl/publications-nl/Publication_3629-nl/