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The trending issue of the “Agyapa Royalties” deal is not dying soon as most individuals, opposition political parties, as well as some C.S.O’s see it as a shoddy deal. Poicy thin tank group IMANI has released a statement explaing why some Why the CSOs Oppose the “Current” Agyapa Deal. please take time and read below.
Why the CSOs Oppose the “Current” Agyapa Deal
August 27th, 2020
– The timeline of 4 months to IPO is problematic, unless the Government has
surreptitiously filed for listing. To ensure favourable pricing of the offered
securities, the timeline for listing any MIIF SPV on any international exchange should
be extended to at least April 2021. This should also allow additional scrutiny into the
Agyapa transaction because, so far, it lacks the basic minimum of transparency and
assurance of above-board dealing required of a sovereign transaction.
– The degree of information-hiding has been so intense that, per the official record,
it took the Ministry of Finance more than a year to share the full set of agreements
with the Government’s own Attorney General following an initial request for legal
review in January 2019. Unsurprisingly, the final agreement ratified by Parliament
defies many pieces of advice offered by the Attorney General, including a
suggestion that the Investment Agreement be limited to a fixed term of 30 years.
– Raising short-term capital and building a solid company to invest Ghana’s royalties
are not intertwined objectives and the selected vehicle for listing securities on the
LSE Main Market is ineffective for achieving either strategy in a holistic way. The
massive upfront costs of listing and sustaining a listing is equivalent to borrowing at
over 10% per annum, far above Ghana’s current sovereign borrowing rate.
– There is a case to be made for diversifying the country’s sovereign wealth strategy
and acquiring some geo-economic influence, but that should not be pursued at the
high cost of valuing 75% of all of Ghana’s future royalties at 30% of their true value.
The $1 billion valuation of these massive resource entitlements is
unconscionable and amounts to undervaluing Ghana’s resources by over 65%.
– Less than 25% of future royalties should go for that amount of money in any
such transaction. Our position is backed by a review of several such “royalty
streaming” transactions around the world. A private market transaction would be
superior to a public listing in this regard.
– The claim that dividends shall prove a seamless substitute for royalties in the future
is abjectly wrong in view of typical dividend yields in the context under evaluation
and the fact that the transactions expressly exclude dividend protections granted
the government by the SIGA law.
The Government of Ghana has given a number of reasons why it prefers to
assign its rights to receive royalties from the country’s gold mines to an
independently run Ghanaian entity (“ARG”) controlled by another, overseasregistered, entity in the tax haven of Jersey, which it hopes to have admitted to
the Main Market of the London Stock Exchange (LSE) via a standard listing.
We disagree with most of the reasons given to justify the decision so far and
wish to urge the government to be more open to better and deeper scrutiny of
the whole affair.
In this short note, we shall lay out as clearly as we can why after a thorough
review of the Agyapa deal by a multidisciplinary team we commissioned, IMANI
has decided to join an assortment of leading Civil Society Organisations (CSOs)
to publicly express misgivings about the deal.
Timeline to Fundraising
The government has indicated that it sees the Agyapa deal as a means to raise
both short-term capital, through proceeds from an upcoming IPO of the
overseas-incorporated entity (“Agyapa”), and long-term resources from the
country’s gold assets through dividends earned from its shares in Agyapa.
Neither of these two strategies add up. For an entity with no trading history and
capitalised solely with contractual entitlements to future revenues from Africabased assets, it is expected that the due diligence review by the Listing
Transactions unit of the Financial Conduct Authority and the bevy of advisors
needed to pull this off shall be excruciatingly long-winding.
It is important to recall that the government aborted a listing before December
2019 and again around March of this year because, according to well-briefed
sources, it could not assure dealmakers of the robustness of the royalty payment
arrangements. From the evidence we have seen, the Finance Ministry spent
months ignoring advice that Parliamentary approval was needed as it was in a
hurry to list. After much fumbling around, they have finally obtained
Far more conventional entities have in the past taken as long as 12 months to
complete listing on the LSE Main Market. The 31st December timeline in the
government’s current plans is thus problematic if indeed it is true that the
listing process has not already commenced and was awaiting clearance
The relationship agreement between the Jersey-incorporated vehicle (Agyapa
Royalties – “Agyapa”) that the Government wants to use to raise funds on the
LSE, and the local vehicle to which it is assigning its rights to receive royalties
from the mines (Agyapa Royalties Ghana – “ARG”) actually expires by the 31st
December deadline if a listing on the London bourse has not happened. This is a
Why 31st December? Why is the government always in a rush? Does it keep
fumbling because of this rush? For a planned listing that so far has no publicised
prospectus, no clarity as to the existence of an underwriting agreement, no PR
plan in place as far as anyone can tell, and for which even basic draft longform
reports from accountants have reportedly not been prepared, why would a
Government set 4 months to undertake the incredibly complex task of
engineering a good offer price and attracting bountiful subscription of the
offered shares? When questions were asked about audited accounts of the nontrading Agyapa vehicles, once again, reviewers were met with stonewalling.
