16.I.1.1 The mining sector makes invaluable contributions to the country’s economy. It accounted for 17 percent of GDP in 1998; and, every year since 1991, the value of its exports was higher than that of every other sector, as were the amount of revenue that it engendered. Moreover, the industry directly absorbs between 15,000 and 20,000 of Guyana’s labour force.

16.I.1.2 Indeed, the sector is both labour and capital intensive, the high degree of mechanization requiring a considerable range of support services. These include metal fabrication, machine construction and repair, transportation, carpentry, plumbing, welding, pipefitting, and blasting.

16.I.1.3 The larger mining companies and the Guyana Geology and Mines Commission (GGMC) are also involved in the construction and repair of hinterland roads, thereby improving the quality of the country’s infrastructure, and facilitating the penetration of its interior.

16.I.1.4 The mining sector has also contributed significantly to the development and improvement of social infrastructure such as schools and health facilities.

16.I.2.1 In addition to its well-known deposits of gold, diamonds and bauxite, Guyana’s mineral heritage includes occurrences of industrial minerals such as kaolin, silica sand, soapstone, kyanite, feldspar, mica, ilmenite, columbite-tantalite, and manganese; base metals such as copper, lead, zinc, molybdenite, tungsten, and nickel; ferrous metals, of which iron as magnetite and laterite is the main type; uranium; and semi-precious stones such as amethyst, green quartz, black pearl, agate and jaspar.

16.I.3 Gold

16.I.3.1 Historically gold production has, almost exclusively, been from alluvial and eluvial deposits. More recently, however, the large open pit at Omai Gold Mines Limited has considerably increased the country’s gold production. Indeed, while gold declarations from local producers have been maintained at approximately 110,000 ounces per year, Omai produces, on average, approximately 300,000 ounces per year. Gold continues to be Guyana’s highest value export commodity.

16.I.3.2 Gold was first produced in Guyana by "porknockers" using hand mining methods which revolved around ground sluicing, the long tom and the battel or gold pan. This method was later supplemented and to an extent mechanized with the introduction of couple jet dredges which had the capability of mining the river bottoms under the guidance of aqualung equipped divers. Couple jet units have now been largely superseded by the remote controlled, diver-less gravel pumps or missile dredges, which possess the capability to mine deeper channels and river banks, and to explore river-bottoms more efficiently. However, because the river beds are becoming exhausted, a larger percentage of the local production is increasingly derived from land dredges, which work large pits in fossil placers, terraces and eluvial/saprolite hosted deposits.

16.I.3.3 There is only one established, locally-owned and operated, open pit hard rock gold mine in Guyana which employs blasting, crushing and gravity recovery circuits. In this system spent ores are being stockpiled for additional treatment at a later date.

16.I.3.4 Omai Gold Mines Limited is the only large scale open pit, hard rock mine now operating in Guyana. It is controlled by the Canada based Cambior Inc. and the USA based Golden Star Resources Ltd., with the Guyana Government holding a 5 percent equity interest. There are other large scale hard rock gold deposits in Guyana: Marudi Mountain in the South Savannah, Eldorado in the Kaburi Area, Peters Mine in the Potaro, Eagle Mountain in the Mahdia area and Tassawini, Mariwa and Aurora in the Cuyuni; they are not, however, currently operational.

16.I.4.1 Diamonds were first reported in 1887 from the Puruni River Area and in 1890 from the Putareng River. Diamond production, mainly from the Mazaruni River Basin, peaked in the 1920s with over 200,000 carats being annually declared. The diamond sector has however been in decline since about 1970 and, in the last five years, the annual declaration of diamonds has been only about 35,000 carats.

16.I.4.2 Most diamonds are found in fluviatile environments either on the 25,000 square kilometres Roraima Plateau or within twenty five kilometres of the escarpment. Some diamondiferrous gravels are also located at distances of as much as 150 kms from the Roraima rocks. In such cases they are associated with the deposits of the White Sand series which are thought to be derived from the erosion of the Roraima sediments.

16.I.4.3 The diamonds produced in Guyana are eminently cuttable octahedras and rounded dodecahedras; the production tends to be about 60 percent gems, 10 percent near gems and 30 percent industrials; the average stone size is 10 to 13 points; and the average value tends to be about US$100.00 per carat. While resources of the order of millions of carats are postulated, the relative remoteness and inaccessibility of the diamond fields, the lack of roads, power and labour, and the relatively small stone size and value, render most of this resource sub-economic at this time.

