Chapter 32: MINING POLICY

DRAFT May 7, 1996

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I. Basic Features of the Sector

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A. Economic Importance of Mining to Guyana

1. Production

Mineral prospecting and inventory in Guyana started in 1868, and a report published by two early surveyors remained until quite recently the only authority on the geology of parts of the Pakaraima Mountains and the more inaccessible southern rainforest. Gold and diamonds were among the first minerals discovered. Bauxite mining commenced in 1917. Guyana was among the world's first bauxite exporters and in the 1950s had the most diversified production of bauxite in the world. Guyana has varied mineral deposits but currently exports only gold, diamonds, bauxite and some sand. Current levels of production in the mining sector are shown in Table 32-1.

2. Exports, Contribution to GDP, and Fiscal Revenues

Export earnings from bauxite declined from their high of US$188 million, reached in 1980, to US$78.9 million in 1994. However, gold, which was not exported as recently as 1983, earned US$125.2 in foreign exchange in 1994, making it the highest-valued export commodity (followed closely by sugar, then bauxite, then rice). Gold and bauxite together accounted for 45.6 percent of total export earnings in 1994.

In 1995 the mining sector accounted for 16.5 percent of GDP (at current factor cost), of which 11.3 percent was accounted for by gold, diamonds and quarry products. Real GDP originating in the mining sector grew by 12 percent per year during the period 1991-1994. It then dropped in 1995 because of the temporary closure of the Omai operation, but it is expected to recover strongly in 1996.

Fiscal revenues from the mining industry amounted to G$1,061.4 million in total in 1994, representing about 4.5 percent of Central Government revenues in that year (Table 32-2). Those contributions come almost entirely from the non-bauxite subsectors.

Table 32-1

Mining Sector Output

	1989	1990	1991	1992	1993	1994
Gold, oz unrefined (local miners)	17,000	39,000	59,000	80,000	87,000	99,000
Gold, oz unrefined approx. (*OGML)	-	-	-	-	223,000	277,000
Diamond, carats	8,000	19,000	21,000	45,000	50,000	34,000
Diamond exports, carats	1,000	5,000	18,000	37,000	44,000	30,000
Bauxite tons LINMINE (final product)	665,000	767,000	716,000	391,000	407,000	211,000
Bauxite tons BERMINE (final product)	656,000	657,000	631,000	516,000	465,000	322,000
Bauxite tons Aroaima (final product)	-	-	870,000	1,406,000	1,216,000	1,560,000
Stone tons	-	-	56,000	73,000	106,000	150,000
Sand tons	-	-	-	500	197,000	327,000

*OGML = Omai Gold Mines Limited

Table 32-2

Revenue from Mineral Production

(Taxes and duties excluded)

(G$M)

	1993	1994	Percent increase over 1993
Fees and fines	17.3	18.9	9
Licences	11.93	14.0	17
Royalties (Omai Gold Mine Limited)	447.74	613.5	37
Royalties (other)	182.11	253.0	39
Rentals (prospecting and mining permits and licences, quarry licences, geophysical and geological surveys)	72.17	162.0	124
	731.25	1061.4	45

Source: Guyana Geology and Mines Commission

3. Employment and Other Effects

The existing information is not adequate to determine with precision the number of persons engaged in mining activity. However, the 1993 Statistical Bureau's Household Survey indicated 9,836 persons were employed in the mining and quarrying sector, some 4 percent of the estimated labour force of 245,492.

There are considerable indirect employment effects of mining. Omai, for example, purchases the services of some local firms such as MACORP for the supply and services of its heavy duty equipment. Also, some local sawmills' services are utilised. Another important linkage has been the creation of the jewelry industry which utilises gold, diamond and semi-precious stones. Workshops have been established that design, manufacture and assemble dredges, accessories and other equipment. The local construction industry provides an avenue for the quarry and sand industries to create linkages.

The larger mining companies such as GUYMINE, Omai and Mazda, which are in a financially stronger position to create physical linkages do so through the construction of basic infrastructure such as roads and bridges. The Guyana Geology and Mines Commission (GGMC) is also involved in repairs to hinterland roads as evidenced by the sum if G$20 million being spent on emergency repairs to the Wismar road, the Bartica-Potaro road near Mile 72 and the Issano branch road at several points.

The highly mechanised and capital intensive nature of the sector has resulted in a concomitant demand for high levels of technical and industrial skills. The bauxite industry has been well known for producing large pools of skilled workers. With the recent expansion of the gold mining sector, it is anticipated that development and upgrading of such skills will continue. At the sub-professional and professional levels more and more Guyanese are being trained in the fields of mining engineering, geology, data management, assaying, gem appraisal, occupational health and safety, drilling, contract negotiations, feasibility studies, etc.

Mining and quarrying activities have resulted in the opening up of remote areas in Guyana's hinterland, with the result of improved communication links and development and improvement of social infrastructure such as schools and health facilities. The sector also provides employment for small-scale entrepreneurs in the gold and diamond industry.

However, it also must be recognised that the influx of small-scale miners has created some social and public health problems in hinterland areas (see Chapters 22 and 19, respectively, of this Strategy), as well as pollution of some rivers (Chapter 18).

The growth prospects for the gold subsector, and to a lesser extent diamonds, are very encouraging, so the sector should continue to be a leader in generating increased levels of income and employment for Guyana. This is all the more reason why public policy must succeed in mitigating some of the adverse side-effects of the industry's development as well as promoting that development.

Table 32-3

Comparative Statistics Relating to the Mining Industry Performance

	1990	1992	1993	1994	1993-1994 increase (%)
Dredges: New licences Renewed licences Total		167 336 503	217 332 549	286 447 773	32 35 41
Land claims River location claims Total	_____ 7,099	7,800 2,400 10,200	9,000 2,900 11,900	9,600 2,900 12,500	7 0 5
Medium scale prospecting permits: Applications Permits granted		*202 -	943 79	1,698 732	80 827
Approximate acreage held/applied for by small and medium scale operators	200,000	500,000	1,700,000	3,000,000	76
Prospecting licences (bauxite excluded): Current New grants New applications	16 1 NA	18 6 NA	14 2 36	16 3 **50	14 50 39
Approximate acreage under prospecting licences (bauxite excluded)	218,000	307,000	205,000	243,000	19
Geological and geophysical (reconnaissance) surveys - area covered (sq. mi./acres)	-	-	-	4,375/ 2,800,000
Large scale mining/quarry licences/mining leases (bauxite excluded)	3	6 (5 with local ownership)	7 (5 with local ownership)	7 (5 with local ownership)	0
Quarry licences (all with local ownership)	2	2	3	3	0
Approximate acreage under gold/diamond mining licences	18,000	34,000	38,000	30,000	-21
Area re-opened for prospection and mining (sq. miles/acres)			1,250/ 800,000
Approximate acreage under bauxite mining/prospecting licences	7.11 m	7.12 m	7.12 m	7.12 m	0

*Applications received from October to December 1992.

** 32 applications approved by Minister for issuing.

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B. Gold, Diamonds and Sand

Gold attained its highest production level of 375,456 ounces in 1994. Diamonds showed a decline in 1994 having reached a peak of 49,423 carats in 1993, the highest level since 1990. In the period 1988 to 1992 the increases in physical production of gold, diamonds, and stone were 323 percent, 955 percent, and 108 percent, respectively. Reported sand production increased to an estimated 326,000 tons in 1994, of which 53,000 tons were exported. The diamond contribution is likely to increase in the future, but on a smaller scale relative to gold.

The projected impact on the economy of large scale gold mining, namely Omai, is significant. This can be seen from the important impact on Government revenues and the profound effect on the economy caused by the four-month closure of Omai in 1995.

The prospects for the gold industry are shown in the projections of production presented in Table 32-4.

Table 32-4

Projections for Medium and Large Scale Gold Mining

	1996	1997	1998	1999	2000
Prospecting permits (PP) Medium scale assuming av. 15% annual increase	1,900	2,200	2,500	2,900	3,300
Mining permits (MP) Medium scale assuming 2% (1 in 50) PPs are converted to MPs	-	38	44	50	58
Assuming av. MP at 12,000 oz gold/yr. New prod. ounces, unrefined	-	456,000	528,000	600,000	696,000
Prospecting licences (PL) Large scale, assuming av. 10% annual increase	40	44	48	53	58
Mining licences (ML) Large scale, assuming 2.5% (1 in 40) PLS are converted to MLS	-	1	1	1	1
Assuming av. ML at 100,000 gold/yr. New prod. ounces, unrefined	-	100,000	100,000	100,000	100,000
Assuming 5% increase/yr in gold production from current local operators, ounces, unrefined	110,000	116,000	128,000	134,000	141,000
OGML - assumed av. production after expansion, gold ounces, unrefined	300,000*	300,000	300,000	300,000	300,000
Total projected gold production, ounces unrefined	410,000	972,000	1,056,000	1,134,000	1,237,000

*This is equivalent to 275,000 refined oz.

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C. Bauxite

The bauxite industry, until the late 1970s was a major and often the main contributor to the economy in terms of percentages of GDP, export earnings, employment, and contribution to Government revenue in the form of import duties, tax, and dividends. The deterioration in the industry, which started in the 1980s and has continued into the 1990s, has resulted in a significant fall in the industry's contribution to the economy. That decline is demonstrated statistically in terms of:

- The contribution to GDP, which averaged 13.9 percent over the decade 1971-1980 and fell from 14.9 percent in 1980 to 5.2 percent in 1995.

- The percentage of merchandise export earnings which averaged 43.4 percent between 1971 and 1980 and fell from 49.1 percent in 1980 to 16.7 percent in 1995.

- Employment in the industry which rose from approximately 6,000 in 1971 to 7,335 in 1979, then fell to 3,000 in 1992 and now is under 2,000.

Production of RASC (refractory bauxite) has declined very sharply since 1990.

Guyana still possesses substantial resources of high grade bauxite. While there are indications of bauxite throughout the bauxite belt and of laterite bauxite over a wide area in the Pakaraimas, actual deposits have been identified only at certain locations with some of the identified deposits being explored to place them into the three categories: proven, probable and, possible reserves. Current total bauxite reserves, including Aroaima, the laterite deposits in the Ituni area, and the remnants at Linden and Ituni areas, are shown in Table 32-5.

Table 32-5

Current Total Bauxite Reserves

(000 CMT)

Area	Proven	Probable	Possible	Total
Linden	195,000	200,000	45,000	440,000
Ituni/Aroaima	105,000	125,000	200,000	530,000
Kwakwani/Canje/Corentyne	35,000	25,000	160,000	220,000
Total	335,000	350,000	405,000	1,190,000

Most of the deposits in these areas contain bauxite of various grades, hence Guyana possesses adequate reserves to produce all grades of bauxite. The reserves listed contain bauxite suitable for the production of MAZ, RASC, CGB, and AAC, making it conceivable for Guyana to continue as a major diversified bauxite producer into the second half of the 21st century, depending on economic feasibility. Guyana's calcined bauxite is undeniably of a superior grade on world markets, but the country's competitiveness has been affected by three factors:

- The high cost of production in Guyana compared with that of Jamaica and Australia, due to the depth of overburden which in Guyana ranges from around 100 feet in Berbice to almost 250 feet at Linden, compared with less than 10 feet in Jamaica and Australia.

- The high shipping costs from Guyana to North America and Europe, compared with that from Jamaica and Australia. The reason for this is the depth of the approach channels to the Demerara and Berbice rivers from where bauxite is shipped. Until recently these channels, even after substantial dredging, have had depths of 30 feet and 18 feet, respectively, allowing vessels to load a maximum of 22,000 tons capacity. Very recently the Berbice channel has been deepened, so this factor should be less of a handicap in the future.

- Weak management and overmanning of the nationalised industry in the 1970s, 1980s and early 1990s, which resulted in deteriorated facilities and yet higher costs of production.

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D. Industrial Minerals (excluding bauxite)

As the mineral map of Guyana (1987) indicates, Guyana's mineral wealth extends far beyond the well known traditional "triumvirate": gold, diamonds, bauxite. Our heritage also includes occurrences of:

- Industrial minerals: Kaolin, silica sand, soapstone, kyanite, feldspar, mica, ilmenite, columbite-tantalite, manganese.

- Base metals: Copper, lead, zinc, molybdenite, tungsten, nickel.

- Ferrous metals: Iron as magnetite and laterite.

- Energy materials: Uranium.

- Semi-precious stones: Amethyst, green quartz, black pearl, agate, jasper.

Industrial minerals in Guyana comprise mainly kaolin and manganese. Manganese mining, started in 1960, ceased in 1968 reportedly due to declining grade of the ore. Although large resources of kaolin of potential paper grade, and extensive superficial high grade silica sand are known, these have not yet been developed in any significant way.