Unless, there is a plan to rush through the process, agree to a low offer price and
depress market valuation to benefit institutional investors who can then grab the
country’s future royalties today for cheap, IMANI cannot fathom why after more
than a year of fumbling, the process is being rushed again.
Our first demand therefore is that the relationship agreement should be
amended. The deadline should be changed to April 2021, at the earliest, and the
Government should plan for a process of due diligence, sponsorship and
underwriting negotiations, and public relations concurrently and sequentially
lasting at least 9 months with a view to getting the best offer price and
subscription levels possible for this overseas investment vehicle. This is just our
It does not, however, mean that we agree with the overall structure of the deal.
In fact, we mostly disagree. We believe that substantial surgery needs to be
performed on the overall anatomy of the planned privatisation of government’s
royalty stake in the gold mines. In subsequent passages we shall explain why.
Short-term Capital Raising
The standard tool for valuation in most economic contexts, and certainly in
respect of securities, is benchmarking. To determine whether or not Ghana is
getting a fair deal from Agyapa, we must look at three main benchmarking
factors: movements in the price of gold, movements in gold production volume,
and movements in prices of gold-related assets in public and private markets.
Exchange-traded funds that have gold as the underlying asset are a rigorous
benchmark for getting a feel of the market’s attitude to gold-pricing shifts.
Below we present Bloomberg data that shows that the slackening in global
economic performance has led to improved prospects for gold pricing.
Historical Gold Price Dynamics (Source: Adam Perlaky, with data from Bloomberg and the World Gold
The bullish sentiment on gold as a commodity is undoubtedly a durable trend
for the near-term and medium-term horizon.
Stock performance of AIM-listed Pan African Resources (Source: Superperformance.com and
On the other hand, recent upsurges in the performance of gold stocks exposed
to African production, such as Pan African Resources Plc (PAR), belies
PAR is very interesting for the kind of analysis we are engaged in because its
revenues are roughly similar to Agyapa’s prospective earnings. It is exposed to
underlying assets similar to Agyapa’s though its direct control of those assets
reduces its risk profile. It also has two decades of trading history. Currently, it
trades at a market cap of just a little over $600 million.
When we look at other listed entities with revenues tied to underlying gold
income streams that have features familiar to the Agyapa situation, we get a
similar price-earnings ratio (PER) picture. It is worth bearing in mind that there
are too few pure “royalty streaming companies” of Agyapa’s calibre to permit an
analysis without broadening the peer cohort, as we have done by including PAR.
In short, the anticipated market cap of $1 billion for Agyapa is highly optimistic,
insofar as the Government intends to use the public markets for valuing the royalty
income streams, raising further concern about the government’s calculations
regarding this IPO-based royalties streaming transaction structure as a shortterm fundraising option.
Whilst there aren’t many pure gold royalties streaming companies with their
assets predominantly based in Africa that can be used for pound for pound
comparison, gold royalty streaming as a transaction model is quite mundane in
the international capital markets.
Since Franco-Nevada started the practice in 1986, hundreds of companies have
cropped up that will buy rights to royalties directly from asset holders and
package the rights in various shapes and sizes for further trading.
Entities with revenues very similar to Agyapa’s prospective earnings are Altius
and Maverix, both based in Canada, whose market cap dynamics reinforce the
picture we have painted earlier about the unfavourableness of the public markets
for the type of frontloading transaction Ghana is pursuing.
In the private markets, on the other hand, things look very different. In several
transactions we have reviewed, where far lower revenues than Agyapa’s
anticipated streams were involved, the valuation prospects look considerably
better than the “$1 billion or less” target Agyapa is likely to hit.
