Similarly to Venezuela and Malaysia who have successfully built up a strategic gold reserve, Gabon too has decided to follow this path, says Gabon state-owned mining company,says Société Equatoriale des Mines (SEM) CEO Fabrice Nze-Bekale
Moreover, it is worth noting that Malaysia, the Philippines, Guyana or Venezuela, sourced their gold reserves from their local producers, be they industrial or artisanal miners.
According to the National Industrialisation Strategy launched in 2013, Gabon still offers a strong gold potential despite a decline in its artisanal production from an average of 600 kgpa between 1936 and 1960 to 300 kgpa today in an economy dominated by hydrocarbons sector.
Gold presents two characteristics that explain its major role in the expected development of the mining sector in Gabon:
- It reaches its maximum value add right from its extraction and therefore can generate cashflows more quickly than most other minerals;
- Gold remains one of the most liquid financial instruments in the world despite the fall in its price since 2013.
Therefore, Gabon’s goal is to increase its production of gold while preserving the environment, up to 50 t cumulatively over the period 2013-2025.
A small list of priority projects has been determined to meet this target. One of them consists of setting up a gold fund for an amount of US$ 500 million. This fund will capitalise on the revenues generated from gold extraction.
It could be used to mitigate some financial risks to which the state might be exposed or the state could sell some of its gold to fund infrastructure projects or as collateral to raise project financing at a cheaper rate, etc.
The gold could be sourced through a production sharing mechanism to be set up with industrial miners as well as by buying all the production of small-scale miners and artisans, believes Nze-Bekale.
However, the new mining law that was published in the Official Gazette in June does not provide any production sharing mechanism.
The only option left for the state is to buy gold produced by small-scale mines and artisanal miners. This source of supply does exist.
Gabon’s small scale, artisinal gold mining potential
SEM opened a network of trading posts throughout the country to purchase gold from artisans. Those branches sit under the roof of Comptoir Gabonais de Collecte de l’Or (CGCO or Gabonese Counter for Gold Collection), which is majority-owned by Gabon Mining. CGCO opened its first branch in February 2013 and now operates six of them.
CGCO has collected 84 kg of gold powder and nuggets since its inception. This artisanal production is then smelted into doré bars that are sold to the Caisse des Depots et Consignations (CDC) – Gabon’s domestic sovereign fund, which has been tasked to build up strategic gold reserves on behalf of the state.
Based on Gabon’s gold potential, we believe that much more can be collected. This will, however, require some important adjustments, says Nze-Bekale.
Key adjustments needed
First, through CGCO, the state is getting involved again in an activity that it had abandoned after the dramatic incident of two collectors from the Ministry of Mines a few years ago. However, smuggling has proliferated since then. Artisans who got used to trading with smugglers now need to get used to dealing with the state; this does not happen overnight.
Second, the Ministry of Mines could rely more on CGCO and delegate to the latter some of its missions, including the issuance of artisanal production licenses whose conditions are still unnecessarily draconian despite their validity being limited to only one year renewable. For instance, applicants must show a certificate of good conduct or lack of criminal record. They need to bring their birth certificate to get the former.
However, many people don’t have their birth certificate in rural and remote areas. Then, when their application is complete, artisanal miners face another challenge in the sense that the processing of applications and the issuance of licences are centralised at the Ministry of Mines in Libreville, the capital city. The Ministry could simplify the requirements, streamline the process further and delegate the issuance of the licenses to CGCO who is in contact with artisanal miners through its trading posts on a daily basis.
Third, a better coordination with national security forces is necessary because the illegal trade of gold like that of ivory funds crime, especially cross-border crime. A simple measure could be implemented: each seizure of gold by the security forces should be given to CGCO and earmarked mandatorily towards the gold fund of the Republic of Gabon.
Fourth, the Public Authorities that set the investment strategy of CDC could authorise an increase in the fund’s gold purchases. CDC has not unlimited financial capital and is also required by the Public Authorities to invest in other structuring projects. So a decision to increase CDC’s holdings of gold can only be made by the Government.
Fifth, the tax regime can be amended. Currently, except the sales of gold by CGCO to CDC for the building of strategic reserves that are tax free, gold sales bear a heavy tax burden. For instance, unrefined gold sold to a jeweller would be more expensive than a bullion on the international market, simply because an 18% VAT and a 5% sales tax are applied. This deters jewellers from buying gold from CGCO and rather encourages them to source it from smugglers.
CGCO itself shall continue to expand its network of branches in two ways. Not only should it be present in all the administrative regions with artisanal gold activity but, in the regions where it already operates, it should also cover all the towns and villages. CGGO already produces doré bars. It should aim to refine its bars up to 99.99% minimum. This will require some investment in human capital to acquire the necessary technical competences in chemical processes and in modern equipment.
Finally, CGCO should be able to move along the gold value chain to take advantage of the opportunities offered by trading. For the real value of gold is not physical but immaterial. This explains that ETFs (Exchange Traded Funds) or investment gold accounted for 26% of the world demand in Q1 2015. Eventually, CGCO could position Libreville as little Dubai, i.e. the preferred gold trading hub in the Central and West African region and the gateway of gold exports to the rest of the world.
Nze-Bekale believes that Gabon offers a strong gold potential. “By focusing on gold mined by small-scale and artisanal operators, it is possible to create wealth for the benefit of the country and its population,” he says.
“Turning this vision into reality will take time, provided only that all stakeholders show discipline, steadfastness, patience and a long-term view.”