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E. Petroleum and Gas

Petroleum exploration in Guyana has occurred in three areas: offshore Guyana Basin, onshore coastal section of the Guyana Basin, and the Takutu Basin inland in the Rupununi District. The Takutu Basin is the only area where petroleum has been indisputably discovered and brought to surface.

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II. Evolution of Policies for the Mining Sector

The following sections review policies and activities related to the development and mining of various mineral resources in Guyana over the last two decades. The review shows that in the recent past the more liberal overall economic framework and promotion of mineral development, in which the Geological Services Division of GGMC worked together with the Mines Division, have played important roles in the rapid development experienced from 1989 in the gold and diamond mining industry. Other significant developments that accelerated the growth of the sector included the promulgation of the Mining Act in 1989, the establishment of a proforma mineral agreement, and the creation of the medium scale mining sector by the passing of subsidiary legislation in October 1992. The regional geological mapping followed by exploration flowed naturally out of the considerable but disparate geological data that had been generated.

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A. Bauxite

1. Evolution of the Industry in Guyana

Guyana was among the world's first bauxite producing countries. Toward the end of the 19th century, bauxite was discovered in Guyana in a belt stretching across the country from the North West District to the Corentyne River, with large deposits identified in the Pomeroon, the Essequibo around Bartica, Mackenzie, Ituni, Canje, and Orella. A paper presented in London in 1916 on the occurrence of bauxite in Guyana generated such interest in the U.S.A. that Alcoa in the same year incorporated the Demerara Bauxite Company (DEMBA) which secured leases on large areas of bauxite-bearing land in the vicinity of Mackenzie.

The development of the bauxite industry can be placed into several distinct periods:

1917-1939. DEMBA started production at Akyma on the Demerara River, south of Mackenzie. In 1922 the operation was expanded and processing and shipping facilities were established at Mackenzie, the head of ocean navigation in the Demerara River. In 1929 Alcoa handed over the operations to its Canadian associate, Alcan, and production continued at a steady rate over the next decade, during which Guyana became the world's third largest bauxite producer after the U.S.A. and Surinam.

1940-1949. The Berbice Bauxite Company, a subsidiary of American Cyanamid, started production of chemical bauxite (CGB) for the manufacture of alum at Kwakwani in 1942. In 1943 DEMBA extended its operations to Ituni, and by the end of the decade Guyana was the world's second largest producer, accounting for 17 percent of world production.

1950-1959. In 1952 Reynolds Metals acquired the Berbice Bauxite Company and started production of metallurgical bauxite (MAZ) at Kwakwani, in addition to CGB. At around the same time DEMBA expanded production of refractory grade (RASC) and abrasive grade (AAC) bauxite at Mackenzie, making Guyana the world's most diversified bauxite producer. In 1956 DEMBA started construction of the alumina refinery. During the 1950s, for the first time, bauxite production grew more slowly in Guyana than in the rest of the world.

1960-1969. World bauxite production continued to expand rapidly in this decade. Production in Guyana, however, did not increase substantially, and Guyana lost its leading position, first to Jamaica and later to Australia. The major developments during this period were the commissioning of the alumina refinery, the expansion of RASC production by DEMBA, and the start of RASC production by Reynolds.

1970-1981. DEMBA was nationalised in 1971 and renamed Guyana Bauxite Company (GUYBAU). Reynolds was nationalised in 1975 and renamed Berbice Mining Enterprise (BERMINE). In 1976 the Bauxite Industry Development Company (BIDCO) was established as the holding company for the two independent companies and charged with the responsibility of producing certain services for the entire industry. Production of RASC, alumina and chemical bauxite increased during this period, but production of MAZ decreased, resulting in Guyana further being overtaken by Guinea as producer of bauxite.

1982-1991. This was a period of rapid decline of the industry.

- In 1982, the alumina refinery was closed.

- RASC production fell from over 600,000 tons n 1980 to 325,000 tons in 1983, rising to 500,000 tons in 1984 and 1985, and then falling continuously to a level of only 330,000 tons in 1991.

- CGB production fell from 450,000 tons in 1980 to only 250,000 tons in 1991.

- MAZ production fell from 639,000 tons in 1981 to 428,000 tons in 1984. It then rose to average 750,000 tons per year over the period 1985-1990, and with the start-up of the Aroaima Bauxite Company (ABC) reached 1,242,000 tons in 1991 and 1,910,000 tons in 1992, only to fall back to 1,612,000 tons in 1993.

1992-Present. GUYMINE was dissolved in 1992 and was replaced by LINMINE and BERMINE. RASC production was 215,000 tons in 1992 and 267,000 in 1993. BERMINE continues to produce MAZ and CGB and in 1993 restarted production of RASC. The Aroaima Bauxite Company came on stream in 1990 and is currently producing close to is planned production level and has started production of MAZ and CGB at Aroaima.

As a result of their declining competitiveness, both DEMBA and Reynolds decided to shift their emphasis from MAZ to RASC and CGB, where Guyana had a definite quality advantage and did not face competition from either Jamaica or Australia. GUYBAU and later GUYMINE, adopted the same policy, not only de-emphasising, but actually reducing MAZ production at the expense of RASC and CGB, resulting in a further weakening of Guyana's position as a world producer.

2. Changes in Markets for Bauxite Products

RASC

Starting in the 1960s, Guyana decided to concentrate on the production of bauxite for non-metallurgical applications, accepting the fact that it could not compete with Jamaica, Australia, Guinea, and Brazil in metallurgical grades. Inability of Guyana to satisfy the market of RASC in the later years of the 1970s helped Chinese bauxite to enter the market. Other high alumina materials such as mulcoa and andalusite also captured some applications identified for RASC. The Chinese, through product improvements and lower prices, have been able to capture an increasing share of the market, resulting in a situation where they now command over 65 percent of the market compared with about 25 percent for Guyana. Brazil also entered the market in the 1990s when Guyana again failed to meet market demand, and aided by lower prices has been able to capture the remaining share of the market.

The RASC market, which grew rapidly during the 1970s and shows signs of growing further in the future, ceased to expand during the last decade due to stagnation and decline in steel production in the major RASC consuming countries, and to technological change which replaced RASC with other refractory practices and materials. The effect of all this has been a static to declining market for RASC which, together with the price competition from China and Brazil, has made it difficult for Guyana to increase its production and sales of that product.

CGB

CGB is used mainly for the production of alum and various grades of high alumina cement with more than 80 percent of consumption used in the manufacture of alum. The market for alum is a relatively static one. Growth during the 1980s into the 1990s was expected mainly in the developing countries. This growth has not taken place and hence, demand for alum has not grown. In addition, environmental considerations have led to bauxite being replaced by alumina trihydrate in the production of alum and by alum being replaced by various chemical compounds. The overall effect has been a fall in the demand for CGB.

The high alumina cement market has not grown over the years, and with higher iron bauxite accepted for the production of some grades of this product, the demand for Guyana's bauxite has not increased.

AAC

The market for abrasive bauxite used in the manufacture of fused aluminum oxide for the manufacture of abrasives also has contracted due to new techniques for metal finishing, the replacement of steel by other materials, and slow growth in steel consumption. In addition, cheap Chinese AAC makes it difficult for Guyana to compete in this market. These developments have affected the demand for AAC.

3. Current Industry Structure

a. Linden Mining Enterprise Limited (LINMINE)

Linden Mining Enterprise Limited (LINMINE) is a limited liability company whose shares are owned by the Government of Guyana and held by BIDCO. It pays no taxes. The company has operated under a management contract between MINPROC of Australia, the winner of tender for management and engineering services, and BIDCO. The contract formed a part of LINMINE's initial restructuring phase agreed with the World Bank by the Government of Guyana.

(i) Recent history

In February, 1992, the Government of Guyana and BIDCO notified the creditors of GUYMINE, the then existing operating company, that there was a need to restructure the finances and operations of GUYMINE to allow it to recover. This decision was taken after it was decided that private capital was needed to rehabilitate the industry and that such capital would not be invested in the company in its existing state, without substantial changes.

Discussions of a possible privatisation were held but informal indications of the amount that might be offered for the operations were disappointing to Government. Therefore, it was decided to follow a two stage process. The first step was to have an 18-month interim management contract period dedicated to improve the operations of the Linden operation of GUYMINE. Simultaneously, Government was to arrange a feasibility study of the operations to be done by internationally recognised consultants, in order to serve as the centre piece of the privatisation effort. As a precondition to start the management contract, the debt position of GUYMINE had to be addressed. Other preconditions concerning taxes, as well as the securing of new resources from Government and international financing agencies during the management contract period, also had to be met.

Following inconclusive talks on the debt issue which went through several rounds and included the World Bank, the Government of Guyana passed an order on 19th June 1992, taking over and specifying payment of the foreign debt of the Linden operations, writing off debts owed to the Government, and dividing GUYMINE into LINMINE and BERMINE, among other measures. This order paved the way for the start of the initial restructuring phase and its associated management contract on 15th October, 1992, as all pre-conditions had then been met.

(ii) The Management Contract

The contract of 18 months duration was dedicated to the restructuring tasks designed to put the Linden operations in a viable commercial position that would make it attractive for privatisation. Certain targets, both and financial and physical as well as specific tasks were established in the initial document in 1991. There was also provision for the contractor to modify the targets within two months of the start of the contract in an inception report.

b. Berbice Mining Enterprise Limited (BERMINE)

Berbice Mining Enterprise Limited (BERMINE) is a limited liability company whose shares are owned by the Government of Guyana and held by BIDCO. It was created in June 1992 and is managed by Guyanese managers who have been in the bauxite industry for some time. It has a Board of directors and, in addition, supervision of its activities, provision of advice and monitoring of reports is done by BIDCO.

BERMINE started with no cash but an identifiable share of foreign debt, and normal tax obligations, and facilities that needed rehabilitation.

In 1989 the Aroaima bauxite deposit, which had an undeveloped proven reserve of 30 million tons earmarked for BERMINE, was transferred as Government equity to the Aroaima Bauxite Company. This has left BERMINE with an ore reserve position which needs to be bolstered by additions to the proven reserves category. BERMINE bought a drill from its own resources for such a programme.

Financially, BERMINE has had a challenging existence. It has been demanding to operate from a zero cash position while needing to carry out rehabilitation and position itself for secure operation as an independent company. BERMINE, in addition to generating a normal operating cash flow, has been able to complete substantial refurbishment of its calciner facility, purchase a drill for reserve validation and qualification, and judiciously increase its supply of spares. It has been aided in this tight cash flow position by Ministry of Finance's grants of item by item duty waivers on its capital purchase of the drill and a duty waiver on spare parts and supplies granted in the second half of 1993 (excepting oil supplies), and which was extended. Subsequently, a waiver was given for taxes on fuel imports and a loan was granted by Treasury for capital outlays.

BERMINE's employees have seen their wages drop, relative to those at LINMINE, since the separation. This has caused some tension, but an explanation of the survival mode of the company has been made to them. BERMINE expects to be able to return to profitability in 1997, without net transfers from the Government and with greatly expanded production.⁽¹⁾

c. Aroaima Bauxite Company Limited

The Aroaima Bauxite Company was formed in 1989 as a 50/50 joint venture between the Government of Guyana and Reynolds International. The company was formed in Barbados, has an equity capital of US$4.0 million, is managed by Reynolds under contract and has, as was designed,

a highly geared capital structure. This company has a subsidiary, Aroaima Mining Company (Aroaima), which is the operating company in Guyana. Current directors are Messrs. J.F.I. Blackman and K. Ramjattan.

This company started production in 1989 with the planned production of 1.5 m/tons per year and increasing to 2.0 m/tons over 2-3 years. The current state of the market has made reaching 1.5 million tons difficult, but a level of 1.4 m/tons was achieved in 1992. The company has been reassessing its production levels and targets. Information on these operations had previously not gone to directors regularly or in adequate quantities.

This company pays no taxes or duties.

d. Bauxite Industry Development Company Limited (BIDCO)

BIDCO is wholly owned by the Government of Guyana as a holding company which holds the following shareholdings on behalf of Government:

- LINMINE 100 percent

- BERMINE 100 percent

- GUYBULK Shipping 50 percent

- BIDCO America 100 percent

Guybulk Shipping is a joint venture between the industry and Klaveness Shipping of Norway, registered in Bermuda. Through its Articles of Association BIDCO is responsible for the overall supervision of the bauxite industry and is accountable to the Government for the progress of the industry. BIDCO provides a number of common services to the industry and its Chief Executive Officer is answerable to the Minister.

BIDCO's Board of Directors is also responsible for overseeing the operations of these companies. The relationship of this Board to the subsidiaries' boards is one of receiving reports and recommendations from the subordinate boards and reviewing the recommendations from these boards on issues. This Board is also responsible for reporting to the shareholder (the Government of Guyana) through the Minister responsible for the industry.

BIDCO provides technical advice, analysis and services to the companies in the bauxite industry and to the Government on bauxite-related matters.

