The dulled promise of Uganda’s gold sector

It can be pounded into a sheet so thin that light passes through it, yet the sheet doesn’t crack; or stretched into wires thinner than a human hair, yet those wires still conduct electricity beautifully.

For over 1,000 years, gold has been an irresistible precious metal. It is beautiful, pliable, ductile and strong.

In 2005, gold made up nine per cent of the country’s exports, according to Revenue Watch. In 2006, gold exports in Uganda brought in $122m. Yet, gold remains locked in a largely unmonitored sector dominated by small-scale miners or companies unable to unlock its potential.

Current license status
According to the Ministry of Energy 2012/13 policy statement, the airborne geophysical and geological mineral data funded by a World Bank project to boost the sector has led to more investor interest.

This is reflected in the increasing licensing from 515 in 2009 to 733 in 2011. The Policy statement shows that as at the first half of 2012, the mineral licensing status stood at 722 licenses; 55 prospecting licenses, 544 exploration, two retention, 39 location, 27 mining lease and 55 minerals dealers.

But that project has ended, and government has not taken those first steps further, experts say.

Mr John Muruli is the CEO of Gold Empire, one of the local companies exploring for gold in Western Uganda.

He says Uganda has not done enough to make the sector attractive for large-scale mining companies.

“Apart from the geophysical mineral data showing prospective areas, government doesn’t help us with any other kind of information like the extent of the mineral, it doesn’t research. They instead come for the information from us and then sell to us information on mineral reserves,” he said.

“This information on mineral reserves should be just given to the investors free as a contribution to the investment in the country.”

Mr Muruli, who got his license 12 years ago, feels that the sector needs government to invest in infrastructure.

“The roads are impassable where the minerals are,” he says. “Government should use part of the ground rate to local governments so that they work on roads.”

With it, he says three big gold mines could likely be developed within the next five years, in Busia, Mashonya and on the sides of Lake George.

What’s the holdup?
“Government has taken a back seat in as far as managing the mineral sector is concerned,” the chairman Parliamentary Committee on Natural Resources, Michael Werikhe, remarked during a committee meeting with officials from the Ministry of Energy last July.

“This should stop the sector is to develop. We need strong policies and policy implementation.”

But Uganda has laws in place. A senior official in the department of geological survey and mines says it’s due to the lack of clear implementation that Uganda can’t even quantify the amount of gold there is in the country.

“Government has not done much to curb illegal gold exports because we maintain that most companies are still going through exploration,” he said on condition of anonymity for fear of being reprimanded by his superiors.

“Most people and companies we license thinking that they are big and only exploring, take out gold on the pretext that they are taking for samples but yet they are exporting and government has not done enough in ensuring that this stops,” he said.

“They should ensure tight work obligation where people are given licenses with condition that they work and their actions are keenly monitored and documented,” the source says. “With a three-year license, a person should have an obligation to file quarterly reports, but you find he doesn’t but he is still sitting on the license.”

Denis Kusaasira, a lawyer with a specialty in mineral law and policy, who is also a dealer in gold and cousin minerals says, Uganda’s problem is that “we came in a little bit late when the mineral boom was kind of done.”

Kusaasira says most of the companies that have been licensed in especially Buhweju do not have enough capital to develop the sector any faster.

“They are owned by local people who do not have the financial muscle to go and do serious exploration to discover the extent of the ore body.”

“We also have our internal problems. We do not have fair taxation regimes where mining companies are required to pay the same withholding tax as any other person yet most of the service providers that are used in the mining sector are foreign contractors.”

Gold versus land use
But Mr Kusaasira further notes that the growth of mining ventures stagnates because of the failure by government to harmonise land laws with the mining laws.

“Mining has not been the source of livelihood for Ugandans, it has been farming so when mining comes into competition with farming, and settlement on land, it faces serious resistance simply because mining can hardly displace these dominant land uses,” he says. “You find a person has a farm, he is benefiting from farming and you want to mine. This person is going to resist you because he doesn’t see the real benefit from you doing mining on their land.”

And in most cases, he continues, mining may paralyse other usages which may be inconsistent with mining operations.

“You cannot have an open pit mining process which is usually used in most mining operations while at the same time do agriculture,’ he says.

Sector manned by artisan miners
A visit to the different gold ‘mines’ in the area revealed numerous pits dug randomly by artisanal miners searching for gold albeit the fact that there are already over five companies licensed including Gold Empire Limited whose license stretches from Bihanga to Kashoha Kitoomi Forest Reserve.

“We come here to look for the gold but we only sell it to the owner of the land in which we are digging the pits,” says 23-year-old Alex Nabasa from Nyakaziba village. He started mining at 20 and reports to work at 6am daily.

However, many of them are poorly equipped and lack the skills and knowledge to mine the mineral hence exposing them to danger.

“We do not have any protective gear and we have always seen soil caving in and injuring our friends while they mine the gold. Government should come in to help us with equipment and even training.”

To reduce on the high risks towards the artisan miners, information from the Ministry of Energy shows that in the financial year 2011/12, a total of 600 mineral artisans were trained in legal and regulatory framework, and health and safety in the mining best practices.

Mr Nabasa says he joined mining to improve his livelihood and to him, life has so far changed for the better.

“I bought land, phone, two goats and one pig and that’s enough for me, my wife and the two babies,” he said.

Clearly, if the laws are not enforced and gold mining made a priority, many will benefit from it.

Lessons from our neighbours
Uganda and Tanzania overhauled their policies at almost the same time, Tanzania in 1998 and Uganda 2000.

Tanzania didn’t only deal with mining laws, says Mr Denis Kusaasira, a lwayer with specialityin mineral laws. It dealt with investment laws and tax laws.

“Tanzania revised the taxation policy and law of mining companies and provided various incentives to mining companies. If you look at their law, they charge less withholding tax on service providers as compared to what Uganda charges even up today,” he says. “They also introduced stabilisation of tax applicable to mining companies for a specific period of the mining venture.”

Tanzania doesn’t have import duty on mining equipment and the very first accelerated depreciation rate where the cost of plant and machinery was allowed to be depreciated at a fast rate; at 100 per cent according to a May 2006 Tanzania sector study of the effective tax burden while the 2011 Uganda tax guide shows that the rate stands at 30 per cent.

“So all those tax interventions affected investments decision making of mining companies because in mining, tax ranks among the two factors that affect decision making in the mining sector,” Mr Kusaasira says.

“The day that government learns how to ensure that people do not sit on a license, we shall get very serious exploration companies, and we shall be able to find big gold deposits, and we shall have big gold mines.”

Compared to Tanzania, which lies on the same gold belt as Uganda, Uganda is, so to say, playing catch up. Tanzania Central Bank records show that in May, this year, Tanzania’s gold production rose to 40.4 tonnes in 2011 from 35.6 tonnes in 2011. This, the Bank says, was after mining companies invested in higher output due to cash in on the rising price of the precious metal.

Records at the Uganda Bureau of Statistics show a sliding development in the country’s sector. In 2006, Uganda exported 6,937kg [≈7.6tonnes] of Gold before production plummeted to 910kg [≈1.0 tonnes] in 2010.

Elsewhere in the world
According the 2011 Gold Sheet Mining Directory, China is the world’s largest gold producer with 345 tonnes produced in 2010. South Africa, because of increasing cost of production, dropped to fifth position with 190 tonnes. Until 2006, it was the world’s biggest producer of gold.

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