Sub-Saharan Africa

a guide to changes to mining legislation
December 14, 2015

Countries undertaking an overhaul of their mining legislation must be careful to avoid creating legal uncertainty or introducing conditions that result in hampering international investment, thereby imperilling development. Stakeholders looking to invest in the mining sector should endeavour to maintain a strong awareness of risk mitigation and regulatory compliance.

Successful reform should underscore a fair distribution of revenue among the various stakeholders, aid the growth of the local economy and meet the genuine concerns of foreign investors. This is easier said than done, as recent changes to mining legislation across sub-Saharan Africa demonstrates.

Countries in French-speaking sub-Saharan Africa are renowned for the riches of their sub-soil, making them much coveted mining investment destinations. Legislative reform has been high on the agenda as the region endeavours to bring existing laws in line with international standards, and to meet the demands of an impoverished electorate that wishes to see the mining sector contribute more to local development.

Issues such as increased state participation, local procurement and beneficiation, support to local communities, adjustments to the tax regime (including reduction of tax stabilisation), and avoidance of land freezes have been the focus of reform efforts so far.

In 2010 and 2012 respectively, Cameroon and Mali completed amendments to their mining codes. The process was carried out relatively discreetly and the proposed reforms were accepted by the industry.

Guinea, on the other hand, undertook a rather more tumultuous reform of its mining legislation: the mining code adopted in 2011 was met with widespread criticism, to the extent that the authorities suspended the application of some of its provisions, and undertook a review completed in April 2013. This effectively left the country’s mining sector in a state of legal uncertainty for a period of almost two years.

A number of other jurisdictions have implemented changes. These include the Ivory Coast, Gabon and Burkina Faso, where amendments to existing mining codes, dated 1995, 2000 and 2003 respectively, have been adopted by the Council of Ministers.

Surprisingly, Burkina Faso has recently withdrawn the draft bill submitted to its national assembly for ratification. In Gabon and the Ivory Coast, the drafts are still on the table and awaiting final approval.

Furthermore, over the course of the last year or so the Democratic Republic of the Congo (DRC) has published several proposed amendments to its 2002 mining code.

State participation

In Mali, the 2012 mining code maintained the state’s right to a 10 per cent free-carried interest, but also introduced an option for the state to acquire a further 10 per cent for cash and a requirement that 5 per cent of the company’s shareholding be held by local interests.

Guinea’s new code provides for the state to hold a 15 per cent free carried interest, along with an option to acquire an additional cash participation for a maximum equity stake of 35 per cent. Notably, the state may sell such cash participation without the other shareholders benefiting from a pre-emption right.

As with Mali, the Ivory Coast proposes to maintain the state’s free-carried interest at 10 per cent, but introduces an option for the government to acquire, at market rates, an additional stake that shall not exceed 15 per cent “on the date of its acquisition.” The state would be entitled to this additional holding regardless of whether equity is already held by other state entities.

Mining companies in the Ivory Coast are encouraged to make provision for local involvement. The state is able to make industrial mining activity conditional on companies facilitating domestic inclusion of one kind or another.

Proposed amendments to the mining code in the Democratic Republic of Congo (DRC) provide for an increase of the state’s free-carried participation from 5 per cent to 15 per cent, to be increased by 5 per cent with each renewal of the exploitation permit. In Gabon, the new draft bill suggests setting the state’s free-carried participation at 10 per cent, with an option to acquire an additional cash interest of up to 25 per cent.

Local procurement

Recent legislative amendments to mining provisions are also promoting the training and use of local employees and businesses. Guinea’s new mining regime provides for the most stringent obligations, setting quotas for the sourcing of goods or services from Guinean-controlled firms, at up to 30 per cent from the 11th year of exploitation onwards.

Quotas of Guinean employees are set depending on their level of seniority and the project stage and can reach maximum rates of 90 per cent for higher management and 100 per cent for other employees. In addition the provisions impose imitations on the length of stay for expatriate personnel. There is also a requirement for Guinean nationals to be named deputy general manager and general manager from the date that commercial production starts and from the fifth year following the start of production, respectively.

Finally, Guinean mining companies are required to file annual reports on the use of local employees and businesses, and must offer training programmes, especially to graduates, as well as be prepared to train staff overseas.

The DRC is proposing measures to persuade foreign companies to use local suppliers and employees. The draft amendments introduce a 14 per cent withholding tax on services provided by overseas suppliers and an increase to the exceptional tax on the remuneration of expatriate employees from 10 per cent to 50 per cent of the standard rate during the first 10 years of the project and 100% of the standard rate thereafter.

In Burkina Faso, the proposed amendments provide that mining companies and their sub-contractors must do the following:

  • give preference to local businesses for the supply of goods and services (note that no condition is imposed as to quality, price and delivery terms);
  • give priority to the hiring of local employees for executive positions; and
  • establish a training plan for local managers, aimed at the gradual replacement of expatriates.

In the Ivory Coast, the proposed amendments would introduce the following obligations for mining companies and their sub-contractors:

  • give priority to Ivorian companies for construction, supply and service agreements, offered on equivalent conditions as to quality, price and quantities; and
  • give priority to qualified Ivorian staff. In this respect, as and from the start of mining operations, a mining convention holder must establish and finance a training programme for local employees, regardless of their qualification.

In addition, exploitation permit holders would be required to implement a training plan for small and medium-sized enterprises to increase their participation in the supply of goods and services to the project, as well as contribute to the cost of improving the skills of the mining administration’s agents and the training of Ivorian engineers and geologists.

Local beneficiation

Governments are also promoting domestic processing, where possible. Mali’s 2012 mining code requires that mineral products be treated, refined or transformed inside the country, unless otherwise authorised by the mining administration.