BERMINE reintroduced its RASC to the market in conjunction with BIDCO, using a joint strategy worked out with LINMINE. That strategy tried to address the issue of increasing Guyana's share of the RASC market and bolstering BERMINE's finances without intra-Guyana competition damaging either company.

Following the initiation of the unbundling of the non-core services from LINMINE, the preparation of these units for existence as self accounting, business-oriented units was undertaken by BIDCO. The first step of separation in terms of employment and management control took place in April 1993, and some of these units are now operating independently. Further steps are planned.

The Government of Guyana assumed foreign debt amounting to US$428 million from GUYMINE, for which BIDCO is now responsible. The aim was to issue bonds to the creditors after verification of the debt by an adjudicating authority utilising the services of an auditor appointed by him. Some creditors have not fully accepted this approach and evaluation and recommendations on their counter-proposals have to be done. The largest of these is Green Mining/E.S.I. of the USA.

e. GUYBULK Shipping

The company was incorporated in 1974 and commenced operations in January 1975 with two geared bulk-carriers of 14,000 tons each purchased from Bulkhandling. GUYBULK is managed by Klaveness Shipping and employs Norwegian, Filipino, and Guyanese officers and Guyanese ratings on all its ships. BIDCO has responsibility for crewing and manning. The trading activities of the company have always been conducted by a combination of owned, long-term charter and trip charter vessels, the combination depending on the level and content of the business. The company currently owns two bulk-arrivers of 27,000 tons capacity, one of which served as a bauxite transshipment station in the Demerara (DTS), and one oil/bulk/ore carrier (OBO) with a capacity of 14,000 tons. It also has a long-term chartered 27,000 ton bulk-carrier. One of the 27,000 ton bulk-carriers it owns is fitted with a special conveyor system and was permanently anchored in the Demerara River where it served as transshipping station (DST), replacing the Alcan-owned transshipment station in Trinidad, which was closed in 1988. The oil-bulk carrier shuttles bauxite from Linden and Everton to DTS and transports oil for LINMINE and BERMINE.

Ships operated by GUYBULK transport all bauxite produced by LINMINE and BERMINE, except for small shipments under 3,000 tons, and shipments made under FOB sales for which the customers provide their own ships. Guyana's bauxite at one time constituted over 60 percent by volume of the cargoes transported by GUYBULK, but it currently accounts for only about 30 percent. The ships are involved in general trading and even the oil/bulk carrier is being used increasingly to carry oil for the bauxite operations in Surinam.

GUYBULK currently employs a total of 77 seamen, 25 officers, and 25 ratings. Of this number 63 are Guyanese: 11 officers and 52 ratings. A training programme has been instituted to replace foreign officers wherever possible with Guyanese.

f. BIDCO America

This is a wholly owned subsidiary of BIDCO incorporated in the USA in 1988 for the specific purpose of handling the commercial aspects of GUYMINE bauxite sales to the USA. All RASC bauxite sales to the USA are made under fob barge or railcar terms, which means that title does not pass to the customer until the material has been placed on his sales or railcar. Under the US Commercial Code, such sales must be effected through the US corporation which acts as "The Importer of Record" for the material imported. Philip Brothers (Phibro) performed this function as part of their agency agreement with BIDCO, hence at the time when a decision was taken to terminate the Phibro contract and to handle the marketing directly, a legal entity had to be put into place specifically for the performance of this function.

The company is housed in the Guyana Consulate in New York and currently employs two persons. Upon the dissolution of GUYMINE, BIDCO America, while continuing to be a BIDCO subsidiary, handled LINMINE's products and performed no functions for BERMINE until the recent decision. Consistent with the policy of cooperation in marketing for LINMINE and BERMINE, BIDCO America has reverted to the control of BIDCO and is now responsible for the marketing of all the products of both LINMINE and BERMINE in North, South, and Central America.

g. GUYTRADE Inc.

GUYTRADE was a wholly owned subsidiary of the BIDCO board. GUYTRADE was established in 1983 to replace a US-based purchasing, warehousing and shipping agency. GUYTRADE was under financial strains and when LINMINE decided not to use it a decision was made to close operations.

One of GUYMINE's foreign debts was US$909,629 owned by GUYTRADE. Also in existence was an industry-guaranteed bank line of credit for US$935,000. BERMINE was called upon to pay the bank line of credit on the understanding that they will be repaid.

4. Production and Areas in Mining

The change composition of the bauxite production in LINMINE and BERMINE can be seen in Table 32-6. The vast scope of territory held by mining operators for all minerals can be appreciated in Table 32-7. Essentially all of the increase in mining area is expected to arise from claims for minerals other than bauxite.

Table 32-6

Details of bauxite production from LINMINE and BERMINE

(Production in tons)

	1994	1993	1992	1991	1990
Linden (LINMINE) Calcined refractory grade RASC	158,000	261,000	215,000	331,000	288,000
Calcined abrasive grade AAC	-	6,000	3,000	29,000	28,000
Dried metallurgical grade MAZ	21,000	65,000	94,000	241,000	343,000
Chemical grade CGB	32,000	75,000	79,000	115,000	108,000
Total final products	211,000	407,000	391,000	716,000	767,000
Ore mined		1,400,000	1,300,000	1,700,000	1,900,000
Kwakwani (BERMINE) Dried metal grade MAZ	185,000	332,000	388,000	498,000	545,000
Chemical grade CGB	104,000	121,000	122,000	133,000	112,000
Cement grade ACGB	15,000	10,000	6,000	-	-
Calcined refractory grade RASC	15,000	6,000	-	-	-
Calcined abrasive grade AAC	2,000	-	-	-	-
Total final products	321,000	469,000	516,000	631,000	657,000
Ore mined	446,000	402,000	253,000	716,000	430,000

Table 32-7

Projected Acreage/Square Miles Held by

Medium and Large Scale Operators

Scale of Operators	1996		1997		1998		1999		2000
	Acres	Square Miles	Acres	Square Miles	Acres	Square Miles	Acres	Square Miles	Acres	Square Miles
Medium	2.28m	3,600	2.69m	4,200	3.05m	4,800	3.54m	5,500	4.03m	6,300
Large: a. Bauxite included	6.70m	10,500	6.76m	10,600	6.82m	10,700	6.90m	10,800	7.32m	11,400
b. Bauxite excluded	0.71m	1,100	0.77m	1,200	0.83m	1,300	0.91m	1,400	1.13m	1,800
TOTAL
a. Bauxite included	8.98m	14,100	9.45	14,800	9.87m	15,500	10.44m	16,300	11.35m	17,700
b. Bauxite excluded	2.99m	4,710	3.46m	5,400	3.88m	6,100	4.45m	6,900	5.16m	8,100

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B. Petroleum and Gas

Guyana lies within the South American Lithospheric Plate and straddles the transition between the continental and oceanic parts of the plate. The boundary between the American and African plates run along the line of the Mid-Atlantic Ridge, a divergent plate margin. The spreading axis are marked by transform faults. Plate movement is perpendicular to the spreading axis and the transform faults form small circles to the pole of rotation. The adjacent continental edge of South America and Africa represents a "passive margin" development of the flexured edge of the intraplate continent-to-ocean transition.

The development of the Atlantic has dominant bearing on the structural and basin development of Guyana. Basin development in Guyana and along the continental margin of equatorial South America and Africa is correlated with the plate tectonic history.

The Mesozoic and Tertiary stratigraphy is largely a product of the development and progressive opening of the Atlantic. The Paleozoic sedimentary record, however, represents intracratonic basin development prior to the break-up of Goondwana.

1. Exploration in the Offshore Guyana Basin

Exploration in offshore Guyana Basin commenced in earnest in the late 1950s, intensified during the latter half of the 1960s, and diminished by the mid 1970s. During that time several companies, including Conoco, Tenneco, Oxoco, Comoro and Deminex, acquired in excess of 12,000 line kilometres of seismics and drilled nine wells. From the latter half of the 1980s companies such as Guyana Exploration Limited (GEL), Lasmo and Broken Hill Proprietary (BHP), Total and Mobil Exploration Guyana Inc. (MEGI) continued the exploration trend which resulted in one well being drilled and the acquisition of approximately 9,000 line kilometres of seismics.

Data were available in sufficient quantity, variety and detail for three companies to contemplate the drilling phase. Total actually drilled Arapaima-1 in December 1990-March 1991. Both Lasmo/BHP and MEGI declined the risk. MEGI, however, performed a technical evaluation of the entire offshore. At present, more detailed seismics in specific locations may be useful, but wells are needed in the basin to improve controls.

2. Exploration in the Onshore Coastal Section of the Guyana Basin

Shell was the most intense operator. They drilled six wells in 1967-1967 with no success, in the extension of the Guyana Basin onshore. These wells provided valuable stratigraphic information to augment the then available data on aeromagnetics, gravity and water well.

The coastal section still remains unattractive because of the shortage of data. The area is not anticipated to be geologically complex and there is an opinion that drilling a few wildcat wells would do more to improve the scenario than any expensive detailed seismic programme.

Basement is less than 7,000 ft in the deepest parts of the basin. Drilling shallow holes may have better returns than seismics, especially if a Tambarejo type discovery occurred. Nevertheless, the limited potential of the coastal section onshore has placed it as a low priority option that could only be changed if petroleum was discovered.

3. Exploration in the Takutu Basin

In 1979 Home Oil of Canada had concession rights to the basin and conducted seismics in the western half. Two wells were drilled in 1981 and 1982. The Karanambo-1 well was a discovery in 1982 but could not sustain flow due to its poor reservoir in the Apoteri Volcanics. It was plugged and abandoned.

Guyana Hunt Oil Company (GHOC) was granted concession rights to the basin in December 1989. Their work programme was intensive and consisted of novel initiatives for prospecting. Several prospects, some of them new, were discovered. A drilling programme was partly executed before termination and relinquishment, when the Turantsink #1, drilled to test a supposed fan accumulation off the basin edge but found no reservoir and terminated in the Volcanics, dry. No further exploration has taken place since then.

4. Guyana's Present Position

Exploration for petroleum in Guyana is at a standstill. The models promulgated for the sedimentary basins have been tested and generally found to be correct with respect to geology and its subdisciplines. A point has now been reached where the finer details of the basins need to be discovered.

Attracting the Investor

Under current policy Guyana participates in the "profit oil" at a minimum of 50 percent and no sharing of the investment risk. The considerations attached to any new contracts must balance adequately that fact.

Regulatory Framework

The petroleum sector is guided by the Petroleum (Exploration and Production) Act and Regulations 1986. There are provisions therein for every conventional aspect of petroleum operations and sufficient latitude is allowed to accommodate expected variances in operational procedures within the industry. To date, no serious criticisms of the Petroleum Act and Regulations have occurred; in fact, its unencumbered language and directness is usually commended.

Minerals Rights and Licences

All lands to be licenced for petroleum are vested in the State. The Petroleum Prospecting Licence (PPL) allows individuals or companies to explore for petroleum. A relationship must develop between the holder of a PPL and the surface rights holder, both of whom have their individual entitlements.

Model Agreements

The petroleum sector negotiates Production Sharing Agreements (PSA) with companies interested in prospecting for petroleum. The PSA is supposed to support and be in accordance with the Petroleum (Exploration and Production) Act 1986 and its concomitant regulations. All the companies involved in Guyana under their various PSAs performed as per their agreements without issue.

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C. Gold and Diamonds

1. Gold

The draft final report of UN Economic Geologist A.K. Banerjee written in 1972 at the close of the UN-assisted ground investigations which followed the UN Mineral Survey Phase II (1967-1969) was not very encouraging in its findings and prognosis for the development of base metal mining in Guyana. For gold, the prospects were deemed somewhat better, and Banerjee concluded that there were possibilities for the immediate development of gold deposits in the primary or rich alluvial zones, on a small to medium scale.

In the 1980s declared production of gold ranged from just 5,000 ounces in 1983 to a high of 21,000 ounces in 1987, averaging less than 15,000 ounces per year. In the face of low levels of declared gold production the Guyana Geology and Mines Commission recognised that a major measure of its effectiveness and that of the mining industry would lie in increases in mineral production in a significant and sustained way. Buoyancy of gold prices, plus renewed faith in the geological potential of Guyana and possibilities for the realisation of economies of scale in open pit mining of large volume, low grade superficial deposits caused the Commission to take another look at known gold deposits and their prospects and mineralisation districts in Guyana. The geological and exploration data were re-examined and packaged to promote foreign interest and investment in gold prospects through the vehicle of the large scale exploration (prospecting) licence.

Simultaneously, the Commission was also seeking to quantify and evaluate economic palaeo-placer deposits to exploit on its on or in joint ventures with overseas organisations and to provide new or additional data to enhance the attractiveness of mineral occurrences which had good geological potential. Exploration data provided by GGMC also served as the basis for "free" shareholding by the Government in licenced prospecting and mining projects.

