Gemstone miner Gemfields is calling on governance bodies, mining organisations, industry observers and host governments to adopt the G-Factor for Natural Resources – a new measure promoting greater transparency regarding the level of natural resource wealth shared with the governments of host countries.
The G-Factor for Natural Resources takes its name from the “Gs” in government, governance and good practice.
In launching the initiative, Gemfields – which operates the Kagem emerald mine, in Lufwanyama, Zambia – says, in a statement, that no measure of this type is perfect and explains the G-Factor for Natural Resources is a “rule of thumb” that has broad application but is not suited to every situation.
The G-Factor for Natural Resources is intended to be an uncomplicated indicator of the percentage of a natural resource company’s revenue that is paid to the host country government in primary and direct taxes.
In cases where the host government is a shareholder, this will be in the form of dividends, thereby making it an indicator of the share of natural resource wealth paid to a host country’s government.
Kagem and Gemfields CEO Sean Gilbertson says it is surprising that – in an era witnessing significant strides in transparency and governance, and where extensive reporting on many facets of corporate activity is already required in yearly reports of public companies – practical parameters permitting more direct insight into, and comparison of, the sharing of natural resource wealth are still lacking.
The G-Factor for Natural Resources is expressed as a percentage and is calculated by adding together mineral royalty tax, corporate tax and dividends paid by the reporting company to the host government. The total paid is then divided by the revenue of the company during the relevant period.
It could be calculated by each company engaged primarily in the extraction and sale of natural resources, whether in the mining, oil, gas, timber or fishing sectors, besides others.
Accordingly, multinational natural resource companies would publish the G-Factor for Natural Resources for each operating subsidiary engaged in the extraction and sale of natural resources.
“We invite collaboration, input and support for the adoption of the G-Factor for Natural Resources as a step forward. We hope it will be voluntarily adopted by other companies, insisted upon by host countries and incorporated into projects such as Extractive Industries Transparency Initiative,” Gilbertson says.
There are numerous additional and indirect taxes that are not included in the G-Factor for Natural Resources, but which further increase the contribution made to host nations by natural resource companies. Such taxes include area or surface charges, social security contributions, taxation on the salaries of employees, import and export duties and value-added tax.
The variety and variations in natural resource deposits, types and occurrences lessens the ability to make direct comparisons between companies, reports Gemfields.
The G-Factor for Natural Resources calculations for the Kagem emerald mine – which is 75% owned by Gemfields and 25% by the Zambian government’s Industrial Development Corporation – were 1.4 in 2020 for its mineral royalties paid; while from 2015 to 2019 it was 25.2.
Over a ten-year period (2011 to 2020), the mine’s value for mineral royalties paid was 41.4.
As for its corporation tax paid, the Kagem mine had a G-Factor for Natural Resources of 2.4 in 2020 and 35.9 for the period between 2015 to 2019; while for the 2011 to 2020 period it was 61.5.
In terms of total revenue, the mine had a G-Factor for Natural Resources of 27.7 for 2020; while this value was 294.4 during 2015 to 2019. From 2011 to 2020, this value was 626.2.
Therefore, Kagem’s G-factor – taking into account all of these calculations was 14% in 2020, 24% during 2015 to 2019 and 18% for the years between 2011 to 2020.
Kagem chairperson Dr Sixtus Mulenga explains that transparency, legitimacy and integrity “lie at the heart of Kagem’s operations”.
He says the mine is proud of its contribution to the national economy through the taxes and dividends it pays to the Zambian government, the foreign exchange earnings it creates and the local employment it generates.
“The G-Factor for Natural Resources is an easily understood way to measure that input and we urge other corporates in the extractive sector to support this initiative as it will go a long way in showing the contribution each mining company, and as a group the whole mining industry sector, makes to the long term sustainable economic development of the Zambian economy,” concludes Mulenga.