16.I.5.1 Bauxite was first produced in Guyana in 1917. Until 1971, the industry was totally owned by two major North American integrated multinationals, Alcan and Reynolds. However, the Alcan subsidiary, Demerara Bauxite Company (DEMBA), and the Reynolds subsidiary, Reynolds Berbice Mines, were nationalised in 1971 and 1975, respectively.

16.I.5.2 For the ten years immediately following its nationalisation, the industry experienced a period of reasonable success. During that time, production increased, positive net income was recorded, and substantial contributions were made to the nation’s economy in the form of dividends, corporation taxes, employment, and export earnings. The industry, however, entered a period of steep decline after 1981 and, by 1991, was technically bankrupt. Efforts by the Government to obtain international institutional financing for its revival led to a commitment to its privatisation.

16.I.5.3 A condition of the financing, which was received from the World Bank to improve its performance before divestment, was the dissolution of Guyana Mining Enterprise Limited (Guymine) which owned and managed the entire industry, and the establishment of two separate companies – Linden Mining Enterprise (Linmine) and Berbice Mining Enterprise (Bermine) centred around the two operating divisions of Guymine, with Linmine being placed under foreign management and an Initial Reconstruction Programme (IRP), while Bermine continued under local management.

16.I.5.4 The IRP did not achieve the expected results: the production of refractory bauxite (RASC), the pillar or the programme, fell continuously over the next five years and, with falling prices, resulted in a worsening of the company’s financial position. It was therefore decided by the management that the market for the company’s only product, refractory bauxite (RASC), had deteriorated to the point where the company was no longer a viable entity.

16.I.5.5 Attempts to privatise Linmine in 1996 on a piece-meal basis, with the core activity, the production of refractory bauxite, being offered to interested parties, evinced little interest. The government therefore decided to give the entity a grace period of 5 years to become profitable. If profitability was not attained it was to be either sold or abandoned. Since its performance had not improved, the Government, at the end of September 1998, decided to advertise the company again for privatisation, with a view to completing the process by the end of 1999. However, by the end of March 2000, there were no offers to take over the company. Linmine’s fate is therefore still to be decided.

16.I.5.6 Bermine’s performance after the re-structuring was also indifferent. Although the company recorded a positive net income in 1993, it made considerable losses over the next three-year period. And even though it recorded a small profit in 1997, and shows prospects of becoming viable, that company also had been identified for privatisation with the same schedule as Linmine. In 2000, a tentative offer for a merger with Bermine was put forward by the Aroaima Bauxite Company, (ABC) which is the third bauxite company existing in Guyana. This offer was rejected by the government. A foreign company has since expressed an interest in entering into a partnership with Bermine but no decision has as yet been made on this matter.

16.I.5.7 The two producing companies comprising the state sector control considerable bauxite reserves and installed production capacity which are currently under-utilised. While much of the capacity is in a poor state of maintenance, resulting in the effective capacity being significantly below the installed capacity, some of this capacity could be restored with relatively low levels of carefully planned and executed capital investments.

16.I.5.8 Both state-owned companies own production facilities, which, in their current state of maintenance, are not capable of operating anywhere close to their rated or installed capacity.

16.I.5.9 The third company, ABC, is owned jointly by the Government of Guyana and Reynolds Bauxite Company. The equity in ABC, which was established in 1989, is shared on a 50:50 basis. ABC pays neither taxes nor duties. It has never distributed any dividends.

16.I.6 Miscellaneous Minerals

16.I.6.1 Manganese was discovered in 1903 in the Matthews Ridge Area in the north-west of the country, but was not put into production until 1960. This operation closed in 1969, although substantial reserves still exist.

16.I.6.2 Columbite was mined in the Morabisi area of the Mazaruni River from 1952 to 1959, when mining ceased because of a fall in its price in the world market.

16.I.6.3 In the 1960s copper was discovered at Groete Creek; lateritic nickle quantified at Blue Mountain; and molybdnemum (molybdenite, and tungsten (scheelite) identified at Eagle Mountain. Numerous sulphide and iron ore occurrences and industrial minerals such as talc, kaolin and magnesite have also been identified over the years in different parts of the country. Uranium was extensively prospected for in the early 1980s.

16.I.7.1 Guyana’s hydrocarbon (petroleum and natural gas) potential was noted since the 1850s, with the first well being drilled in the Waini Estuary in 1917. Exploration for hydrocarbons continues today in the coastal onshore, coastal offshore and the Takutu Basin.