To support the mineral promotion effort, the revised Mining Act of 1972 was updated and replaced by the Mining Act 1989, and a proforma mineral agreement was finalised with assistance from the Commonwealth Secretariat.

In addition to the exploration carried out by GGMC, singly or jointly with organisations such as RUDIS of Yugoslavia, the DPRK Company Zonglabzelbi, and the United Nations Revolving Fund for Natural Resources Exploration (UNRFE), several companies including Pranapanema, SNC, Golden Star Resources, Norman Mines, South American Goldfields, Overseas Platinum, Romanex International and Placer-Dome, investigated over forty gold prospects in the 1980s and 1990s, culminating in the development of Omai Gold Mine in 1991 and record levels of gold production in 1993 and 1994.

2. Diamonds

Through the Harry Winston Geomorphological Alluvial Diamond Exploration Project, and brief geomorphological investigations by Dr. Richard Teewu, both in the 1980s, and more extensive geomorphological investigations by UNV Jasmin Halilovic, the Commission sought to obtain a clearer understanding of the conditions governing alluvial diamond deposition, and it attempted to identify and test geomorphological features that would be conducive for the deposition, sealing and preservation of significant diamond deposits with economic potential.

At the same time, Golden Star Resources applied this strategy in their Mazaruni diamond exploration programme in the mid-Mazaruni basin subjacent to the Roraima escarpment. They mapped bedrock morphology and delineated geomorphological features of interest, the knowledge of which is important in the identification and evaluation of economic placer and palaeo-placer deposits.

Golden Star Resources have since then shifted their exploration focus to pursue primary targets of kimberlites and lamproites, based on recent discoveries in Venezuela and the Canadian Northwestern Territories. Exploration for alluvial diamonds has progressed to final preparations for pilot scale mining and state-of-the-art processing of riverbed deposits in the mid-Mazaruni by Exall, with a planned second phase advancing to mining of adjacent land areas. Alluvial diamond deposits remain prime targets for exploration and development by medium scale operators, more so where gold is associated.

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D. Semi-precious Stones

The former Geological Surveys and the Geological Services Division have identified and quantified semi-precious stone resources. The GGMC has also pioneered development of semi-precious stones through the continued efforts of the Commission's Lapidary Workshop. More remains to be done and occurrences for which geological resources are demonstrated are to be followed up and new resources for which geological potential is favourable are to be targeted for exploration. In this regard, the high grade metamorphic terrains which are being investigated in the New River area are prospective for mineralisation in semi-precious stones, and alluvial amethyst has been reported at Tikwah Mine Golden Star/Cambior in their recent exploration activity.

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E. Industrial Minerals (excluding bauxite)

The importance of non-bauxite industrial minerals, primarily manganese and kaolin has long been recognised. Kaolinitic clays have sustained European porcelain manufacture from the eighteenth century to the present time. The Commission has undertaken several projects for the assessment of these industrial minerals, including ceramic raw materials and glass sand. This work is continuing through the Caribbean Development Bank's Step Fund projects which seek to assist local entrepreneurs by pioneering the road to industrial production of mineral-based products that will generate local value added. There are two Step Fund projects in Guyanese mining: one to characterise and quantify the resource base of selected industrial minerals, the other, to demonstrate in a practical way how these mineral commodities can be transformed into marketable and exportable end products, for a profit.

In addition, a project was developed, and accepted in principle by the United Nations, to show how industrial minerals could be successfully and profitably mined in a medium scale, with adequate environmental management practices.

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F. Other Metals and Minerals

Gold and diamonds are singled out by the mineral promotion efforts of the 1980s for heightened promotion to accelerate the development of large scale mining operations. However, the other solid minerals have not been neglected, and base metals, industrial minerals, semi-precious stones, radioactive energy minerals and rare earth minerals have been promoted and investigated to varying degrees.

1. Base Metals

The UN Mineral Survey Project and its follow-up UN-assisted exploration surveys had targeted base metal mineralisation, with minor interest in gold. Several base metal prospects were uncovered and explored, and usually there was associated gold mineralisation. The promotion of base metal exploration, therefore, has a firm base in previous exploration results, which should be combined with current data and newer exploration models, to be used in the quest for base metal deposits for which favourable geological environment exists.

2. Radioactive Energy Minerals - Uranium

Uranium exploration was undertaken by COGEMA from 1979 to 1984. It consisted of airborne reconnaissance geophysical (spectrometric) surveys conducted in the north and south Kurupung, Morabisi, Aurora, and Iwokrama areas and the region around the edge of the Roraima escarpment. Reconnaissance airborne prospection was followed by ground geophysical prospection (magnetic, resistivity and radon measurement by alpha scintillometry), accompanied by geological mapping, geomorphological/pedological observations, pitting, trenching, auger drilling, geochemical stream sediment sampling and petrographic analyses.

As a final phase, diamond drilling was conducted at selected sites at Kurupung and Eping, with down-the-hole neutron radioactivity scintillometry, and radioactivity measurement using a Geiger Muller counter. No deposits of economic value were found.

3. Rare Earths

Exploration was undertaken by the Geological Services in 1978, and by UNRFE from 1980-1983 over an area of 250 km at Muri Mountains in the extreme south and east of Guyana. The minerals sought were niobium, rare earths, phosphate and limestone, associated with a suspected carbonatite. Exploration results were reported to be unfavourable.

Exploration by the UNRFE indicated that the Muri alkaline complex consists of two adjacent masses of holocrystalline alkaline rocks, predominantly undersaturated nepheline syenite, which have intruded and locally fenitised the surrounding biotite granodiorite of the southern Guyana granite complex. Microsyenites and tinguaites (fine grained equivalent of the syenites) are also present.

Carbonatite appears to be present beneath the laterite-capped Twareitau Mountain which appears, morphologically, to "intrude" the northeastern exposures of the alkaline complex. On the basis of the drill core and other evidence, it is postulated that a possible carbonatite plug with maximum horizontal dimensions of 600 m by 800 m is emplaced within nepheline syenite.

Magnetite-hematite float rich in niobium and strontium is found off the central laterite cap. A high radiometric anomaly occurs at the base of the cap, streams have a pH of 8.5, and there are highly anomalous strontium and niobium in the soils.

The geochemical exploration programme which included grid soil sampling, extensive systematic sampling of outcrops, trenching, sampling of natural caves, sampling over radiometric anomalies and alluvial pitting, concluded that the Twareitau mineralisation of phosphates and rare earths were of subeconomic grade. Further, potential minerals containing P₂O₅, niobium and rare earths could not be beneficiated by contemporary commercial processes.

The extreme remoteness of the area, to which equipment can only be mobilised by helicopter, would require ore grades considerably higher than average to justify further exploration and eventually, development.

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III. Principal Issues and Constraints

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A. Issues

1. General

In the process of mineral resource assessment it is not possible to ignore or be unaware of the doors of international competition flung wide open in the 1990s with the reshaping of the USSR and the Eastern European bloc countries. From west to east, there is a global preoccupation with advertising one's mineral heritage, revising mining laws and fiscal policy, in some instances, offering fiscal incentives; advertising one's mining culture, infrastructure, educated human resources, etc., as additional attractions to the potential investor. In some ways it is like jostling for attention in a crowded marketplace.

The predominant view has been expressed that there is urgent need for a mineral policy which must go beyond the realm of merely encouraging increased declarations of minerals by small and medium scale operators. Central issues such as increasing output, investment and efficiency in the sector need also to be addressed.

According to a report by UNIDO, the fundamental issue is that any policy framework and concomitant programmes for the sector must have as its primary objective overall development of the sector through positive attempts to minimise the limitations and constraints small and medium scale operators face, as well as establishing an appropriate framework for larger investments. Government's underlying motive should be promotion of the sector, in light of its benefits to the nation in terms of income and employment, and not short-term commercial profit.

Discussions with various mining interests suggest that the mining law presently in place provides a good framework for holding and administering mining titles and overseeing activities in the mining sector generally. However, it is a common view that Government must immediately enact subsidiary legislation under the Mining Act to address conflicts among purported title holders and remove as many uncertainties as possible with a view to ensuring maximum investor confidence in the ability to acquire and retain mining titles in Guyana.

The mineral policy articulated by Government needs to address, inter alia, the following critical issues:

a. Security of Mining Titles

An investor who is expected to make a substantial up-front monetary commitment to a high risk exploration, development or mining project obviously needs to know that his efforts, if successful, will not be thwarted by the unforeseen loss of property rights or rights to mine. The possibility of conflicts between mining, forestry and agriculture, for example, would therefore have to be addressed.

b. Administration of Mining

The role of the various authorities involved in the mining sector (GGMC, GNRA, GGB, the various ministries, etc.) should be clarified in order to facilitate the investor's understanding of the role that each authority is expected to play and to facilitate access to the proper authority when legitimate issues arise.

c. Environmental Matters

Both local and foreign investors must respect and preserve as far as is conceivably possible our natural environment, and standards in that regard should be as clear as possible.

d. Investing Funds

Issues relating to foreign exchange controls and the free movement of funds to and from the country remain at the forefront of the minds of all investors. Government should review the relevant legislation with a view to:

(i) allowing the completely free flow of foreign currency to Guyana;

(ii) authorising both foreign and domestic investors to maintain their liquidities in offshore accounts if they so desire; and

(iii) allowing the unrestricted repatriation of capital and profits in gold and in dollars by investors.

e. Exporting of Products and Other Marketing Matters

The view has often been expressed that the unrestricted right to export gold free from duties and other impositions, which has been granted to Omai under the mineral agreement, should be made to apply to all mining investors, small, medium and large scale alike. It is argued that a liberal policy regarding the exporting and free marketing of metals should be a sine qua non of any sound and workable mineral policy for Guyana. Given these views, it is particularly pertinent that the role of the Guyana Gold Board be reviewed. It was founded in a different era and enforcing the requirement of mandatory sales to the board has caused considerable difficulty.

f. Guarantees from the State

Stabilisation agreements should be included as a cornerstone of the mineral policy. A thoughtful and well formulated standard form contract should amply serve the best interests of mining investors and relieve the Government of what would otherwise be the potentially unmanageable burden of negotiating untold numbers of such agreements.

g. Availability of Suitable Labour

The growth envisaged in the mineral and other sectors of the economy over the next five years would quickly exhaust our limited labour supply.

h. Geomorphological Information

The current data available on types, quantities, and location of mineral deposits are inadequate for the growth anticipated in the mining sector over the next few years.

i. Royalty and Corporate Income Tax

The current situation reveals charges of five percent royalty on gross profit for gold, three percent on diamonds, two percent turnover tax on gross revenue (to be suspended in 1997) and thirty-five percent corporate income tax. Local small scale miners are required to face similar charges in lieu of corporate income tax. The royalty and corporate income tax locate in the upper limits of international norms.⁽²⁾ The former, especially, is regarded as one of the highest in the Commonwealth.

Analyses and data which are relevant to this concern are found in the recent study of the mining tax regime by Parsons (1996).⁽³⁾ The net effect on investors' returns of the corporate taxes and royalties in various countries can be shown in different ways, including in the form of the Government's pre-tax share of the cash flow generated by a hypothetical mining project which is identical in all respects in all the countries studied, except for the mentioned taxes, for which prevailing rates are used. Proceeding in this way, the study finds the following percentages of pre-tax mining revenues which would accrue to the Government of several countries:

Chile 15.00%

Bolivia 27.06%

Venezuela 32.82%

Peru 36.52%

United States 36.61%

Mexico 37.21%

Botswana 40.10%

Brazil 40.85%

Argentina 46.13%

Canada 46.71%

Guyana 48.16%

Australia 50.60%

(Parsons, op. cit., p. 5.)

For the same hypothetical mine, the study also analyses the Government's share of the profits repatriated to shareholders abroad, in this case, to the United States for illustration. Those shares are as follows:

Venezuela 32.8%

Chile 35.0%

Bolivia 36.2%

Peru 36.5%

United States 36.6%

Mexico 40.3%

Brazil 40.9%

Argentina 46.1%

Botswana 49.1%

Canada 49.4%

Australia 50.6%

Guyana 55.9%

(Parsons, op. cit., appendix 14.)

The fact that Guyana ranks at or near the bottom of both lists is a matter of concern in terms of attracting investors for mining activities. It is not necessary that Guyana move to the top of the lists, but its present situation clearly puts it at a competitive disadvantage in the international context.

j. Import and Export Duties

Both import and export duties are fiscal measure used by Government to secure revenue. Over the last two years customs duties on some major mining equipment have been waived. Miners opined that the 15-20 percent import duty, which is still charged on several mining inputs is too excessive and burdensome. A more relevant concern may be the range of variation in such duties, as applied.

k. High Shipping Costs to and from Guyana

It is difficult for larger vessels to dock at the local ports and this adversely affects trading opportunities. The high cost of shipping also contributes to making Guyana's exports uncompetitive, particularly in the bauxite subsector. This serves as a deterrent to the attraction of foreign direct investment.

l. Poor Accessibility to Services in the Hinterland

Guyanese residents in the hinterland do not have proper access to essential services such as education and health. This is caused in part by poor connectivity and accessibility, in terms of both quantity and quality, and the high cost that this engenders. This issue hinders investment in resource extraction activities in the hinterland. The net effect is to significantly compromise hinterland development.

m. Access to Investment Capital

Mining requires extremely high risk equity or loan capital whose potential returns is not easily gauged because:

- Miners usually are unable to provide quantitative analysis of the minerals located in their claim or permit.