We examined many deal structures in the public markets in comparison with the
private markets. But in the interest of time and space, we urge the reader to
consider just two: the ill-fated Triple Flag IPO, aborted around the same time
that Ghana first attempted to list Agyapai
, and the gold portion of the Wheaton
– Calda Gold Marmato private market transaction, where the royalties streaming
major purchased 6.5% of royalty streams of the Marmato asset for $110 millionii
Head to head analyses of transactions like these overwhelmingly support our
thesis of superior private market valuation and the undervaluing of Ghana’s
royalty assets in the public listing option.
Clearly, thorough benchmarking analysis of equities listed on international public
exchanges shows the need for special effort on the part of the government to
obtain a favourable IPO price.
But it raises a more fundamental point: if the point is to raise short-term money:
the convoluted path of going through an IPO is completely unnecessary.
The government can sell a smaller percentage of future revenues over a defined
time-period to any one of a hundred royalty streams companies at a discounted
rate. Private market transactions in this respect, as we have already indicated, are
cheaper, quicker, and more likely to yield a better valuation in the current
Going this route would afford government of Ghana more time to pursue the
longer-term strategic goal of diversifying the investment options available to it
by setting up an overseas vehicle to pursue royalty streaming assets in other
markets as it has expressed an interest in doing. It is noteworthy to note,
however, that the MIIF Act restricts SPVs like Agyapa to equity plays only,
without the option to invest in debt securities. This restriction further weakens
the use of a listed vehicle as a cashflow cow, something the government needs
for fiscal headroom purposes.
To repeat for emphasis: the two goals of short-term fund-raising and longerterm investment diversification are completely separate and, quite frankly,
Reading through the Government’s justifications for pushing forward with
Agyapa, the case for intertwining these two objectives (of raising money quickly
“off the books” and setting up a vehicle to better invest the country’s royalties)
come across as very weak. Because the PER benchmarking of the value of the
country’s future royalty streams discounts the amount at a higher rate (by more
than 65% per our calculation) than what Royalty Streams companies like FrancoNevada typically use (less than 40% judging by the trend in current transactions),
the use of the stock market listing approach to raise short-term money ends up
being very expensive, and from our national perspective, a rip-off.
Worse than all this, the intertwining strategy has led to a structure that puts
Ghana’s sovereign interests at considerable risk.
The dividend yield of many equities similar to Agyapa’s on similar bourses have
been less than one percent over long cycles. In fact, in a recent index
computation, the gold asset leveraging company (among large caps) with the
best average dividend yield was AngloGold Ashanti at a measly 0.76%. Newmont
scraped in at 0.39%. The Government’s own Merrill Lynch – led analysis shows
weak dividend yields across many prospective peers in the royalty streaming
Anglo Pacific Group PLC, the only royalty streaming company on the London
main bourse, which, admittedly has struggled of late, does have a dividend yield
of 7.69% but it comes at a weak PER of just over 5%, imperilling the more
valuable capital gains opportunity.
Anglo Pacific Group Share Price Performance (Source: MorningStar)
Dividends Are No Comfort
Even at a market cap, in the Government’s optimistic scenario, of $1 billion, a 1%
yield per annum amounts to less than $10 million in dividend payouts, IF
Directors vote to declare dividends.
Very rarely do countries tie their sovereign wealth yields to dividends. Frankly, it
is almost unheard of for a sovereign wealth strategy. If dividends were an
important source of revenue, the country’s 10% equity interest in gold
concessions in Ghana managed by 10 international companies (excluding
Newmont and Anglogold), many of them with parents listed on top bourses
would already be generating significant revenues.
As the government has persistently complained, however, it does not make any
significant dividends/equity interest revenue from these carried interest stakes.
In 2018, for instance, the Government’s 1.56% in the global AngloGold Ashanti
structure yielded just a little above $300,000. The year before it was about
$575,000. Intriguingly, the normal dividend protections the Government may
enjoy under extant law have been ousted by a curious decision to remove all
applicability of the State Interests & Governance Authority (SIGA) Act to these
Agyapa transactions in a bizarre process that we recount later in this essay.
Capital gains, as hinted above, are the proper targets for structures like Agyapa,
but even a reliance on capital gains raises other worrying concerns that we can
only delve into when we examine the legal structure of the Agyapa transaction.
All this beg the question of why the government would not simply utilise local,
non-listed, vehicles of the Minerals Income Investment Fund for the more longterm objectives of the strategy. Unless there is some official desire to pay large
amounts of money to expensive British and local consultants, why will the
country spend over $40 million to raise $500 million? Why shouldn’t the
Government simply cut down the wide latitude for political interference in MIIF
so that it can exercise its various investment mandates?
