Funding of National Gold Mining Companies
04 December, 2012
KHARTOUM, (Sudanow)—The provision by the national banks of funds to the national companies operating in the mining of gold and other minerals at the stage of prospection and mining protects those companies from falling prey to foreign partnerships and supports the national economy from the country’s tremendous mineral resources in a way that cannot be offered by the foreign investments, as put by a banking expert.
There are more than 40 national companies operating in this field with a poor national capital and a little experience that make them in dire need for financial and technical backing. In absence of such backing, those national companies will fall prey to foreign companies or foreign partners by selling them substantial stocks or admitting them with tremendous rations of the capitals of the national companies, as indicated by former Finance Minister and banking expert Abdul Rahim Hamdy.
Speaking at a symposium on investment in the mining industry that was organized in the framework of the 12th Arab Mining Conference here last week, Hamdy said if the national companies are not provided with these two kinds of backing, the proceeds of this local economic sector will be collected by foreign miners and the country will thus lose a huge wealth. For this reason, the central Bank of Sudan has to permit the Sudanese banks to finance those national companies under the absolute speculation it currently prohibits
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This form of speculation is an Islamic funding form that does not require huge guarantees as the proprietor of the fund offers speculator a capital without the latter having to define the business, the place, the period of time, nature of the business or partner. The success of this form depends on the mutual confidence of the two contractors. The jurists concur that the elements of speculation are: two contractors, capital, business, profit and formula.
The symposium on funding the minerals concluded that the encouragement of all banks for participation in the mining sectors depends on an amendment by the central bank of its 2012 banking policy for permission of absolute speculation in funding the mining without obtaining guarantees.
Discarding traditional thinking
The banks should get rid of the traditional understanding they have upheld since their coming into being early last century of their safe practice on the banking business and finance this sector in this high-risk capital formula that is faced at the prospection and mining stage and gradually decreases and almost disappears at the production stage when the targeted mineral turns up. At this stage a contract can be concluded for its mining and selling of its export in any formula preferred by the banking system, as was indicated in the symposium.
Hamdy added that both the national banks and the central Bank of Sudan need to finance this highly comfortable sector because it provides them with the foreign exchange they need for their operational activities and because it ensures continued profits for financing other proactive activities, including domestic and external trade. The banks finance other sectors which are riskier and less guaranteed revenue and profit such as agriculture and micro-finance. What is now required of the Bank of Sudan is to exempt all the commercial banks from any terms, guarantees, real estate mortgages or any other demand for funding the prospection stage for serious national companies.
The mutual profiting remains the Islamic formula that is most commonly applied by the Sudanese banks, despite its drop from 70% to 53.6%, because the financier bears the financing risks. Coming next is the partnership, 11.2% and then the contract and Salem formula, 9%. .jpg)
Former Bank of Sudan Governor Sabir Mohamed al-Hassan is of the view-point that the banks operate in the Sudan should encourage the formulas of partnership, speculation and Salem so that the bank and client share the funding risks.
The central bank should continue purchasing and exporting the gold that is mined by the private sector and should allow the companies operating under the investment act to export the gold and other minerals, Dr. Hassan said.
There are around 34 banks operating in the Sudan with 627 branches spread in most parts of the country and they apply the Islamic banking system. The central bank offers incentives to the banks which provide financing facilities to the productive sectors.
For this reason the share of the agricultural, industrial and mining sectors was 5.4 billion pounds, i.e. 24.2% of the total funding by the banks during the period January-July 2012; while the remaining funds went to miscellaneous services. The total funding by all banks was about 22.4 billion pounds.
Highly Convenient Performance
The Deputy Manager of the Bank of Omdurman Branch, Mohamed Al-Nor, told SUDANOW that there is nothing that prevents the banks from taking part in the mining of gold and other minerals. It is a convenient task in which loss is rare and the bank can enter into partnership not only with companies but also with individuals.
What is required is the element of seriousness in addition to the experience of the company or client in this field and their clean banking transactions, Nor said. He added that his bank has previously offered funding under the partnership formula for a number of companies and individuals and has achieved good profits.