16.I.7.2 The Takutu Basin, which is situated in the southwest of the country and straddles the Guyana/Brazil border, is the only area in which petroleum has so far been found. The Guyana portion of the Takutu Basin is approximately 10,300 sq. km. In 1979 Home Oil Canada conducted a seismic programme and drilled two wells. The second well, Karanambo-1, was a discovery well producing 400 barrels of oil per day, apparently from fractured Apoteri Volcanics. Home Oil was hampered by the remoteness of the discovery area and the absence of infrastructure.

16.I.7.3 Statistics such as gross unit thickness, net sand/carbonate and porosity indicate good reservoir potential in the Offshore Basin. For the offshore, the reservoir potential seems to be best in the Tertiary Carbonates and clastics even though there is reservoir potential in intra-Cretaceous formations such as the Stabroek Formation.

16.I.7.4 Ten exploratory wells have been drilled in offshore Guyana since 1967. In that year Teneco drilled the first. Total drilled the last in 1992. However the government of the country has recently entered into an agreement with CGX Energy Inc. giving this company permission to drill offshore, in the Corentyne area.

16.I.7.5 There is, as yet, no petroleum production in Guyana.

16.I.8.1 Silica sands, which are widely dispersed in the northeast of Guyana, cover about 5,000 square miles of the country. The white sands are a vast resource of high-purity silica oxide.

16.I.8.2 In 1993, for the first time, silica sands were exported to the Caribbean region, where their superior quality as a feedstock for glass manufacture, as a construction and land fill material, and as a basic input in golf course development has been recognized. Their future development in this regard will, in large measure, depend upon whether the near intractable large bulk transport problem which confronts the Caricom region is solved. Environmental considerations, associated with the preservation of tourism including beaches in Caricom, may make the nearly inexhaustible silica sand deposits of Guyana a shared strategic resource of the region.

16.I.8.3 The sands are also critical to the civil works and building sectors of the economy. Their utilisation as a land fill, concrete and asphaltic base, and in other industrial processes, such as porcelain and cultured marble manufacture, making them a resource without which development could be seriously curtailed.

16.I.8.4 The sands were used, in the 1970s and 1980s, in the production of glass at Yarrowkabra. However, the facilities were closed for reasons totally unrelated to the quality and availability of the sand resource.

16.I.9.1 Coarse grained aggregates for roads and other civil works, building construction and sea defences have been produced in Guyana for well over a century.

16.I.9.2 Because of their relatively low value, and therefore the necessity to access cheap transport, all of the rock quarries were located along the Essequibo, Demerara, Berbice, Mazaruni, and Cuyuni rivers. Over the passage of time, eight quarries were operated in the Essequibo River, nine in the Mazaruni River, one in the Cuyuni River, four in the Demerara River, and one in the Berbice river. At the present time, only the St Mary’s and the Monkey Jump Quarries on the Essequibo River, and the Teperu/Itabu Quarry, now called Mazaruni Granite Products Limited, on the Mazaruni River are being actively worked.

16.II.1.1 There is currently no dedicated Minister of Mines. Although the Prime Minister holds the portfolio, he is not in possession of any ministerial staff in support of the concept-utilisation formulation and implementation of policy. This is an almost untenable situation, which often appears to lead to the neglect of the sector at every level.

16.II.2.1 It is extremely important that we immediately begin to mobilise the risk capital and investment funds that are needed for the sound and early development of our mining sector. Investment, as we have repeatedly emphasized elsewhere this document, is urgently needed if we are going to be able to propel our economy into the 21st century. Over the last decade our mineral growth has been achieved almost entirely by the private sector. Future growth will continue to depend on our capacity to attract to our country foreign mining companies with the technical and managerial capability to find new deposits and develop new operations. Mining investments are capital-intensive, and usually involve time-horizons of ten to twenty years or more. Investors therefore require competitive terms and conditions, and solid assurances that the investment environment will be stable.

16.II.2.2 Guyana’s current tax structure for the mining sector is not, on the face of it, competitive. It includes charges of five percent royalty on gold, three percent on diamonds, and a thirty-five percent corporate income tax. Both the royalty and the corporate income tax are located in the upper echelons of international norms. Indeed, the former is especially, considered to be one of the highest in the Commonwealth.

16.II.2.3 In a comparative study of the mining tax regimes of various countries, which was published in 1996, the following percentages of pre-tax mining revenues, which would accrue to governments, prevailed:

16.II.2.4 The study also analysed the Government’s share of the profits repatriated to shareholders abroad. Those shares were as follows:

16.II.2.5 The fact that Guyana ranks at or near the bottom of both lists ought to be a matter for concern in terms of our capacity to attract investors for mining activities. It is not necessary for Guyana to move to the top of the list, but its present situation clearly puts it at a competitive disadvantage internationally.