Guinea, in turn, has introduced taxes on the export of certain unprocessed mineral substances with tax rates ranging from 0.075 per cent (bauxite), 2 per cent (iron ore, base metals) to 3 per cent (uranium and other radioactive substances). Companies intending to process their minerals locally would benefit from being allowed more time to bring projects to production – namely five years rather than four for exploitation permit holders and six years rather than five for concession holders.

Finally, the DRC’s proposed amendments introduce a two-thirds reduction of mining royalties if production is sold to local processing entities, although this is offset by a proposed threefold proposed increase of mining royalties.

Local communities

Mining law reforms in French speaking Africa are placing local community development at the heart of their objectives. For example, Guinea’s new mining code has introduced the obligation to contribute to a local development fund up to 0.5 per cent of the turnover for bauxite and iron-ore permits and 1 per cent of the turnover for permits covering other minerals.

Title holders are also required to conclude a development agreement with the local community, providing for the training of Guinean nationals. Action should also be taken to protect the environment and health of the community, as well as develop social projects. Preparing the local community for the cessation of activities must be part of the mine closure process.

Burkina Faso’s proposed amendments also provide for the creation of a local development fund to which mining operators must contribute 1 per cent of their turnover before tax.

The Ivory Coast’s proposed amendments include a “community development” chapter introducing the concept of “social responsibility” for mining companies. In addition to the protection and promotion of human rights, exploitation permit holders must draw up a community development plan and an investment plan, to which they will contribute 0.7 per cent of their turnover.

Tax and stability

Guinea has notably led a complete overhaul of its tax regime. Among other matters, its new regime applies uniformly to all new titles, and specifically excludes the possibility of negotiating a contractual tax and customs framework.

Some other noteworthy features of the tax provisions include the non-exhaustive character of the tax and customs regimes provided in the mining code, the introduction of export taxes, and royalties on gold payable upon weighing at the central bank, irrespective of sales. Moreover, capital gains tax is imposed on all transfers of titles and shares in mining companies and even indirect change of control. The tax is also applicable to holders of signed mining conventions.

The DRC’s proposed amendments to the code provide for substantial increases in the rate of applicable mining royalties, set at 6 per cent for all metals and stones. The corporate tax rate would also be raised from 30 per cent to 35 per cent. Two new principles are codified, namely:

  • the pas de porte (initial payment) representing 1 per cent of the value of a deposit, payable on the acquisition of “worked and documented” assets; and
  • the signing bonus, presumably payable when mining assets are acquired as part of a tender process.

The amendments also introduce a 50 per cent super profits tax, applicable when the price of the relevant commodity exceeds the anticipated price set out in the feasibility study by 25 per cent.

The Ivory Coast’s amendments include, a variable mining royalty for gold, with rates ranging from 3 per cent if the price of gold is lower than US$1,000/oz, to 5 per cent if higher than US$1,500/oz. The higher rates apply to the entire sale price, not just the portion generated by the corresponding bracket.

Rates for base metals range from 2 per cent to 3.5 per cent depending on whether the substances are raw, concentrate or metal. Rates for other precious metals, solid energy materials and industrial minerals are set at 3.5 per cent, while a 4 per cent royalty applies on fine and precious stones and radioactive substances. Furthermore, a new article provides for a capital gains tax on the assignment of mining titles, calculated according to the Guinea’s general tax code.

Burkina Faso’s amendments adopted by the Council of Ministers provide for the removal of certain tax benefits during the exploitation phase, including the seven-year exemption on the lump sum minimum tax on industrial professions, the licence tax and the employer and apprenticeship tax. In addition, the draft introduces a 20 per cent capital gains tax on the assignment of mining rights.

The reduction of tax stabilisation is a recurring feature of recent mining reforms. Guinea’s mining code offers a stabilisation regime limited to a maximum of 15 years that, except for production and export taxes, only covers the stabilisation of the tax rates – specifically excluding tax bases.

In the DRC, stability would be substantially reduced through the removal of the 10-year stability guarantee, which would be replaced by an undertaking not to amend the mining code for three years. As for companies already holding titles issued under the current code, not only would acquired rights reduced from a 10-year stability guarantee to five, but this protection would only apply if the title holder had secured a minimum investment of US$500 million. The investment should produce high value-added mining products inside the country.

This proposal has of course been met with strong opposition from stakeholders that have invested in the DRC’s mining sector, on the back of a modern and investor-friendly mining code and stability guarantee.

Avoiding land freezes

Many of the recent reforms have introduced limitations on the number, area and scope of mining permits. For example, Guinea’s mining code provides for substantial restrictions on the land package available for exploration, namely a maximum area of 1,050km squared for bauxite and iron ore and a maximum area of 500km squared for other substances.

In the DRC, the proposed amendments would reduce the exploration timeframe from 15 to 10 years. In addition, while the number of exploration permits that could be held by an entity and its affiliates is maintained at 50, a reduction is proposed on the number of exploitation permits, which is now limited to 10 for each entity and its affiliates.

Along the same lines, the Ivory Coast’s draft amendments provide that exploration permits may only have a maximum area of 400km squared as opposed to the current 1,000km squared.

Moreover, new obligations have been created with regard to the start of work. Guinea’s code provides that exploitation title holders must begin development work within one year, with penalties of US$2 million per month imposed on the holders of mining concessions if they fail to do so.

In addition, it is worth noting that titles may be withdrawn if work has not begun within 18 months of exploitation permits being issued and two years from grant of mining concessions.

Mali has introduced the requirement that exploitation should begin within three years of an exploitation permit being issued. The Ivory Coast proposes to reduce the requirement to start work from one year to six months from the date at which the title is issued.