Note that the average cost for listing a low-premium structure such as Agyapa
on the LSE Main Market is in the region of 10% of funds raised. This amounts to
an effective interest rate of 10% for an implied instrument with a life of 1 year.
This, for a country that borrows at less than 6.5% on instruments with a 6-year
Besides these considerable upfront costs, there is also the high costs of keeping
companies listed on the stock market, a phenomenon that partly accounts for
the ongoing desertion of the public markets by many of the fastest growing
companies in the worldiii
Nevertheless, to fully grasp the extent of Agyapa’s incoherence, one must
examine the legal architecture.
The Deal Structure
There are four key agreements governing the transaction: an agreement that
erects a Chinese wall between the Minerals Income Investment Fund (MIIF) and
the Agyapa entities; an agreement that redirects 75.6% of all royalties from
virtually all gold producing mines in the country from MIIF to Agyapa (leaving
2% for salaries and the like); an agreement that formalises Bank of Ghana’s role
as a custodian bank for holding the royalties until they can be safely sent to
Agyapa in USD; and a fourth agreement that seeks to leverage Ghana Revenue
Authority (GRA’s) powers to collect the royalties from the mines for Agyapa.
There are other agreements that do things like indemnify transaction advisors
and prospective sponsors, like investment banks, but they are not very critical.
Separately, the MIIF law was also amended to free up Agyapa and potentially
other SPVs from some of the disclosure and regulatory strictures of the country’s
public finance and state enterprise ownership statutes.
Despite having set up Agyapa in November 2019, not a single document
opening up this major strategic policy shift has ever been published explaining
the rationale until the recent controversy. In fact, the first time many keen
observers of the Ghanaian scene, including IMANI, got to know about the full
details was when the minority in Parliament “rebelled” against the attempt to
speed up passage of the transaction documents above. To date, none of the key
documents that constitute this “Project Kingdom” strategy, as the Ministry of
Finance calls it, are on the Ministry’s website or accessible to the public through
official channels. IMANI and the CSOs have had to rely on contacts in Parliament
to obtain copies of the agreements after the controversy broke.
Apparently, the certificate of urgency meant to expedite the parliamentary
evaluation of the investment/assignment agreement in days rather than weeks
was necessitated by the Attorney General Department refusing to go along with
an earlier draft despite protracted negotiations. This is why an entity set up in
November 2019, which had been the subject of many months of considerable
disagreement even within the government, needed to be ratified in haste, in
barely 24 hours in fact, on 14th August 2020.
The MIIF set up the Agyapa SPV in the British Crown Dependency of Jersey so
that this entity can assume ownership of a Ghanaian incorporated entity called
Agyapa Royalties Ghana Ltd. The former Irish CFO of Dangote Cement was
engaged to handle finance and a politically connected Ghanaian placed at the
helm as CEO. The Ministry insists that Korn Ferry (reported in the Ghanaian press
variously as “Conferi” and “Kornferry”) was hired and given free rein to
professionally head-hunt the management and Directors of the company.
Considering that Korn Ferry did not advertise this role (we have not been able to
find a public advertisement despite an intense search) and no list of directors
and managers of Agyapa are still publicly available, we have to take the
Ministry’s word for it that somehow a global search for talent (even if the
emphasis was on Ghanaian talent) that literally no one heard of somehow ended
up determining that the son of a high-ranking Ghanaian official is the best
qualified candidate for this asset management job.
Yet, the Ministry saw no need to publicise this outstanding coup. The public
found out only because the notice page of a transaction agreement sent to
Parliament ten months after the appointment was made happened to leak. In the
circumstances, we are compelled to share the perception held by many people
that the manner in which Agyapa was staffed is shady. But that is the least of our
In recent press statements and comments, the Ministry of Finance has stated
that only 12 mines and 4 “development assets” are affected by the Agyapa deal.
This cannot be correct since the agreement clearly indicates that as many as 48
mining leases, including prospecting leases (concessions on which production is
yet to start) are impacted by the agreement. This means that not only are current
producing assets locked into this arrangement, even assets whose returns are
not yet clear have been allocated as well.