16.II.2.6 Both import and export duties are fiscal measures used in Guyana to secure revenue. Although in recent years customs duties on some major mining equipment have been waived, miners have expressed the opinion that the 15-20 percent import duty, which is still charged on several mining inputs, is excessive and burdensome. A more relevant concern may be the range of variation in such duties.

16.II.2.7 Local miners experience great difficulty in obtaining investment capital to develop their claims or permits. Mining requires extremely high risk equity or loan capital, the potential returns on which are not easily gauged because local miners are usually unable to provide quantitative measurements and reliable estimates of the minerals located in their enterprises. Moreover, their mining operations are located in remote areas which are not easily accessible. These two factors make financial institutions extremely reluctant to finance investment in mining.

16.II.2.8 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 eager to reap substantial benefits from it while ensuring both technical and economic efficiency in exploitation, should have in place a fiscal regime that satisfies, at least, the following criteria:

(i) as a general rule, the tax system should be so structured that it may be expeditiously applied in a variety of projects and circumstances. The process of formulating a unique fiscal regime for each project is not only time-wasting, it often crates confusion. A standard fiscal regime is one of the most attractive elements of policy to investors. This is not to say that the same tax system should be applied to all types of minerals., What is being stressed is that its rules should be the same for gold, the same for diamonds, the same for bauxite, and so on;

(ii) the fiscal regime should also 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;

(iii) stabilisation agreements should be included as a cornerstone of the mineral policy. A thoughtful and well formulated standard 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; and

(iv) the investor and the Government should be able to foresee the fiscal consequences of alternative actions in managing the project or of events occurring in the international market that affect project operations.

16.II.2.9 From an investor’s viewpoint the royalty rate and the free equity provision which have become standards in most mining agreements in Guyana are somewhat controversial. The royalty rate of 5 percent, which as has been pointed out 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. 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’s, for example, results in reduced declarations nationally.

16.II.2.10 Investors also contend that royalties, because they are payable whether or not losses are incurred, are in some respects unfair. It should be noted that many mining countries have no royalty provisions, and those that do typically have a rate of 2 or 3 percent.

16.II.3.1 Because it is difficult for large vessels to dock at the local ports trading opportunities are adversely affected. The high cost of shipping also contributes to making Guyana’s exports uncompetitive, particularly in the bauxite subsector. For example, it is cheaper to ship bauxite from Australia and Jamaica to Europe than from Guyana. This obviously serves as a deterrent to the attraction of foreign direct investment. The reason for this high cost is the depth of the approach channels to the Demerara and Berbice rivers from which 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. The proposals in this Strategy for the construction of two deep water harbours would go a long way towards the alleviation of this problem.

16.II.4.1 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 interim. The net effect is to compromise significantly hinterland and, indeed, the entire country’s development.

16.II.5.1 Considerable controversy has arisen over the role of the Guyana Gold Board which 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 to Georgetown to declare and sell their gold, and the high royalty rate applied to those sales. These circumstances are unfavourable for all concerned in that they tend to promote evasive behaviour, especially when the difficulty of monitoring border crossings for transactions in other countries is taken into account.

16.II.5.2 Transportation Costs

16.II.5.3 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) is only possible by chartering private aircrafts. Because of this, small miners are unable to make regular flights in or out of the interior. Consequently, a not inconsiderable amount of the nation’s gold and diamonds is not sold to the Gold Board and to local licenced diamond traders, but is leaked into the economies of our neighbours.

16.II.5.4 Moreover, there appears to be no policy to build new roads to service either areas with mineral endowments, or those in which mineral discoveries have already been made. Indeed, not much effort is displayed even to maintain and repair those that do exist. The wheel and hub concept can be developed where a few airstrips, capable of handling large aircraft can serve as staging points for distribution by smaller planes thus taking advantages of the cost effectiveness of the larger aircraft.

16.II.6.1 The mining industry is faced with shortages of local geologists, engineers, and drillers among others, basically because the University of Guyana is not currently attracting, and is not capable of adequately training, a sufficient number of candidates in fields relevant to the mining sector. Moreover, very few scholarships are being offered. In addition, the graduates from the University of Guyana have limited field experience.

16.II.7.1 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. This provision could potentially cause problems. Furthermore there is currently no clear land use policy. As a result, conflicts among rights holders, in general, but particularly between those who possess surface and sub-surface rights, are common. In addition, there are numerous examples of agencies granting rights for which they have no mandate.