- Mining operation locates in remote areas which are not easily accessible.

These two conditions make financial institutions extremely skeptical to finance investment in mining.

2. Bauxite

The real question is the economics of development of these reserves and placing them in the category of economically recoverable reserves. With a vast resource base, a substantial quantity of which is in the proven reserve category, if it were classified as economically recoverable, Guyana should set out to more fully exploit its resources and continue to produce the range of products consistent with the quality of the resource and the market requirements. To the contrary, Guyana should make plans for an orderly phasing down of the industry, or the least competitive components of it. This in fact has been occurring to a degree at LINMINE while tests are being carried out concerning the potential benefits of new processes. BERMINE, on the other hand, holds out realistic promise of a return to profitability.

With a number of factors on both the demand and supply sides affecting the markets for bauxite products in the non-metallurgical sector, and with Guyana being a high cost producer compared with China in the field of RASC and AAC, the future of Guyana in the field of non-metallurgical bauxite is extremely precarious - not only the volumes are not there, but prices are unattractive. If is to regain its position as a major bauxite producer, and bauxite is to return to a prominent position in the economy and act as a growth point for the economy, major changes in the focus of the industry must be made.

a. BERMINE

Market

BERMINE was wholly a MAZ and GCB producer for a number of years while merged with the Linden operations. Following its independence in 1992 and a review of its position, it restarted its RASC production by rehabilitating of existing facilities and contracting with ABC to supplement its own calcined grade ore. It was felt that BERMINE needed to use fully its calcined capacity since there was a shortage of Guyana-type RASC in the market which was being filled by Brazilian bauxite, and that BERMINE with its "non-washing" production process could do this economically.

In 1994 the weak international economy and aluminum market coupled with stiff competition in the shipping distance bauxite made MAZ sales very difficult. GCB is not a growing market either. In both of these markets, two of the competitors are LINMINE and ABC.

BERMINE is primarily a MAZ producer, is handicapped by volume limitation on its overseas sales as well as limitations on the size of barges it can use on the river. Reduction of the first limitation would increase possible markets for their products, while the second issue would reduce costs. thence, the need for:

- A review of alternative methods of overseas loading and shipment, in conjunction with maybe ABC, out of the Berbice River.

- A review of development of alternative loading sites for raw bauxite downstream Kwakwani, which would provide bigger barge loads on the river.

Production

Production at BERMINE has been limited by market opportunity and sales, but recently output and sales have begun to expand. However, there are a few areas that need to be examined in the ongoing rehabilitation exercise when cash permits, to ensure that the company can go to capacity production. These areas include barges, tugs, off-loading system in completion, and kiln/dryer instrumentation. Attention also has to be paid to new mine identification, review of stripping methods, as well as the cost implications of these new methods, and to the issue of raising the attractiveness of its MAZ product.

Efforts in the rehabilitation of BERMINE have been centred on the RASC production facilities. Next projects are the products unloading system at Everton and the state of the river transportation fleet.

A limitation on the sale of BERMINE and Aroaima MAZ bauxite is its low-iron content. BERMINE needs to examine this issue in conjunction with its drilling programme which is aimed at:

- Re-establishing high proven reserve levels on the properties currently owned by BERMINE.

- Examining the feasibility of finding high iron bauxite or mining laterite at Ituni to add to their MAZ was done by DEMBA/GUYBAU to make an acceptable alumina plant feed.

- Reviewing mining practices currently in use to see if new methods can improve economies of present or future ore reserves.

Corporate planning review

Following the full review of its reserves, mining and ore transportation, BERMINE will need to continuously examine its role as an independent, non-affiliated bauxite producer and whether this is viable in the long term. The following questions are pertinent to such a review:

- Can BERMINE economically produce a desirable MAZ bauxite and ship economically?

- Can BERMINE re-establish itself in the market for Guyana type RASC as an independent operation, even if in conjunction with a refractory producer and a possibly renewed LINMINE? Can it get quality and yields to give attractive prices?

- What is the investment capital required to finance a modern operation and is it available?

- These questions are being answered with a cautiously positive response, but in fact, there are some strategic concerns over BERMINE. The entity is in direct need of market certainty, financial resources and management strengthening, and may need a joint venture partner to respond to these needs.

b. LINMINE

Market

The RASC market is tied to the health of the heavy industries supplies, primarily steel. This market has over the last two years been affected by the world economic downturn. In addition to this, there has been a strong downward trend in the usage of refractories per ton of steel produced. Furthermore, Guyana's position in this sector of the market has been weakened by Chinese and Brazilian competition, high prices, variable quality, unreliable supply, as well as poor service and industry survival issues perceived by customers.

In 1993 the inception report's modified target showed that 300,000 tons could be sold but only 240,000 could be produced. In 1994 the market was seen as only 250,000 tons. The preliminary report of the feasibility study confirms this and forecasts tonnages in this range, unless something can be done about price and the other perceived product demerits.

Production and cost

The company is capable of producing the required volumes. However, it was agreed at the time of the inception report that use of fully rehabilitated large major stripping systems (bucket wheel excavator sand draglines) should form the basis of cost effective stripping. It was also agreed that the rehabilitation programme should do physical repairs on three of the four systems. This was coupled with a view of maintenance and operating systems to allow the systems to sustain the higher levels of production to be met.

This plan was first changed because of repair capacity and the work stretched out until late 1994. The budget for 1994 moved some of these jobs to 1995. The result was that the increased stripping capacity and performance that was expected to be shown to prospective investors, did not take place as expected.

The most fundamental issue facing LINMINE is that its cost of production is well above the price received for its product, forcing it to incur annually in net losses which are funded by the Treasury. A recent study by A. Angel (1995) analyses the costs of LINMINE in detail, as well as trends in world market prices and the situation of competing countries. The study calculates indicators of the competitiveness of LINMINE known as "domestic resource cost" coefficients, or DRCs. These coefficients measure the cost of production in domestic resources utilised (measured in G$) incurred by the enterprise in order to earn a US$ (net) of foreign exchange. The analysis concludes that in 1995 the DRC for LINMINE was G$285.74 for each net US$ of foreign exchange earned through bauxite sales (Angel, 1995, pp. 49-50, also cited in Chapter 12 of this Strategy).

To put this result in high relief through a hypothetical illustration, this means that the exchange rate would have had to be about 286:1 (with no alteration of domestic price levels!) in order to LINMINE to have been profitable in 1995 without subventions. In this methodology, the greater the upward divergence between the DRC and the prevailing exchange rate, the less competitive is the industry.

Angel considered factors which could improve the situation. One such factor would be the unbundling of LINMINE's ancillary services, as reviewed in the study by the Adam Smith Institute (1995). A maximal programme of unbundling, resulting in cost savings approximately equivalent to US$1 million per year, would only make a modest reduction in the DRC, to about G$262 per US$. Another factor considered in the study is the gain in productive efficiency which would result from an increase in production levels by about 10 percent, thus spreading the fixed costs of production over a larger volume of output. This change would reduce the DRC only slightly, to about G$276. The combination of the increase in production levels and the unbundling would still leave the DRC at about G$252, far above the exchange rate.

The Angel study reviews in some detail the world supplies and demands for RASC (pp. 29-30 and 49). One potentially encouraging factor for Guyana is that Brazilian production could fall if some of the international investors there pull out, which appears to be a distinct possibility. Overall, she foresees firm RASC prices in the future with perhaps a slight upward trend. However, the presence of the Chinese mines in the market will prevent the prices from rising enough, in combination with LINMINE's own cost structure, to materially alter LINMINE's competitiveness. In addition, it needs to be underscored that BERMINE is a direct competitor with LINMINE.

These circumstances indicate that a basic re-thinking of the policy for the bauxite industry is in order, as discussed later in this Chapter.

c. Aroaima

Capital and debt structure

As against an equity base of US$4.0 million the Company has loans of US$59.6 million. Of these loans US$17.0 million are long term loans from OPIC and CDC and US$40.5 million are short term amounts due to Reynolds International. The level to which this second category has risen has breached the conditions of the long term loans and these, while being paid, are in breach of their loan covenants. This issue is the subject of negotiation with the bankers involved.

Reynolds at the last directors' meeting proposed formalising the advance they have made, into a short term loan. They are to send details of the draft agreement for consideration of the Guyana directors and the Government.

Dredging the Demerara River

Reynolds holds a guarantee from the Government of Guyana that via BIDCO the channel will be kept at 6.0 m, its maximum depth. This promise has not been kept and Reynolds' shipper has been claiming a "dead-freight" payment amounting to US$1.8 million from Reynolds and BIDCO. Neither party has accepted liability, and the Government guarantee does not say what the remedy should be in case of default.

In addition, the ongoing dredging of the channel has not been done by BIDCO/GUYMINE. Reynolds has financed these via Southern Star, their shippers. They expect to recover same from the Government's share of dividend when these are declared.

Shipping

ABC is unable to enter other markets, even some intra-Reynolds markets, because of their inability to ship economical lot sizes out of Guyana. Shipments have been limited to 23,000 m/tons and can probably can move up to 50,000 tons. The new port facility on the Berbice River will now permit larger shipments than before but still not up to the target of 50,000 mt.

Dividends

ABC has not paid any dividends to date. They have made profits in 1991, 1992, and 1993 but the conditions of the long tem loans prohibit dividend payments until financial ratios are met. These criteria have not been satisfied and currently the large amount of short term debt makes immediate payment unlikely. In addition the issue of repayment of dredging funds will affect the potential receipt of dividends.

d. Bauxite in an Economy-wide Context

From an economy-wide viewpoint, while the bauxite industry still generates considerable amounts of employment, the following issues are undeniable:

- Revenue from import duties has become almost non-existent since both LINMINE and ABC have been granted exemptions from these duties.

- The industry which in the 1970s was a net foreign exchange earner for the economy, in the 1980s became a borrower.

- The industry, instead of providing dividends to the State became dependent on the State for subventions and does not look like becoming profitable on its own in the near future.

3. Petroleum

Reviews of the terms of previous petroleum agreements by international bodies such as Petroconsults (U.K.) Limited and Barrows Inc. place Guyana in a bracket where for marginal fields (estimated reserves less than approximately 30 million barrels) the contracts were unattractive to investors but for fields with upside potential (reserves greater than 100 million barrels) the contracts were attractive. Despite this, Guyana appears not to have attracted its fair share of investors. Petroleum exploration is a calculated high risk. This was substantiated by all the recent companies that chose to relinquish their concession rights rather than commit to the drilling phase in Guyana. The question that needs to be asked is whether this stance on the part of international companies is attributable to unencouraging stratigraphic information or to the country's macroeconomic and mining policies.

4. Gold Marketing

Considerable controversy has arisen over the role of the Guyana Gold Board which, as indicated, is a holdover from a different era of economic policy. Independent miners resent the monopoly position of this board, the necessity to travel from their hinterland sites all the way to Georgetown to declare and sell their gold, and the rather high royalty rate applied to those sales. Objectively, it must be recognised that this set of circumstances is unfavourable for all concerned in that it tends to promote evasive behaviour, especially with the difficulty of monitoring border crossings for transactions in other countries. This issue is discussed further in Section V and corresponding policy recommendations are formulated.

5. Exploration Costs

By their very nature, mineral deposits are fixed in location and size but they vary in quality. In addition, there is wide diversity in the level and reliability of information that might be available on different deposits. As a consequence, mineral potential can only be estimated by probabilistic methods of statistical analysis.

In determining the economic potential of any mining project, the considerable risk involved must be juxtaposed with the possibility of large profits from spectacular mineral discoveries. The composite risk involved in the mining industry is traditionally divided into exploration, geological, project, market, and political risk factors.

The generally accepted view is that the probability of finding an economic deposit is very low, giving rise to exploration risk. Estimates of the likelihood of locating economic deposits of minerals range from levels as high as 10 percent to much lower than 1 percent. In Guyana the success rate so far has been approximately 5 percent. In other words, only one Omai type deposit has been located from among twenty prospects explored.

In addition, the average cost of locating an economic deposit varies from country to country. In Guyana, Golden Star Resources Limited spent in the vicinity of US$38 million (including exploration cost of Omai) to finally end up with the Omai deposit.