Furthermore, the Ministry’s position that the Agyapa entitlement is restricted to
the life of each of these mining leases is not borne out by the agreement, which
clearly foresees the possibilities of lease extensions, renewals, successions and
To all intents and purposes, and by the sheer operation of Euler’s number, the
entitlements are best considered, as we have done in this essay, “perpetuities”.
Moreover, the wording of clause 3.4 (Optional Mining Leases) can easily be
construed to imply a “right of first refusal” to take over additional mining assets
not currently included in the agreement. This clause clearly states that before the
MIIF can sell royalty streams in any other mining asset, besides the ones
assigned to Agyapa, it must provide up to 90 days latitude to Agyapa to make an
offer and negotiate terms for that mining asset.
By allowing considerable flexibility in construing the prospective flows into the
SPV from existing and future mining leases (described as “converted mining
leases” in the Investment Agreement), and removing any possibility of a financial
cap, the government has seriously shortchanged the Republic.
In clause 6 of the Investment Agreement, the government is vicariously banned
from revoking mining leases or terminating their ownership, to the extent that
such an action would cause the reversion of the asset back to the ownership of
the state, if that lease is part of the allocation granted to Agyapa in the
transaction. Thus, without investing any of the billions that multiple mining
companies have invested to justify their stabilisation and development
agreements, a royalties agreement has been used by Agyapa to grant stability
rights to virtually all gold-producing mines in the country solely for the benefit of
By virtue of strict terms in the Relationship Agreement among the Republic of
Ghana and the Agyapa entities, Agyapa retains the right to sell more than 51% of
its ordinary shares to investors if the IPO is oversubscribed. The continued claim
therefore that majority control by Ghana is cast in stone is incorrect.
The very idea of “majority control”, in its traditional sense, is eschewed by the
Relationship Agreement through numerous provisions, such as clause 3 of the
Agreement wherein the Government is proscribed from attempting to prevent
the appointment of Independent Directors it does not like, or to remove them if
already appointed. A broad provision in clause 3.2 actually requires that Directors
representing Ghana recuse themselves from deliberations where Ghana may
have a “conflict of interest”.
Virtually all critical decisions to be taken by Agyapa must pass by a majority of
Independent Directors, not the entire board. That is to say, without recourse to
the wishes of the Republic’s representatives on the Board. Such decisions include
material changes to constitutive legal documents, appointment of and
engagement with auditors, disputes with Ghana over royalties allocations, bank
account operations, and determinations about the impact of Ghanaian laws on
the stability clauses of the Agreement.
At any rate, the Republic, through the MIIF, is only definitely entitled to two
Directors. Appointing a second Director may however warrant a majority of the
Independent Directors to increase the number of such Directors in order to
dilute the influence of the additional Government of Ghana representative.
Agyapa’s Independent Directors can decide, per section 5 of the Relationship
Agreement, to replace the Government representatives if, to their mind, the
continued presence of that Director may lead to some unspecified regulatory
In short, the Relationship Agreement is cleverly structured such that the investors
who buy the shares of Agyapa following the IPO in London can circumvent
policies favouring Ghana’s national interest if such policies do not align with the
share price maximisation goals of traditional investors. To expect that a vehicle
structured this way can become part of some kind of Ghana-determined
industrialisation strategy whether in the mining sector or elsewhere is be naïve
about the reality of modern shareholder interests.
A Problematic History
Government records do not paint a very favourable picture of the arrangements
put in place by the Finance Ministry to realise the goals of the Agyapa strategy.
According to paragraph 2 of a letter from the Attorney General to the Finance
Ministry dated 28th May, 2020, and referenced as D54/SF.239, the Government
commenced the processes of assigning mineral royalties to Agyapa as far back
as January 2019 when a draft Relationship Agreement was presented to the
Attorney General (AG) for review and advice.
This is highly problematic because the official record also establishes an
incorporation date of November 2019 for Agyapa. The implication therefore is
that at least ten months before the incorporation of the vehicle, the Ministry of
Finance was already trying to secure approval for the assignation of royalties to a
non-incorporated entity. Luckily, this attempt was rebuffed.
The second attempt came in March 2020 when the Finance Ministry brought
back a second draft of the Relationship Agreement for the AG’s legal review.
Even at this point, the Finance Ministry was still refusing to share the subsidiary
instruments of the Relationship Agreement with the AG’s Office. More strangely
yet, even the main Investment Agreement, in which most of the key terms could
be found, was not submitted to the AG’s Office for review. Why? Luckily, once
again, the AG stood its grounds and insisted on seeing these critical documents.