The spokesperson of the central Bank of Sudan, Hazim Abdul Gadir, said his bank permits limited speculation for gold financing and, although its financing and monetary policies for 2012 prohibits absolute speculation, the central bank may consider any application made by the banks for funding gold prospection and mining if those banks are convinced of the feasibility and benefits of these operations.
According to the Bank of Sudan, the value of the gold exports has of late increased by 142%, comprising 70% of the country’s total exports. By the end of this year, the gold earnings are expected to reach 2.5 billion dollars. Those exports have contributed to providing numerous essential commodities and meeting the national needs. After the establishment of the gold refinery, the proceeds of gold and other minerals are expected to increase. The importance of the refinery which was inaugurated in September 2012, is that it will add to the value of the refined gold instead of exporting it in the form of raw gold, as put by the central bank..jpg)
Prerequisites
Increasing the research and prospection budgets, qualifying the human resources, provision of the field and laboratory aids, revision of the laws and regulations that regulate mining and encourage the investment, facilitating the mining procedures and cooperation between the center and the states for facilitating the missions of the investors; these are the conditions recommended by the symposium, saying they are necessary for achieving further discoveries and production of the minerals under the Sudanese ground and for encouraging investments in this field.
For his part, Geologist Al-Sheikh Mohamed Abdul Rahman said it is also important to exchange information and cooperate with the internal and foreign research organizations enters for enhancing the value of some minerals and for achieving self-sufficiency in the industrial minerals used in agriculture, industry and construction. He underlined the importance of cooperation with neighbouring countries for exploitation of the joint mineral resources across the borders.
Dr. Abdul Rahman said what has so far been assessed of the minerals in the Sudan does not exceed 10% of the expected minerals as the country, he said, possesses a geological variety that covers all geological eras that stretches into the neighbouring countries across the borders.
Numerous gold miners
The mining in the Sudan consists of two sections- regular and modern mining. More than 85 agreements have been concluded for the mind in the Sudan.ing of gold and accompanying minerals and several big companies and a number of smaller ones presently operate in this field in the Sudan.
There are seven big companies which now operate in gold mining in the Sudan. Those are: Ariab (Sudanese-French), Ridha (Sudanese), Hamadi-Kuan (Sudanese-Chinese), Pauli-Baiyoudh (Sudanese-Chinese), Sahari (Sudanese), Tahy (Turkish) and Manajim (Moroccan). There are Chinese and Sudanese companies which export iron and manganese from the Red Sea hills in limited areas.
The second activity is the traditional or private one in which more than 500,000 traditional gold miners operate in various states of the country. The Bank of Sudan directly purchases from those miners the raw gold which is estimated at 50 tons per annum, refines and exports it as important foreign exchange earnings.
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Coincidental and unplanned
Yagoub Ali Jange, an associate economic professor in the Administrative Science School of the University of Khartoum, says gold has been exploited in this effective way in the Sudanese economy by coincidence and without planning by the government. The states usually plan the manner in which benefit from their resources, whether surface or underground and determine how to extract them and the techniques and technologies they use and when and where all this will be made. But what happened with respect to gold in the Sudan was that the community was ahead of the government and began major and extensive mining operations, in most cases using simple and primitive techniques, increasing the risks faced by those individuals.
This was not bad, he said, as the long-term strategic plans of the Sudan have provided that the state would enable the private sector to assume an important role in the economy and in the community development. But even this must be planned rather than left to coincidence, Jange said.
The problem with the private sector gold mining lies in non-organization of the producers in any form of industrial trade that enables them to exploit the wealth effectively and assist them in applying high quality techniques for gain more benefits for them and for the state and for extracting the greatest possible quantities without any losses.
The greater quantities of discovered gold stocks is found in the Red Sea hills in more than a hundred sites of which a few has been subject to detailed studies, including Jabeit and Ariab areas. Discoveries have also been made the River Nile, the Northern, the Blue Nile, South Kordofan and East Darfur states, as shown by studies conducted by the Geological Research Authority on the Sudan’s mineral resources.
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