16.II.8.1 The system of Property Rights associated with industrial minerals is adequate. There is, however, an unclear definition of the manner of the treatment of competing land uses. The area of conflict surrounds what priority use if any is accorded the surface rights holder viz-a-viz the mineral rights holder, if in fact they are separate. No guidelines or mechanisms are in place to help in predicting with some assurance the optimally beneficial outcome.

16.II.8.2 Silica sand which is a very low-value product is being treated in the same manner as high-value gold. The rental rate on large-scale silica developments is punitive and should conform to comparable rates, as in the aggregate business.

16.II.8.3 Exhorbitant import duties continue to be applied to machinery, equipment and supplies that are bound for the quarry sector. These constitute a barrier to the flow of investment in an industry which needs new investment for retooling and expansion.

16.II.9.1 Most countries that are endowed with bauxite almost exclusively produce the ore for the manufacture of alumina and aluminium. Guyana has, however, acquired the status of being a diversified bauxite producer with bauxite that is meant for aluminium production – (metallurgical bauxite (MAZ)) accounting for the smaller percentage of its total production. The major proportion of the sector’s output was in non–metallurgical bauxite, especially Refractory bauxite, for which it had a monopoly and which was more profitable. In assessing the future market prospects for the industry it is, therefore, necessary to evaluate the different markets for its products, especially since they are affected by different economic, technological and market forces.

16.II.9.1 The specifications for metallurgical bauxite and its mineralogical composition have changed considerably over the years. These developments have widened the choices of the aluminium producers for sourcing bauxite, and have resulted in bauxite prices falling in absolute terms over the past 20 years or so.

16.II.9.2 Guyana’s bauxite has always ranked among the highest quality metallurgical bauxites in the world. In addition to being consistently high in recoverable alumina, it possesses a pure gibbsite, and has excellent settling characteristics. The only disadvantages are its low iron content. This is especially significant because of the increasing emphasis that is now being placed on high purity aluminium. However, while Guyana’s bauxite in its current form would hardly be used as the total feed for an alumina refinery, it is highly desirable as a sweetener in the alumina process.

16.II.9.3 The supply of world bauxite is going through significant changes. Because most of the world’s low-cost, high-grade bauxite deposits are nearing exhaustion, a high percentage of the increase in bauxite demand, by those alumina refineries that are dependent upon imported bauxite, has come over the past 15 years, from the expansion of existing bauxite mining capacity. Indeed, Aroaima Bauxite Company (ABC) has been the only new project undertaken over that period. However, the two existing projects providing the bulk of that increase are approaching the limit of low-cost expansion, hence new projects could become competitive. Moreover, certain technical deficiencies make the bauxite that is produced by those companies which had earned the bulk of the supply unsuitable for low temperature digestion refineries and costly for high temperature ones.

16.II.9.4 With all these developments pointing toward higher cost and, to some extent, lower quality bauxite, Guyana’s bauxite which is still of the highest grade, both in terms of recoverable alumina and mineralogy, has become most competitive. For example, ABC has demonstrated that Guyana is in the lowest percentile of new bauxite developments, in terms of capital cost per annual tonne of capacity – ABC being under US$30 per tonne, compared with an estimated US$46 to US$70 by other producers. ABC has also shown that with a project of the appropriate scale of production and efficient management, Guyana could become competitive in the metallurgical bauxite market. The establishment of the Berbice deep-water facility has also significantly reduced the freight disadvantage suffered by Guyana, thereby widening the country’s markets and enhancing its competitiveness.

16.II.9.5 It should also be noted that all experts agree that there will be a most significant increase in the demand for aluminium, which is based on metallurgical bauxite, over the next 15 years or so. Indeed it has been estimated that an additional 60 million tonnes of metallurgical bauxite would be required by the year 2015. Regardless of the location or strategy for the increased aluminium capacity, the additional bauxite would have to come from countries with bauxite resources. It is therefore more than probable that Guyana would be in an excellent position to meet some of the world’s growing demand for MAZ, provided that its companies are adequately financed.

16.11.9.6 The production of Refractory bauxite constitutes its second largest application. However, with the lack of growth in the Refractory bauxite market and the dramatic fall in RASC sales over the past 10 years, the industry needs to reassess its positioning in the refractories market, and consider itself as a supplier of High Alumina Refractory raw material rather than just a producer of Refractory bauxite (RASC). The rationale for this form of product diversification exists in the raw-material, in the technology, and in the production base available to Linmine. However, data on the production and consumption of high and special alumina refractory materials are limited. A more detailed study would therefore have to be undertaken. Evidence suggests, however, that Guyana might be able to compete also in this area.