But these manoeuvres to hide information contributed mightily to the long
doldrums in which the whole transaction has languished for many months now,
leading to the unseemly rush today.
The original Relationship Agreement had been drafted such that nearly all new
discoveries of minerals from which the Government might move to allocate
royalties to an SPV would have become subject to a near-default assignment to
Agyapa because of a ridiculously stringent “right of first refusal”, a clear
instrument of potential blackmail. Luckily, the AG slashed the time period during
which these pre-emption rights might be exercised. Unfortunately, what remains
of them is still capable of being wielded to extort the Government.
We maintain that there should have been no pre-emption rights at all to allow
such potential arm-twisting in the future.
Despite strong concerns in the AG’s office about the provisions of the various
agreements, many of them unresolved even today, a memorandum to the
President for Executive Approval of the Arrangements dated the 18th of June
2020 still lamented a “delay” in the listing of Agyapa on the LSE in January 2020
and talked up an “overdue” upcoming listing on the same bourse in July 2020.
Quite clearly, the attitude of the government’s chief financial advisors at that
time was to marginalise its own AG.
In the aforesaid memorandum, the Finance Ministry goes into some provisions
of the Public Financial Management (PFM) Act and Regulations, such as the
requirement of prior approval by the Finance Ministry of annual financial plans of
entities subject to the Act, which it believes would be constraining for SPVs
incorporated by the MIIF if maintained. Curiously, the Ministry does not ask for
specific sections of the Act to stop applying to SPVs. Instead, it requested for the
entire Act and its regulations to be emasculated where MIIF SPVs are concerned.
Same for the State Interests and Governance Authority Act.
To be very clear, there is nothing wrong with provisions in the PFM and SIGA
Acts that deal with reporting and accountability (such as sections 77 and 95 of
the PFM Act and sections 29 and 32 of the SIGA Act, as well as regulations that
flow from them). An SPV that is capitalised primarily with public money remains,
regardless of fancy nomenclature, a “state-owned enterprise” and should thus be
subject to the same accountability rules as any other majority state-owned
enterprises and joint ventures. In many parts of the world, sovereign wealth
vehicles are subject to public scrutiny standards.
It is completely contradictory for the promoters of Agyapa to tout the high
disclosure standards of the LSE Main Market whilst, at the same time,
complaining about public scrutiny standards in the country whose resources are
bankrolling the whole Agyapa enterprise. It is worse when they defy clear advice
to subject the disclosure terms of the Agreements to Ghana’s Right to
Notwithstanding all these issues and the efforts by the AG to restrain some of
the excesses, Cabinet Approval had already been sought and given in 24th March
2020 to remove application of the PFM and SIGA Acts; and to sign the Indemnity
Deed for the transaction bankers as well as the Relationship Agreement. The
reader may recall that as late as 5
th August 2020, the AG continued to express
misgivings about the Relationship Agreement.
In fact, in a letter dated July 22nd, 2020, and also referenced D54/SF.239, the
Attorney General, clearly frustrated by the continued side-lining of their advice,
minces no words in highlighting how nefarious to the interests of the Republic
the whole arrangement is. The provisions in the various agreements are
described as onerous, unconscionable, and “skewed against the interests of the
[MIIF] and Ghana”; whilst the benefits are dismissed as unclear.
Many of the terms and provisions of the Relationship and Investment
Agreements complained of by the AG were never properly amended. This
include important comments such as a requirement for a fixed 30-year tenure;
the treatment of incidental costs, such as insurance premia, as potential losses;
the distortion of pre-existing stabilisation agreements (clause 2.2 and clause 6 of
the Assignment/Investment Agreement); and weak reciprocity. The same can be
said for somewhat minor guidance offered by the AG and blatantly defied, such
as the removal of “judicial acts” as species of “Law” given the existence of more
appropriate sub-definitions such as “judgments” and “orders”; and the joint
liability of the MIIF and the Republic of Ghana despite the former being a body
corporate in its own right.
So, how was it that despite such a contentious misalignment between the
Government’s chief legal advisors and its chief financial advisors, stretching over
a year per the official record; despite at least four months of intense
correspondence between the two Ministries; and several, important, outstanding
issues, the Attorney General finally provided clearance on 12th August, 2020,
paving the way for the laying of the final drafts of the Agreements in Parliament
on the 13th of August, 2020, under a certificate of emergency, still riddled with
errors (incorporated reference to an unpassed Act and persistent reference to a
non-disclosed entity called, “Ghana Gold”) and the shocking rubber-stamping
of the documents in less than 24 hours?
