Haiti lags in the “royalties race”

Published 30 May 2012
Part 3 of 4 parts

How much money from the eventual gold, silver and copper mining might come to the Haitian government, and when?

Recent articles have cited all kinds of promising figures, but they leave out the fine print regarding the existing conventions, and do not even mention the pending convention.

Top of a May 15 Associated Press article which was relayed by numerous
Haitian and foreign media outlets.

Also, no matter how good the new convention, aside from the up-front fees, any eventual mine would likely not start paying revenues – taxes and royalties – until five or even ten years down the road, because that’s how long it takes to build a pit mine, and because companies are allowed to depreciate their equipment first, delaying the move from being “in the red” to “in the black.”

Newmont’s Daven Mashburn confirmed that “it could easily be a decade. It usually takes a decade to get these things going.”

“It’s likely that a big mining company may declare losses year on year, even for ten years, if cost deductions are too generous and there is little control,” mining tax and royalties expert Claire Kumar confirmed in a recent interview with HGW. “We see this happen all the time.”

A Christian Aid researcher who authored the 38-page report Undermining the Poor – Mineral Taxation Reforms in Latin America in 2009, Kumar said Haiti’s two small existing conventions sound good, since they promise a 50-50 split of profits and put a cap on expenses.

What’s not so good, Kumar noted, is Haiti’s royalty rate – 2.5 percent. According to Kumar and to a recent news reports, the rate is one of the lowest in the hemisphere.

“A 2.5 percent royalty share is really low,” Kumar confirmed. “Anything under 5 percent is just really ludicrous for a country like Haiti. You shouldn’t even consider it. For a country with a weak state, the royalty is the safest place to get your money. There is room for manipulation by the company, but it’s not as big as you would think.”

Haiti royalty rate has yet to catch up with what mining investors lament as a “royalties race” and “resource nationalism.” In its annual Business Risks Facing Mining and Metals report released last August, accountant and investing firm Ernst & Young put “resource nationalism” at the “top of the business risk list.” The agency said that in late 2010 and in 2011, it counted 25 countries that had or were threatening to hike royalty rates.

Many of those raising gold rates recently are in Latin America. Ecuador now charges between 5 and 8 percent, Peru's rate is as high as 12 percent, and Brazil is threatening to raise its rate also. Last August, Venezuela went a step further and nationalized it gold mining industry.

Venezuelan President Hugo Chavez holds a gold ingot during a press
conference. In addition to announcing plans to nationalize gold mines,
the Chavez government also repatriated almost $10 billion
in gold bullion reserves
previously held in overseas banks
Photo: Miraflores Palace handout

Writing about “resource nationalism” in March, Reuters concluded “[it] has left mining companies few options other than to venture into ever more politically risky territory, including restive parts of Africa.

Or Haiti.

With a royalty rate of 2.5 percent, a 10,000-soldier strong U.N. blue helmet force stationed throughout the country, and indications that new mining conventions will be more advantageous to foreign companies, the risks there are likely lower than in recent decades.


End of part 3 of 4 parts

Read part 4 – Haiti’s mines – “Open for business?”

Read Haiti’s Grim History of Being “Open for Business”

Return to the Introduction