16.II.9.7 Although there has been a fall in the demand for chemical bauxite from around 600,000 tonnes in 1980 to the current level of 300,000 tonnes, Guyana satisfies about 75 percent of the market.

16.II.9.8 The scale of operation of both Linmine and Bermine is well below the minimum for a viable operation in a mining activity involving the stripping of overburden, with overburden to ore ratios in excess of 4:1. The two operations are probably the smallest in the world, except for a number of small chemical and cement grade bauxite operations in a number of countries that satisfy small domestic demand. The companies are forced to maintain, to some extent, an infrastructure established for operations three to ten times their current levels. Moreover, in spite of a significant reduction in personnel, the companies still carry staff two to three times that of operations of similar size. To put it plainly, the current scale of operations of both Linmine and Bermine is too low for them to be efficient and to become financially viable. The companies are involved in a highly capital intensive industry and must achieve a certain minimum scale to be efficient. While Bermine has recently earned a small profit and is operating just above break-even-point, it needs a substantial increase in the scale of its operations to earn an acceptable rate of return. Linmine continues to make losses and would also need substantially to increase its scale of operations if it is to become viable. The two companies also compete with each other. Their operations therefore cry out for rationalisation.

16.II.9.9 The most fundamental issue which faces LINMINE is that its cost of production is above the price received for its product. As a result it annually incurs net losses which are met by the Treasury. This high cost of production is, in great part explained by the presence of a thick over-burden which must be removed before the bauxite ore is reached. The other reasons for LINMINE’s relatively high cost of production are (i) the high cost of transportation, particularly because of the absence of a deep water harbour and the consequent necessity to transport smaller than optimal loads; and (ii) the cost of still providing a number of community services, even though the company has been relieved of the duty of supplying many of them.

16.II.9.10 Moreover, it is reported that because it is now no longer in charge of its electricity supplies, the cost has increased, and regularity in supply is no longer assured.

16.II.9.11 It cannot be over-emphasized that a major disadvantage in exploiting Guyana’s reserves is the depth of overburden. Indeed, this 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. This depth of overburden also has an impact on the competitiveness of RASC, which is now in competition with Chinese and Brazilian refractory bauxite, fused aluminium oxide and calcined alumina made from bauxite produced in countries with low mining costs.

16.II.9.12 RASC, upon which heavy dependence was placed in the past, now faces a static and fiercely competitive market. 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 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.

16.II.10.1 The demand for, and the price of, gold are projected to rise from their relatively low state in the medium and long term. The International Monetary Fund has forecast that the American economy will sustain its remarkable economic growth, at least in the medium term. Moreover, the European economy has begun to recover and the signs are that this recovery will be prolonged. In addition, the emerging economies which were so badly financially battered in 1997 and 1998 are already displaying strong resilience. All this suggests that the prospects for gold are most encouraging.

16.III.1 The overall objective of the national strategy for mining is to establish the foundations for the continuing growth of the sector so that it may contribute to the economic growth of the country, the equitable geographical distribution of economic activity throughout the nation, the diversification of our economy, the penetration of our hinterland, and the eradication of poverty, particularly in depressed interior areas.

16.III.2 Put in another way, the sector’s primary objective is to consolidate the gains it has made over the years, to set the stage for the expansion of production of both existing as well as new commodities, and to diversify and increase the value of its primary products by value added manufacturing and other down stream processing.

16.IV.1.1 There will no longer be any special agreements in respect of the mining sector. The fiscal regime will be so structured that it could be applied to a variety of projects and in a number of circumstances without wasting time and resources in devising a unique set of arrangements for each project.

16.IV.1.2 There will be a standard regime for each mineral or set of minerals.

16.IV.1.3 The royalty rate for gold will be on a sliding scale based on a maximum of 3 percent of the prevailing price of gold.

16.IV.1.4 A half percent royalty will be paid, for exploitation on Amerindian lands, into an Amerindian Development Fund, from the existing royalty stream

16.IV.1.5 The corporate income tax rate will be fixed at 30 percent for all mining projects.

16.IV.1.6 Export duties on minerals will be reduced to zero.

16.IV.1.7 The consumption tax on fuel will be 10 percent CIF. A coupon system for miners will be put in place.

16.IV.1.8 The consumption tax and duty on mining equipment, spares and supplies will be zero rated.