Luckily, the Record provides the answer. The Attorney General lost their nerve.
According to the last trails of correspondence between them, the AG met the
Finance Minister on 10th of August, 2020. The latter had sent a letter pleading for
expediency on the 11th of August, 2020. The next day, the AG suddenly forgot
about several contentious matters, raised some peripheral issues in a final letter,
and brought the sad, miserable, saga to a close.
The Valuation Problem
As Ghana inches towards a new gold production plateau of 150 tonnes, and the
global geopolitical environment makes a medium-term price average above
$2000 highly realistic, the decision to sell all the country’s future entitlements to
receive royalties from gold for $1 billion becomes very hard to sustain.
Ghana’s gold production new plateau (Source: USGS & CEIC)
Whilst commodity price forecasting is far from a science, there is a growing
consensus that this is a breakout moment for gold. A view shared by the usually
thoughtful analysts at the Economic Forecast Agency who have joined many
analysts in predicting a multi-year support/resistance for gold of $2400 for most
of the current decade. But even if we were minded to moderate this forecast to
$2200 or even $2000, we shall be talking about annual earnings of more than
40% higher than the just-ended 5-year period.
In estimating the present value of Ghana’s royalty streams and therefore fair
value for Agyapa, we are talking about a growing perpetuity, not just a
perpetuity (even ignoring the prospects of lease renewals, the operations of
Euler’s Number in finance renders income discounting from a stream lasting
more than 25 years effectively a perpetuity in most types of analyses). Growth
implies that the discount rate needs shaving.
If risks of potential default is taken into account (the NDC flagbearer has
threatened to terminate the deal in a future NDC government), and
accommodation made for various volatilities, a discount rate of 7.5% would be
reasonable. But this is partly offset by the growth in production and prices
estimated in the coming decade. Some analysts have accommodated the sliding
scale royalty rates negotiated by the likes of Newmont, AngloGold Ashanti and
Goldfields, whereby these companies pay less than the 5% rate that their
compatriots pay if gold prices stay below certain thresholds.
If our theory that average gold prices shall be supported above the $2000 mark
for the most part of this decade holds, then we can simplify the analysis by using
the 5% royalty figure since the sliding scale does not apply when gold prices
breach the $2000 mark.
We can further simplify the sums by using an average production volume in
Ghana of 5 million ounces of Gold, instead of the roughly 5.4 million ounces “on
average” figure that most analysts accept. Approaching the sums this way yields
long-term royalties of roughly $250 million per year. Discounting the growing
perpetuity then yields a present value for the royalty streams of $5.5 billion. Even
if the discount rate is increased from 7.5% to 9% (on account of greater price
and production volatility) and the growth rate dropped to 2%, the present value
of the Ghanaian state’s royalty entitlements amounts to a cool $3.57 billion. 75%
of that amount is in excess of $2.68 billion. Any valuation therefore that leads to
a valuation of less than $2.5 billion is unconscionable, to borrow a term used by
the Attorney General to describe an earlier version of the Agyapa Assignment
Our recommendation in this respect is therefore that unless the offer price can
yield an IPO valuation of $2.5 billion, the exercise is wholly unwarranted.
We would, in fact, counsel an alternative strategy of assigning 25% of the
country’s royalty streams to a vehicle if it could raise $1 billion on a reputable
exchange purely to pursue geoeconomic maneuvering and investment
diversification objectives. Our sense however is that the best valuation is likely to
be obtained in the private markets.
But be that as it may, the proposed Agyapa transactional structure as a means to
both raise short-term capital and to maximise the annual proceeds from gold in
the longer term is problematic, for neither objective is favourably realizable from
an SPV listed on the London Main Market within the bounds of the
government’s current strategy.
i Please see, for instance: https://www.reuters.com/article/us-tripleflag-ipo/elliott-backed-triple-flag-scraps-iposignals-tough-2020-for-listings-idUSKBN1YF1T9
ii See, for instance: https://www.kitco.com/news/2020-06-22/Caldas-Gold-Wheaton-announce-plannedstreaming-deal-for-Marmato-project.html
iii See, for instance: https://www.sharesmagazine.co.uk/art