Market risk is not perceived as being as severe for gold and precious stones as it is for other metals and minerals. It must be recognised that for all mineral properties the boundaries between waste and ore fluctuate in accordance with changes in market prices an advances in technology. Fiscal policy for the mining sector must make due allowance for the inherent riskiness of the sector. This is related to the issue on taxes and royalties that was outlined previously.

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B. Constraints

1. General

a. Access to Investment Capital

The cost of prospecting for minerals is very high. Miners only acquire mining licence or claim licence which are not favoured as acceptable collateral by our local commercial banks because they do not involve title to the land. This lack of collateral is a constraint in facilitating access to capital.

As access to capital is linked to the form of land tenure, miners in Guyana cannot generally access investment capital on the basis of their mining rights. In some countries this is possible as long as the mineral reserves of the land could be reasonably quantified.

In the case of foreign direct investment, Guyana has to compete with other mineral-rich economies for investment. The high costs of transportation from the hinterland has also served as a deterrent to the foreign direct investment.

b. Land Titling and the Mining Sector

Under the Mining Act all minerals are vested in the State. In relation to the demarcation of Amerindian lands, under the current laws of Guyana different enterprises could have rights to different minerals within the same land unit. It is envisaged that this provision could potentially cause problems.

c. Geomorphological Information

Information guides investment. Investors want to see documented evidence relating to the specific investment they wish to undertake. Failure to provide same impedes investment and forces investors to locate in areas where data are obtained.

d. Poor Accessibility to Services in the Hinterland

Guyanese residents in the hinterland do not have proper access to essential services such as education and health. This is caused in part by poor connectivity and accessibility, in terms of both quantity and quality, and the high cost that this engenders. This issue hinders investment in resource extraction activities in the hinterland. The net effect is to significantly compromise hinterland development.

e. Availability of Suitable Labour

It is observed that the mining industry is faced with shortages of local geologists, engineers, and drillers among others. The University of Guyana is not currently attracting sufficient candidates to train in fields relevant to the mining sector and very limited scholarships are being offered in this field. Also, the graduates from the University of Guyana have limited field experience. Already some mining companies, facing this constraint, have begun to recruit personnel with mining-related skills from overseas.

f. Role of the Miners' Association

There is currently no definitive code of conduct to guide the behaviour of firms operating within the mining sector.

Poor health of hinterland workers also impacts adversely on the productivity of the labour force. Malaria, in particular, seriously affects not only workers' productivity in many hinterland areas, but also the supply of labour in such areas.

g. Transportation Costs

Some mining areas are located on the periphery of our national borders while others are found in equally remote areas. As a result, access to these areas (all lacking in infrastructure) are only possible by chartering private aircrafts. Due to this, small miners are unable to make regular flights in or out of the interior areas. The end result is that at least some of the nation's gold and diamonds, rather than being sold to the Gold Board and to local licenced diamond traders, leaks into the economies of our neighbours.

h. Poor Remuneration of Government Employees in the Hinterland

The prices of general supplies in the hinterland of Guyana are very high and this is related, in part, to the poor accessibility of these areas. On the other hand, the levels of remuneration for Government officers in the hinterland are relatively low. This situation contributes to low morale among the Government's labour force and compromises effective administration of economic activities. An insufficiency of trained personnel within the hinterland is constraining the effective administration of the mining sector.

2. Bauxite

To be able to re-enter the MAZ and eventually the alumina market, the two constraints (cost of production and shipping costs) would have to be removed.

a. Cost of Production

A chief disadvantage of Guyana's reserves is the depth of overburden, which was the major factor behind the country's loss of competitiveness in the MAZ market and, hence, the virtual stagnation and later decline in production of this product. The depth of overburden also has an impact on the competitiveness of RASC, as discussed above, which is now in competition with Chinese and Brazilian refractory bauxite, fused aluminum oxide and calcined alumina made from bauxite produced in countries with low mining costs. Urgent measures to sharply reduce mining costs are, therefore, an imperative to the future of the industry in Guyana.

RASC, upon which heavy dependence was placed, now faces a static and fiercely competitive market. The prospects for expansion in this market are, therefore, doubtful. The possibility exists, however, that Guyana could enter the wider high alumina market, producing along with regular RASC, materials with lower and higher alumina content for which there is a substantial market. Investment in additional processing facilities is needed for this development, but the main advantage lies in the fact that the raw materials for production of those materials currently form part of the overburden which is removed and discarded in the mining process.

While production costs are recognised as a constraint, it is partly compensated by the quality of the ore obtained, since the pricing structure for bauxite includes bonuses for quality. ABC, for instance, earns almost a 25 percent bonus on its current bauxite sales due to the high quality of the ore. The cost of production can also be reduced by increasing the scale of operations, as mentioned.

b. Shipping Costs

One solution would involve the establishment of a deep-water facility capable of handling ships of 50,000-60,000 tons capacity, and ship loading facilities to load these vessels in two to three days. The high costs of shipping makes Guyana's exports uncompetitive, which serves as a deterrent to the attraction of foreign direct investment. This solution is proposed in Chapter 38 of this Strategy, improving the Berbice port facilities for that purpose. If the requisite financing could not be obtained, the construction and operation of the new port could be concessioned.

IV. Sector Objectives

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A. General

Mining is an important sector in our economy and at the same time it exhibits some divergent characteristics. It encompasses a subsector that is growing very rapidly (gold, diamonds) and another one that has been in steep decline (bauxite). It is a very important earner of foreign exchange and yet the bauxite subsector has been a net burden to the National Treasury. It is a major source of employment and income in the hinterland but it has brought with it a spread of malaria and other diseases and some environmental problems. Its development requires substantial amounts of foreign investment and technology and yet the fiscal costs imposed on investors by present policies are quite high by international standards.

In a broad sense, the overall objective of national policy for mining is to reconcile some of these discrepancies while at the same time firmly cementing the foundations for continuing growth so that the sector may play its rightful role as a principal catalyst for the economy in the future. Toward that end, this Chapter of the National Development Strategy lays out the basic guidelines of national mining policy. These guidelines address the needs for:

A clear and adequate framework for development of all minerals, including a fiscal framework that respects national needs whilst encouraging investment;

A clear policy for giving direction to the bauxite sector in light of its cost/price concerns;

A policy for meeting the sector's infrastructural needs; and

A policy for dealing with social and environmental issues that arise from mining activities.

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B. Gold and Diamonds

The Geological Services Division stands reminded that the goal of gold development is to find over time several other "Omais" and to achieve high levels of production from the medium and small scale gold mining sectors. Diamond exploration and development is being promoted as well.

GGMC's projections of gold production by medium and large-scale miners are shown in Table 32.4 above, to the year 2000.

Other objectives for the gold subsector include finding ways to reduce the river pollution caused by independent miners and to develop a national accord on the role of the Gold Board and gold royalties.

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C. Bauxite

Even though the prospects for world economic growth and, consequently, for metal consumption and production are pessimistic at this time, even a 1.5 percent per annum annual growth in aluminum consumption - the level currently predicted - would result in an annual increase in demand for MAZ of 1.5 million tons. Over a period of 10 years this increase, compounded, would require an additional 20 million tons of MAZ on the world market. Guyana could place itself in a position to gain a share of the existing MAZ market and to share in the projected increase. In addition to lower production costs, Guyana's prospects for competing in this market would depend on lower shipping costs. The only way to achieve this is to be in a position to use larger ships - move from the current 20,000-25,000 ton shipments to 50,000-60,000 ton shipments. In addition to using the new shipping facility, this would involve substantial further investment in the establishment of a deep-water harbour and barge discharge and ship loading facilities to efficiently handle large barges.

The overriding objective for the bauxite subsector is to define the most appropriate programme for rationalisation of the operations at LINMINE and BERMINE, bearing in mind the interests of the workforce and long-run national development interests.

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D. Semi-precious Stones

Guyana is also committed to the development of semi-precious stones resources. In this field there are opportunities for hinterland development and employment, and provision of economic opportunities for Amerindian communities. Several known semi-precious stone deposits, involving amethyst, agate, green quartz, jasper, are located close to Amerindian communities in the Rupununi and in Orinduik vicinity.

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E. Petroleum

Both of Guyana's basins are frontier regions and oil companies must turn to these areas to explore replacement reserves. Many technically attractive areas in Asia and Eastern Europe are in this competition. Guyana has an advantage in being a stable country where attractive contracts were negotiated in the past and in being an English-speaking country, but it has received less than its expected complement of prospective investors. Nevertheless, Guyana has a vastly underexplored offshore basin which is quite accessible. Incentives for exploring the Takutu Basin are few but compelling. Petroleum actually flowed to the surface through Kranambo-1, the data are recent and could be the basis for any number of junior companies or independents becoming interested in further exploration.

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V. Policy Recommendations and Their Technical Justifications

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A. The Components of Mining Policy

It is worth reiterating that in spite of the decline of the bauxite industry mineral development has the potential to become once again one of the principal engines of economic growth in the Guyana. There are challenges that need to be met and there are some issues that need to be dealt with adequately in order to fully realise this potential, but there should be no doubt that it exists. What is required above all is a willingness to face squarely some of the difficult questions concerning the sector's development and to develop a policy framework that will put it on the right track for the long term, followed by consistency and clarity in applying that framework over the years.

Mining policy must be cognisant of and responsive to the issues raised in this Chapter, and it must be moulded to Guyana's unique geological, geographical and social characteristics, to its overall economic needs and policies, and to the increasingly competitive requirements of the international minerals investment community.

The mining policy as a whole must embrace a fiscal regime, marketing arrangements, a technology policy, an institutional policy, a policy on security of titles, a policy on training the labour force, an environmental policy for mining, an approach to social issues in mining communities, a programme for the bauxite industry, a programme for development of infrastructure related to mining, and other essential components. These elements are addressed in the succeeding portion of this section of the Chapter.

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B. The Fiscal Regime for Mining

1. General Principles and Approaches

A primary premise dictating the structure of Guyana's mining regime must be the exhaustible, non-renewable nature of its mineral reserves. Any generic regime designed, recommended, and eventually implemented, must provide for Guyana securing satisfactory financial returns in exchange for conceding the extraction of its exhaustible resources. At the same time, considerations of international competitiveness must be taken into account in designing the regime.

Apart from levies on imported inputs, there are four basic instruments of fiscal revenue policy in the mining sector. The first is the royalty, i.e., levy on the gross value produced. In a majority of developing countries, an overwhelming share of the mineral wealth is exported. In practice, therefore, the value-based fiscal extraction sometimes takes the form of an export tax.

The second fiscal measure is a tax on profits, i.e., on the income that remains after deducting allowable costs from the proceeds. The third measure is a provision permitting the public authorities to acquire part of the equity in the mineral enterprise on "free" or concessional terms.

The fiscal implications of Government participation in equity basically depend on the terms of acquisition. If the Government pays for its shares in cash at the market price there will be no fiscal extraction at all.

The Government may be allocated a share of the equity in exchange for its contributions in kind to the mineral project. These contributions may simply consist of a permission to mine, or of infrastructural installations provided by the Government. The fiscal extraction in such cases will depend on the way the Government's contributions are valued. Another possible arrangement for the Government's equity acquisition is through what may be termed "carried interest." Here the Government pays for the equity through a loan, obtained from or arranged by the multinational mining company. The principal and interest are then paid from the Government's share of the dividends from the project. The rate of interest on the loan is an additional determinant of the amount of fiscal extraction under this arrangement.

The fourth fiscal instrument for mining applied in Guyana is a withholding tax on repatriated profits, in effect a second tax on the income generated by the mining operation.

The fiscal burden of these four measures on the investor may be offset by accelerated depreciation allowances and like measures. It should be noted that in the international mining community the granting of "free" equity to the Government is somewhat controversial, as the dividends paid to that equity in effect increase the income tax paid by the investor.

2. Criteria for Defining the Fiscal Regime

Any Government of a mineral-rich developing country, such as Guyana, that is interested in expanding the mineral sector with foreign investor involvement, and that is anxious to reap substantial benefits from it while assuring both technical and economic efficiency in the exploitation of the nation's mineral wealth, should have in place a fiscal regime that satisfies, at least, the following six criteria:

a. Generality

The fiscal regime should be structured so that it can be applied in a variety of projects and circumstances without wasting time and resources in devising a unique fiscal regime for each project, and creating confusion thereby. The recent calls by various groups to revisit the Omai agreement is a case in point. A standard fiscal regime is one of the most attractive elements of policy to investors.