16.IV.1.9 The withholding tax on repatriated dividends will be fixed at 6.25 percent, which is the rate applied in the case of Omai, rather than the 15 percent rate that is normally applicable.

16.IV.1.10 A special commission will be convened to determine new, land rental rates in mining and to develop a sliding scale which correlates rental rates with the length of time the claim is held without beneficial occupation.

16.IV.1.11 However, rental rates on mineral land during the exploration stage will be fixed at

16.IV.1. 12 A special tax will be applied to the purchase and to the operation of missile dredges, the proceeds of which will be deposited in a special fund to be used for the rehabilitation of river banks. The Environmental Protection Agency will oversee the management of the fund and the rehabilitation activities.

16.IV.1.13 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 because of its beneficial environmental externalities. Mercury is particularly long-lasting and pervasive in its transmission through the food chain, thus endangering public health.

16.IV.1.14 Because mining operations deplete mineral resources, 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.

16.IV.2.1 There will be a system of licensed and bonded buyers of gold. Each person or corporation that wishes to become a licensed 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 for at least part of each year. The buyers will be responsible for remitting the royalties to the Government. Buyers will invoice all purchases and sales of gold and will be tightly supervised by the GGMC.

16.IV.3.1 As noted above, Government will take steps to mitigate the harmful consequences to the environment of some types of mining operations, through the fund for the restoration of riverbanks and the fiscal incentives for regional gold processing mills.

16.IV.3.2 In addition, GGMC will make inspections on a continuing and regular basis to assess the state of the art in mining and milling technologies, with the aim of ensuring that the most appropriate and up-to-date environmentally-friendly methods are utilised in Guyana. In mining contracts, fines for incidents of negligence such as the collapse of tailings dams will be significantly increased.

16.IV.4.1 The GNRA will be abolished and all its relevant authority transferred to an adequately staffed and equipped Ministry of Natural Resources.

16.IV.4.2 The GGMC will be completely reorganized and restructured with a separation of roles; the Ministry will deal with legal, administrative, financial and policy issues and the GGMC with technical, monitoring and regulatory issues. The GGMC will divest itself of all service functions. These will be outsourced to organizations better capable of providing quality and cost effective services.

16.IV.4.3 The mining industry will be overseen by a standing committee of parliament.

16.IV.4.4 The GGMC will commission a national mineral resource inventory and assessment, and publish the results for wide dissemination.

16.IV.5.1 The 1989 Mining Act 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 these titles. These discretionary elements will be removed. A tighter set of regulations for the Act, in this area, will be formulated. This is a crucial issue from the viewpoint of investors and it is in our own interest to eliminate the ambiguity surrounding it.

16.IV.5.2 A related issue concerns the uses to which a concession may be put. Once the concession has been issued, different kinds of minerals may be discovered or, on the other hand, some concessionaires may be disappointed in the quality or quantity of the deposits and decide that the forest resources on the land are more valuable than the minerals. Accordingly (i) if the additional minerals occur in association with the first ones, then the original mining contract will continue to apply; and (ii) if the additional minerals occur substantially separately, and require a separate mining operation on the same land, a new contract will be drawn up.

16.IV.5.3 In the event that the concessionaire wishes to transfer all or part of the concession to 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 that adopted by the forestry sector, for the reverse case of forestry concessions, or part of them, being transferred to mining uses. This policy helps to ensure that land is optimally utilised, and that the appropriate regulatory agency is adequately informed of the transfer process.

Industry Study

16.IV.6.1 An indepth study of the industry will be jointly undertaken by the Government and the private sector. This industrial profie will, inter alia, provide all relevant information on the technologies that are utilised and applicable to the sector, its profitability, its contribution to the national economy, and its demographic, social and cultural attributes.

16.IV.6.2 GGMC will collaborate with the Ministries of Health and Education in undertaking social surveys in the mining communities. The results of the surveys will be distributed to mining operators and miners associations. Medium and large operators will be encouraged to make special contributions to health and education projects in the communities where they are present.

16.IV.6.3 GGMC will collaborate with the Ministry of Health in the design and implementation of an urgent and massive programme of malaria control in the hinterland.

16.IV.7.1 Miners will be compensated either by being permitted to charge user fees or by a reduction in the fees they are legally obliged to pay the government, or by any other arrangement entered into with the GGMC, whenever the roads which they build form part of a centrally approved national road network plan, and on condition that the extraction routes are constructed to specific requirements and are maintained to those specifications.

16.IV.7.2 The use of secondary roads by other parties will be regulated by private agreements between the concessionaire and those parties.