The fiscal encouragement to exploit bountiful ore bodies should not be excessive. On the other hand, there ought to be also sufficient incentives for the development of more meager, marginal deposits, as well as upgrading production techniques once production is underway.

b. Stability

A regime that is frequently adjusted to changing circumstances creates uncertainty, thereby discouraging investors. A standard and stable regime must therefore be designed to be acceptable to politicians as well as to the foreign companies whose involvement is sought, both when prices and profits are exceedingly high, and when they are profoundly depressed.

c. Fairness

The fiscal regime should show a reasonable sensitivity to the investor's ability to pay the dues that are imposed, so as to avoid, as far as possible, creating financial strains that may jeopardize the viability of the project. At the same time, it must reflect the legitimate aspirations of the Guyanese public.

d. Efficiency in mineral exploitation

The lesson of Omai again reminds us of Guyana's monitoring capabilities and penalties on the book. The fiscal regime should promote a rational mineral exploitation. Thus, the provisions ought to encourage a high and even utilisation of production capacity and discourage the practice of "high-grading" (selective mining of the best parts of the ore body), thereby permanently wasting the portions of the deposit with lower grade ore.

e. Transparency

Here the term transparency has wider connotations than those held in vogue during the recent political past. The investor (and the Government) should be able to foresee in a clear cut way what the fiscal consequences will be for alternative actions in managing the project or from events in the international market that affect the project operations.

f. Simplicity

It is very important that the tax regime be as simple as possible. This will facilitate its administration and encourage a spirit of cooperation between the investor and the Government, and it will foster confidence in the policies of the sector.

3. Specific Elements of the Fiscal Regime for Mining

The first requirement for Guyana's fiscal regime for mining is that it be absolutely standard. In the case of Omai, for example, the mining contracts specify a fixed income tax rate that differs from the normal corporate tax rate in the tax code, and a withholding tax rate on repatriated dividends that is lower than the rate indicated by the present system. A second requirement is to adjust some aspects of the regime in light of the increasingly competitive nature of the international marketplace in mining.

The discussion in Section III above makes it clear that Guyana's current fiscal regime for mining that is on the books places it at a considerable disadvantage in terms of international competitiveness. Adding the effect of the free equity of five percent conceded to the State, the Government's total share of pre-tax profits from a mining enterprise (arising from corporate taxes, royalties and dividends) rises to about 53 percent, putting the country in a even more unfavourable situation. There are some offsetting considerations, such as accelerated depreciation, but on the other hand the withholding tax adds more to the Government's share. To be positioned close to the middle of the international range, this share should drop to about 40 percent, or at least below 45 percent.

A very important consideration is that, in terms of net effects on flows of fiscal revenues, any reduction in rates contemplated because of the requirement to be more competitive would be likely to be compensated by increases in the tax base through expanded mining activity. Therefore it is unlikely that the Treasury would suffer net losses from downward adjustments in the rates. On the contrary, over time net gains could be expected because more investment would be attracted. Most importantly, employment and income generated in the country, as well as foreign exchange earnings, would increase.

The next consideration is which of the fiscal instruments should be adjusted in order to achieve the desired reduction in the aggregate rate. There would appear to be no reason to adjust the corporate income tax, set at 35 percent in the majority of the mining agreements, because it is already equal to the standard corporate tax rate. Additional adjustments for mining could cause repercussions in other sectors of the economy. In fact, in the future, reductions in that rate, like the decrease to 33.75 percent in the case of Omai, should be avoided.

From an investor's viewpoint the royalty rate and the free equity provision are more controversial. The royalty rate of 5 percent, which is at the very top of the international scale, also causes special problems in the case of gold, where it encourages leakages of the product across the hinterland borders to neighbouring countries and other forms of evasion. In this case, a complicating factor is that the borders are quite permeable, and indeed access to neighbouring countries from some hinterland mining districts is easier than access to Georgetown. Hence in practice the attempt to sustain the royalty rate above that of Brazil, for example, results in reduced declarations nationally.

The reason the royalty is problematic for investors is that, unlike an income tax, it must be paid even if the operation incurs losses, because it is applied to gross proceeds.

Many mining countries have no royalty provisions, and those that do typically have a rate of 2 or 3 percent. However, it is not felt necessary that Guyana eliminate the royalty entirely. Precisely because it must be paid independently of whether the enterprise is profitable, it guarantees a minimal flow of revenues to the national budget.

For the reasons cited above, the following changes in the fiscal regime are proposed:

a. A new royalty rate of 2 percent should be adopted and phased in over a period of two years.⁽⁴⁾

b. Fifty percent of the royalty should be deductible from income tax payments. While in most cases the royalty would function in lieu of income taxes in the early years of the operation, when there is no net income, in the later years this provision effectively would provide an incentive to declare profits.

c. An additional half percent of royalty would be added to exploitations on Amerindian lands, to be paid into the Amerindian Development Fund (see Chapter 22), to help mitigate adverse social effects of mining and to promote true development among Amerindians.

d. The corporate income tax rate would be fixed at 35 percent for all mining projects.

e. The withholding tax on repatriated dividends would be fixed at 6.25 percent, which is the rate applied in the case of Omai, rather than the 15 percent rate that is nominally applicable. There is increasing pressure in OECD countries, and in other regions of the world, to reduce this class of taxation, and Guyana's current nominal rate is one of the highest in the world.

f. Allow reasonable deductions from the income tax liability for exploration expenses, in order to encourage that kind of activity. The precedent of the provisions in the Omai agreement can be used as a basis for defining these deductions. This measure reduces exploration risk, which is one of the main deterrents to further development of the industry.⁽⁵⁾

g. Eliminate export duties, in line with the Government's long-term policy of reducing trade taxes, and because they tend to foster evasive behaviour that is particularly difficult to control.

Historically, one reason for the institution of the royalty in the case of gold mining was very practical: the recognised difficulty of obtaining accurate tax declarations from independent gold miners, or even any kind of declaration from many of them. This points to the need to strengthen income tax enforcement in this sector. Mechanisms should be adopted such as:

h. Requiring that the purchaser of dredges and other mining equipment provide a taxpayer identification number on the invoice. This will enable Inland Revenue to follow up with the taxpayer in the event of lack of a declaration, and in some cases estimate a presumed minimum level of income for tax purposes. Ultimately, strengthening the income tax system in ways like this is preferable to continuing to maintain a royalty rate that is so high that it discourages some investments and at the same time encourages evasion on the part of small-scale operators.

Land rentals from mining acreage have not to date been a significant source of fiscal revenue. Nevertheless, in light of the large amount of acreage devoted to minerals claims (Table 32-7), it is undeniable that mining constitutes a major form of land use. A concern here is that some claims are held for only speculative purposes, in effect idling the land when others might put it to productive use, whether in mining or some other economic activity. Therefore, as part of the process of implementing this Strategy:

i. A special commission will be convened to determine new, higher land rentals and to develop a sliding scale which steeply raises those rentals the longer the claim is held without working it.

Another element of the fiscal policy for mining are two special provisions designed to mitigate some of the deleterious environmental impacts of mining:

j. A special tax will be applied to the purchase and (annually) to the operation of missile dredges, the proceeds of which will be deposited in a special fund to be used for rehabilitation of river banks. Amerindian communities and NGOs will be given priority in contracting for carrying out such rehabilitation, and the Environmental Protection Agency will oversee the management of the fund and the rehabilitation activities.

k. A special reduction of the income tax to 25 percent will be offered to any company that sets up a regional gold processing mill, receives ore from independent miners for processing, and uses technologies that minimise the environmental impact of the processing (e.g., that do not result in discharges of mercury in the waterways). While exceptions to the tax code should be strictly limited, this one is justified by beneficial environmental externalities. Mercury is particularly long-lasting and pervasive in its transmission through the food chain, thus endangering public health.

Finally, fiscal policy needs to incorporate explicit recognition of the fact that mineral resources are depletable. Once mined, they are forever gone. Guyana wishes, however, to extend the benefits to the public of the mining operations over as long a period as possible. A useful precedent in this regard is the policy of Gulf States of allocating part of their petroleum proceeds to long-term financial investments, and using only the interest earnings from those investments to meet recurrent development requirements. Therefore the new fiscal policy framework for mining includes the following provision:

l. Up to half of the royalty income from mining will be allocated to a Fund for Guyana's Development that will be invested appropriately in long-term instruments and whose interest earnings will be allocated to projects concerning infrastructure, the environment, poverty alleviation, housing and health care, according to special regulations formulated for the utilisation of the Fund.

It is vital that this new fiscal regime not only be standard but that it be legislated, thus removing any doubts about whether portions of it were negotiable. It is not recommended that tax treatments vary according, for example, to perceived difficulties of access to a mining site, for that would open the door to subjective considerations. The one and only exception to the universal application of this fiscal regime in mining could apply to the existing bauxite industry, as explained below.

It also would important to publicise widely this fiscal regime, at home and abroad, as a major encouragement to investors, as a way of emphasising that its applicability is standard, and to underscore that the Government is firmly committed to it.

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C. Marketing Arrangements

The principal policy concern in respect of marketing minerals has related to the monopoly position enjoyed by the Guyana Gold Board and, as noted above, the substantial royalty it charges on the gross value of the product.⁽⁶⁾ In particular, the Guyana Gold and Diamond Miners Association (GGDMA) has been vociferous in pressing its stance that this monopoly should be ended.

In light of the considerations advanced earlier in this Chapter, and whilst recognising the past contributions that the Gold Board has made, it has been decided to replace the mechanism of that board with a system of licenced and bonded buyers of gold. Each person or corporation that wishes to become a licenced buyer must submit financial statements, provide bonds against liabilities for royalty remittances, and must show a programme that involves a physical presence in the interior at least part of each year. The buyers will be responsible for remitting the royalties to the Government. Buyers must invoice all purchases and sales of gold and will be tightly supervised by the GGMC.

Independent gold miners will be encouraged to form cooperatives that also may qualify as licenced buyers. Government will determine the minimum maximum number of buyers that may be in operation at any one time, and the minimum will be no less than ten.

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D. Mining and Milling Technology

As noted above, Government will take steps to mitigate the harmful consequences to the environment of independent mining operations, through the fund for restoration of riverbanks and the fiscal incentives for regional gold processing mills.

In addition, GGMC will make explorations on a continuing basis of the state of the art in mining and milling technologies, with the aim of ensuring that the most appropriate and up-to-date methods are utilised in Guyana. In mining contracts, fines for incidents of negligence such as collapse of tailings dams (which never should occur) will be increased.

An oddity of the Mining Act 1989 is that it prohibits foreign participation in small and medium scale mining operations. While intended to "protect" national enterprises, this clause deprives them of access to the technology and financing that could be provided by foreign partners. In some cases, that technology also could be more environmentally benign. At the same time, having this clause on the books does little to prevent depredations of national mineral resources by individual foreign miners entering the country across river and land borders. For these reasons this clause should be repealed.

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E. Institutional Aspects

The most pressing institutional need is to strengthen the capacity of GGMC to monitor and supervise mining operations, to carry out its exploration programme, and to market Guyana's mineral resources abroad. As in other sectors, this will require giving priority attention to Public Service salaries and conditions of work.

In this regard, the mining sector strongly supports the recommendation for a temporary reduction in income taxes for both expatriates and returning Guyanese, for suitable periods of at least three years.

Another important institutional concern is the need to clarify the lines of authority in regard to mining operations. It is damaging to Guyana's image abroad and to the efficiency of Government in managing the mining sector to have divided authority. For that reason, the mining sector also supports the move to eliminate the GNRA and instead concentrate the institutional strengthening process on agencies such as GGMC and GFC.

For GGMC to play its proper role in the sector it urgently needs to commission a national mineral resource inventory and assessment, and to publish the results for wide dissemination. It also needs to construct a modern integrated laboratory for assays, metallurgical analysis, geochemical tests, and environmental analysis of mining wastes.

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F. Security of Titles and the Nature of Concessions

The Mining Act 1989 contains sound dispositions with respect to mining titles. Nevertheless, in practice confusion continues to arise and there appears to be too great a discretionary element in the awarding of those titles. What is needed is a tighter set of regulations for the Act in this area, and redefining operating rules for applying them. This is a crucial issue from the viewpoint of investors and it is in our own interest to eliminate the ambiguity surrounding it.

A related issues concerns the uses to which a concession may be put. Once the concession has been issued, different kinds of minerals may be discovered and, on the other hand, some concessionaires may be disappointed in the quality or quantity of the deposits and decide that in the end the forest resources on the land are more valuable than the minerals.

In the case of different minerals being found, policy is that:

a. If the addition minerals occur in association with the first ones, then the original mining contract continues to apply.

b. If the additional minerals occur substantially separately, and require a separate mining operation on the same land, then a new contract must be drawn up.

In the event that the concessionaire wishes to transfer all or part of the concession for a non-mining use, then he or she may freely do so, negotiating a price with a new concessionaire, and paying a transfer fee to GGMC. This policy is exactly parallel to that adopted for the forestry sector, for the reverse case of forestry concessions, or part of them, being transferred to mining uses (see Chapter 30). This policy helps ensure that land is optimally utilised, and that the appropriate regulatory agency is adequately informed of the transfer process.

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G. Training Policies in the Mining Sector

Obtaining trained labour in the required quantities is a major concern of the mining industry. Mining enterprises, along with all others, will be expected to participate in the new tripartite council on Technical and Vocational Education and Training (Chapter 35), to express their priorities before the council, and to make the payroll deductions required by the council to support training programmes. Alternatively, they may substitute their own qualifying training programmes for those deductions, with approval of the council.

Geology and mining is one of the most obvious areas in which to initiate the programme of centres of excellence at the University of Guyana (see Chapter 20). For this purpose, GGMC will collaborate with the university in designing such a programme and seeking contributions from mining enterprises to fund chaired positions, salary supplements for faculty in the centre, and research activities for faculty and graduate students. Such a centre could make continuous and lasting contributions to mining in Guyana.

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H. Social Policies for Mining Communities

The aforementioned additional royalty for mines on Amerindian lands will help strengthen the Amerindian Development Fund. Its programmes will include efforts to assist Amerindian communities to better deal with the socially-disruptive effects of mining and timber operations.

In addition, GGMC will collaborate with the Ministries of Health and Education in carrying out surveys of needs in those fields in the mining communities. The results of the surveys will be distributed to mining operators and miners associations, and medium and large operators will be encouraged to make special contributions to health and education projects in the communities where they are present.

GGMC also will collaborate with the Ministry of Health in the design and implementation of an urgent and massive programme of malaria control in the hinterland. The pressing need for a programme of this nature is well documented in Chapter 19 of this Strategy. The mining industry and the nation as a whole will benefit from this collaboration.

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I. The Bauxite Industry

The history of the bauxite industry and the grave problems that it faces have been fully documented in preceding sections of this Chapter and in a number of previous studies. Some actions have been taken in recent years to address the problems of the industry, most notably:

1. Deepening the port in the Berbice River, thus permitting shipments in ships of larger capacity.

2. Downsizing the LINMINE operation considerably from its historical peak of labour force.

3. Shedding community services and spinning off ("unbundling") many of LINMINE's operations into independent companies that provide specialised services.

4. Placing LINMINE under private management contract and then under the operation of a professional manager hired from the outside.

5. Conducting preliminary explorations of the possibility of privatising LINMINE.

6. Investing in a rehabilitation of BERMINE and expansion of its production.

Nevertheless, the basic problem of lack of profitability of LINMINE or, in other terminology, its lack of competitiveness, persists to this day. As Professor Clive Thomas has expressed the issue,

"At maximum production . . . costs would fall to US$134 per tonne, which is still about twice the reported cost of China's production . . . . shedding these [community] costs in their entirety, which is most unlikely, cannot solve the dilemma of profitability. Through time the ore is becoming less and less accessible, thereby impacting on production costs. Current 'best market' forecasts for the company's production fall . . . substantially below the maximum capacity of the plant . . . . This situation makes the 'competition' from BERMINE's ore all the more painful."⁽⁷⁾

The unbundling he recommends is in process, and some of the resulting Linden firms are now in full operation on their own. Provision has been made for the electricity plant to sell to GEC excess electricity it generates, and efforts are being made to promote alternative industries in the Linden area.

More recent projections by LINMINE itself suggest that costs could fall to as low as about US$110/ton. However, that does not include the servicing of the Nissho Iwai and Boksalis loans. When they are included, as they should be, costs rise to about US$129/ton.

In regard to the promotion of alternative industries, one of the most important policies of this National Development Strategy is the development of an export processing zone, aided by the enhanced maritime transport opportunities that are offered by the new and deeper port on the Berbice River. Ultimately, the goal to place the remaining labour force in LINMINE in alternative, more productive occupations. At present, and through no fault of the labourers, the value of what they produce is less than their cost to the industry, so it is an unviable situation all around.

Those who hold out hope that LINMINE might recover to profitability point to recent indications of greater strength in the RASC market, the recent cost reductions, and the possibility that new industrial processes will mark a break-through in regard to costs of production. Nevertheless, that route still must be regarded as speculative, for Government is making substantial outlays each year on LINMINE's debt servicing.

The two basic issues facing policy makers are: 1) What to do with LINMINE so that its recurring cost to the Treasury eventually terminates? and 2) How to best assist the labour force to relocate into more productive lines of work, thereby minimising the hardship of a transition for the community?

If there is a commercial future for the bauxite deposit at LINMINE, it could be best brought to realisation by "an overseas corporation which is in a position to secure the financing required for subsequent stages of its re-structuring" (Thomas, 1994, p. 11). Therefore, inexorably the sensible choice seems to be to put it up for public auction and announce a date after which the operation would be closed in the absence of a buyer, with appropriate and generous dispositions made for its labour force.

In this regard, the manner of the divestment of the industry is of crucial importance. Negotiations with individual potential buyers in hopes of securing a prior conception of what the price should be are unlikely to reach fruition, owing to the large uncertainty attached to the commercial prospects of the deposit. It should be clarified that in this instance the national interest lies in obtaining the investment required to make the operation a going proposition, if that is at all possible.

Therefore the most appropriate approach to determine the future of LINMINE is to use the kind of auction procedure as that prescribed for GEC: award a majority shareholding to strategic investor that offers the best investment programme for rehabilitating the plants and maintaining them in operational status without subventions. Given the marginal nature of LINMINE and the strong national interest in salvaging it if at all possible, Treasury has to be prepared to make a unique exception to the fiscal framework for mining and forego all taxes on the privatised operation for the first five years. In any case, Treasury is incurring a net loss in the plant at present, so eliminating that loss would in itself represent a gain.

The bidders would not be required to make quantitative commitments regarding the amount of employment in the divested operations. In the event of a successful divestment of this nature, Government would offer to pay benefits to workers who were not required by the new employer. Given the large losses incurred in LINMINE recently, the national budget would benefit even if very generous severance pay were to be offered. Therefore it is suggested that displaced workers received eighty percent of their present pay in the first year of unemployment, seventy percent in the second year, and sixty percent in the third year. Benefits would cease immediately upon the worker obtaining new employment. In addition, Government would underwrite the costs of attendance in an occupational training programme, and it would provide labour market information.

With a continuation of satisfactory rates economic growth, it should be possible to absorb in other occupations many if not most of the displaced workers within the three-year period. This programme would mark a very humane approach to the transitional problems that arise as a growing economy changes the structure of its production to position itself in a more enduring way for the long run. It constitutes another example of the participatory thrust of this Strategy, with emphasis on the human resources.

This same benefits scheme would apply to all LINMINE workers in the event that it were closed down completely. The shutdown operation could be expected to take about two years.

There is another factor to be taken account of, and that is the unavoidable physical fact that the outputs of BERMINE and LINMINE compete with each other, and thus the plans for one site may cast a shadow over the prospects of the other, and vice-versa.

At present BERMINE looks to be the more viable asset of the two State enterprises in bauxite mining. Therefore, the logical approach is to ensure that it obtains the strategic investor it requires to sustain it over the longer run, as a priority matter. The most appropriate sequences of actions would be:

(i) By the end of 1997 place a majority of BERMINE's shares up for public auction, following the same procedure of soliciting bids in the form of investment-cum-management programmes for the enterprise; and

(ii) Carrying out a similar divestment procedure for LINMINE, as indicated above, by end 1998. In the case of LINMINE, Government would have to commit itself to assume all the obligations of the Nissho Iwai and Boksalis loans. This measure by itself could make the difference in ensuring investor interest.

These measures plus the rehabilitation work currently underway in the bauxite sector, would represent the best possible avenue for raising the probability that the industry continues to function into the next century.

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J. Environmental Aspects

The special tax on dredges and the special fiscal incentives for regional gold mills, both recommended above, should assist greatly in reducing the impact of mining activities on the environment. Operating rules for administering the special fund for rehabilitating riverbanks will have to be drawn up by the Environmental Protection Agency (EPA).

Also in regard to the missile dredges, a programme will be developed to phase them out over time and replace their operations with environmentally more suitable technologies.

If LINMINE continues to operate, its five-year budget calls for the placement of environmental controls on its kilns in 1998.

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K. Infrastructure for Mining

To complement these policies for the mining sector, Government is taking a number of other steps, described elsewhere in this Strategy, to strengthen national productive infrastructure. Some of those steps that are most relevant to mining operations are the following:

1. Completion of the road to Lethem (Chapter 38).

2. Privatisation of GEC (Chapter 39).

3. Improvement of other aspects of the road and bridge network (Chapter 38).

4. Deepening the port (Chapter 38).

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VI. Recommended Legislative Changes

Currently, the following laws govern or are relevant to the mining industry:

- Mining Act 1989.

- Mining regulations with various amendments up to 1993.

- The Guyana Geology and Mines Commission Act No. 9 of 1979.

- The Amerindian Act.

- The gold and diamond mining regulations of the Income Tax Act.

- Petroleum (Exploration and Production) Act 1986.

There are also mineral agreements, mining and prospecting licences, prospecting permits (medium and small scale).

As observed earlier in this Chapter, Government will need to enact subsidiary legislation under the Mining Act to address conflicts among purported title holders and remove as many uncertainties as possible with a view to ensuring maximum investor confidence in the ability to acquire and retain mining titles in Guyana.

The amended mineral policy and related legislation to be articulated by Government needs to address, inter alia, the following critical issues:

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A. Security of Mining Titles

An investor who is expected to make a substantial up-front monetary commitment to a high risk exploration, development or mining project obviously needs to know that his efforts, if successful, will not be thwarted by the unforeseen loss of property rights or rights to mine. The possibility of conflicts between mining, forestry and agriculture, for example, would therefore have to be addressed.

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B. Administration of Mining

The role of the various authorities involved in the mining sector (GGMC, GNRA, GGB, the various ministries, etc.) should be clarified in order to facilitate the investor's understanding of the role that each authority is expected to play and to facilitate access to the proper authority when legitimate issues arise.

The GGMC should be made the "one stop shop" for potential mining investors. GGMC should be able to supply relevant technical, financial and legal information (including environmental laws) to a potential investor.

The Gold Board should be replaced by the system of licenced gold buyers discussed in this Chapter.

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C. Environmental Matters

Both local and foreign investors must respect and preserve our natural environment. All mining operations must be subject to an Environmental Impact Assessment (EIA), as provided for under the pending Environmental Protection Bill that will establish the Environmental Protection Agency (EPA). Such EIAs will require that mining companies observe the environmental guidelines that apply in developed countries and, now, in many developing countries. Examples are: that the use of cyanide and mercury in mining operations should be carefully regulated by law; companies would be responsible for preventing particulate matter affecting air quality at the site of the operation and during transshipment; tailings dams and settling ponds must be designed to prevent leachate; degradation of rivers and streams and pollution of surface and ground water from mining operations would be prevented and companies would be responsible for mitigating any impacts. The use of missile dredges in the Essequibo River, which destroy river banks and cause sedimentation of waterways, should be strictly controlled and their number limited, while a phase-out of these dredges is enacted.

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D. Guarantees from the State

Stabilisation agreements should be included as a cornerstone of the mineral policy. A thoughtful and well formulated standard form contract should amply serve the best interests of mining investors and relieve the Government of what would otherwise be the potentially unmanageable burden of negotiating untold numbers of such agreements.

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E. The Fiscal Regime

As noted in Section V, the complete new fiscal regime for mining should be legislated. Only in this way can it attain the force and universality of application that is desired and necessary.

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F. Technology

As discussed above, the Mining Act 1989 should be amended to permit foreign participation in small and medium scale mining enterprises, in order to allow those operations to benefit from foreign technology and financing if they so wish.

1. Berbice Mining Enterprise, Ltd., Business Plan for Years 1996 to 2000, October 11, 1995.

2. This is confirmed in a report on Guyanese mining by a United Nations agency: Omai Gold Project and Future Mineral Arrangements for Guyana, Transnational Corporations and Management Division, Department of Economics and Social Development, United Nations, May, 1993, p. 12.

3. Robert B. Parsons, Review of Guyana's Mining Tax Regime, Price Waterhouse, Toronto, February, 1996. While this Chapter does not necessarily subscribe to all the conclusions of that study, its analysis is thorough and quite illuminating on some points.

4. Phasing the royalty reduction in over a longer period would have the undesirable effect of inducing some potential investors to postpone their investment until the new rate were fully in effect. A two-year transition period would be absorbed in normal exploration activities. An alternative to reducing the royalty, which has been suggested, is to defer it until the end of the payback period, but this has the disadvantage of leaving the Treasury with no income during the early years of the operation and also it would not solve the special problem of the royalty in relation to gold production and marketing by small operators.

5. A full discussion of the different kinds of risk faced by mining investors is found in W. H. Woolford, Organisation and Development of the Mining Sector of Guyana, Guyana Geology and Mines Commission, February 22, 1995.

6. In these discussions it must be borne in mind constantly that a 5 percent tax on gross margins is a much higher percentage tax on net income, owing to the necessary outlays on raw materials and other inputs to the production process.

7. Clive Y. Thomas, The Future of LINMINE and Its Associated Bauxite Communities, Institute of Development Studies, The University of Guyana, October, 1994, pp. 7-8.