16.IV.8.1 As has been pointed out, it is essential in formulating a strategy for the development of the bauxite sector in Guyana that certain factors be taken into account. Among these are (i) the importance of the bauxite industry to the social and economic environment of the areas in which the industry is located; (ii) the extent and quality of our bauxite resources; (iii) the status of future markets; and (iv) the international structure of the industry.

16.IV.8.2 Because the quality of life and the standard of living of the inhabitants of almost an entire region depend upon the existence of the bauxite industry, the companies which mine, and process and sell the ore should not be allowed to collapse without a further effort being made to rescue and revive them, provided that it can be demonstrated that the companies can be made profitable within a reasonable period of time.

16.IV.8.3 Recent studies have indicated that there exist more than sufficient reserves of bauxite in our country, of the highest quality, to permit both national bauxite companies, LINMINE and BERMINE, to produce a range of types of product, for which there are ready markets. Moreover, the available evidence strongly suggests that both companies can be financially viable provided that they expand their operations, and provided that they receive adequate injections of capital.

16.IV.8.4 The bauxite–alumina–aluminum industry is falling more and more under the control of a small group of multi-national corporations. In other words, the industry is essentially managed and controlled by private enterprise in the form of the multinational grants. It might therefore be to our advantage to try to involve one or other of these multinationals in the funding and ownership of the two national companies.

16.IV.8.5 It cannot be too strongly emphasized that if the formulators of this National Development Strategy did not consider the industry to be potentially profitable it would have been allowed to wither away and die, and other non-bauxite strategies would have been put forward for the region’s development. This, however, does not appear to be necessary, at this stage, because of the arguments adduced in the preceding paragraphs.

16.IV.8.6 Accordingly, both BERMINE and LINMINE will be supported for a maximum period of four years, beginning on 1 January 2001. This support will be in the form of loans from commercial banks that are guaranteed or otherwise underwritten by the Government of Guyana, or in any other form that can be negotiated either with bi-lateral or international donors. The Government will seek the approval of the Bretton Woods institutions to enter into any such arrangements, if, by so doing, their conditionalities will be breached.

16.IV.8.7 While this essential expansion and rehabilitation process is proceeding, further efforts will be made to privatise the two companies. However, the necessarily long and tedious privatisation process will not be followed. Instead, prospective investors, selected from the major multinationals, will be directly approached with proposals for them to enter into joint ventures with the government and the management and workers of the enterprises. The proposals will embrace two options: they will be given the choice either to capitalise LINMINE or BEMINE separately, or to take them over and run them as a single entity.

16.IV.8.8 If acceptable offers are obtained for the separate purchase of the enterprises, then the ownership models will be different. Because BERMINE lends itself to a joint venture agreement in which the foreign financier, the government and the management/workers will be owners, with the controlling interests being held by the foreign participant, this will be the arrangement. However, in respect of LINMINE, the participation of the management/workers in equity holdings will not be pushed.

16.IV.8.9 In all these options, there will be five-year income tax holidays; the importation of machinery, equipment and spares will be duty-free; as will be the importation of Bunker C fuel oil and diesel fuel.

16.IV.8.10 While the fate of the bauxite companies is being settled, urgent steps will be taken to diversify the economy of the region in which they are located. This will be attained through the provision of a range of incentives for investment in the area, the provision of micro-credit to develop a cadre of small and medium scale enterprises in agriculture, commerce and manufacture; and the improvement of its social and physical infrastructure.

16.IV.8.11 In addition to the arrangements which have been proposed for LINIMNE and BERMINE, an intensive sales campaign will be mounted to attract investment in an entirely new bauxite mining operation, for which there exist ample reserves. This course of action is not directly linked with the possible privatisation of the two enterprises. It might however, assist in the redeployment of labour, should the worst occur.

16.IV.9.1 Guyana will continue to utilise the Production Sharing Contracts (PSC) in its arrangements with oil exploring and production companies. The PSC is almost a standard in the petroleum industry today. The important distinction between the PSC and concessions is that under PSCs the state retains ownership and control of the resources. In Egypt the government retains 85 percent of the profits, while the Libyan government keeps 81 percent. However, the ratio between the Government of Guyana and CGX, Energy which is to begin oil explorations off the Corentyne coast by mid 2000, will be on a 50:50 basis, if commercial quantities are discovered.

16.IV.9.1 Although committed to the PSC, extensive studies of the share that has been negotiated by other government in these types of activity will be undertaken in order to ensure that while we remain competitive, we do not make unnecessary concessions.