A look at the mining legislation framework in Senegal.
Senegal’s subsoil contains a wealth of diverse and unexplored mineral deposits, such as gold, platinum, iron, uranium, base metals and industrial minerals. However, until recently, mining in the country was essentially limited to the exploitation of phosphates (of which it is among the world’s leading producers), industrial limestone and attapulgite.
With US$5 billion invested in Senegal’s mining sector from 2000 to 2013, the country is on track to become an important international player. Indeed, while only one gold mine is currently in operation, four new major projects should begin exploitation in 2017. In addition, Senegal became a producer of zircon and ilmenite, with the world’s third largest zircon deposit entering into exploitation in April 2014. The project has an estimated life of mine of 25 years and its production should represent eight per cent of the world’s consumption.
The Government does not intend to stop there and has chosen the mining sector as one of its focus points in the framework of its Emerging Senegal initiative. It aims to become one of Africa’s top seven gold producers, with an annual production of 17 tonnes of gold by 2020. With this in mind, the Government has launched the reform of the country’s mining code, with the intention of attracting more investments and also introducing new provisions to benefit the local communities.
Mining operations in Senegal are governed by the mining law dated November 24, 2003 (the Mining Code) and its implementing decree dated May 17, 2004 (the Mining Regulations).
The Mining Code was designed to attract and foster mineral resource investment and development in the country. It embodies a transparent, predictable, simple, stable and non-discriminatory mineral regime. The Mining Code’s application is designed to reduce administrative formalities and to create a legal environment based on the principles of clarity, flexibility, competitiveness and sustainability.
This section provides an overview of the regulatory framework surrounding the grant of exploration and exploitation rights.
Definition of exploration
Article 15 of the Mining Code defines mining exploration as all investigations on the surface, sub-surface, both in-depth and airborne, with the purpose of discovering and highlighting any deposit of mineral substances; to mark them and know their structure; and to estimate both their size and the conditions required for exploitation.
Exploration involves conducting geological, geophysical, geochemical, chemical and metallurgical tests and analysis. It may involve an economic feasibility study as well as the formulation of a development and an exploitation programme regarding a specific economically viable deposit.
Securing an exploration licence
An exploration licence, which is considered a movable (personal) asset, may be held by any individual or company, whether Senegalese or not. Exploration licences are granted by an order from the Minister of Mines (the Minister).
The procedure for requesting an exploration licence involves submitting to the Minister an application including, among others, a description of the applicant; details of the mineral substances which the requested licence intends to cover; details of the area over which the licence is requested; a report on the planned exploration and research methods; and complementary technical information, including a summary report on the area and the environmental conditions of the area. The application is accompanied by the draft mining convention with the government.
Duration and right to secure an exploitation licence
An exploration licence may be granted for a period of up to three years. It confers on the holder exclusive exploration rights within the perimeter defined in the licence with no restrictions as to depth.
An exploration licence may be renewed twice, by order of the Minister, for consecutive periods not exceeding three years each, subject to compliance with the obligations provided in the Mining Code and the relevant mining convention. At the time of each renewal, the perimeter is reduced by one quarter.
Where a licence has already been renewed twice, a licence holder can apply for an exceptional extension of an exploration licence for a period not exceeding three years. This can occur if the government deems that the results obtained, the size of the exploration works, the opportunity of further exploration and the planned investments indicate that the extension is likely to lead to the discovery of additional deposits and reserves. An extension would however only apply to the portion of the perimeter covered by the relevant application.
The exploration licence holder is entitled to an exploitation licence or a mining concession if, during the validity period of its exploration licence, it can prove the existence of a commercially exploitable deposit. If substances that are not specifically covered by the exploration licence are discovered with the corresponding perimeter, the holder may also be given priority in being granted an exploration licence for those substances.
Obligations of the holder of an exploration licence
Under Article 20 of the Mining Code, an exploration licence holder has the following obligations:
- to carry out the annual exploration works plan approved by the Minister
- to spend the minimum approved budget of the exploration works plan
- to commence the exploration work inside the perimeter within a maximum of six months from the date the grant of the licence is notified
- to conduct such exploration diligently
- to regularly inform the Mines Administration of work done and results obtained and to notify the Minister of all discoveries of mineral deposits
- in the case of a discovery entailing that the deposit may be exploited, to carry out works and assess, under its own responsibility, the commercial nature of this deposit
- to request the granting of an exploitation licence or a mining concession as soon as the existence of a commercially exploitable deposit is established
- to submit to the approval of the Minister, all contracts, agreements, conventions, protocols and other documents by which it intends to transfer the rights, obligations and interests in an exploration licence, whether in part or in full.
An exploration licence holder is entitled to surrender all or part of the perimeter, subject to having satisfied all of its obligations, and having provided one month’s notice to the Minister. However, the holder must take all necessary steps to protect the environment and to preserve the relevant area, as well as provide the Minister with a report of the works that have been carried out.
The Minister is entitled to withdraw an exploration licence if the title holder is in breach of the Mining Code or its obligations, following a formal notice having remained without effect during two months. Such withdrawal does not give the title holder a right to compensation.
Transfer and assignment
An exploration licence can be assigned or transferred, subject to the prior approval of the Minister.
Definition of Exploitation
Mining exploitation is defined under the Mining Code as all geological and mining works by which any exploitation title holder extracts mineral substances for utilitarian or commercial purposes.
Distinction between an exploitation licence and a mining concession
The Senegalese Mining Code boasts two exploitation title regimes, namely the exploitation licence and the mining concession, with the latter being reserved to deposits containing significant proven reserves and requiring large investments for their development and exploitation. The two regimes are different in terms of their respective maximum durations: an exploitation licence is granted for a maximum initial duration of five years, renewable for one or more periods of a maximum of five years each, until depletion of the deposit, whereas a mining concession is granted for a minimum initial duration of five years and a maximum duration of 25 years, renewable for one or more periods of a maximum 25 years each, until depletion of the deposit.
Securing the exploitation title
The Mining Regulation provides the same application process for all exploitation titles, regardless of whether an exploitation licence or a mining concession is contemplated.
Exploitation titles may only be granted to a Senegalese company. Foreign investors must thus incorporate a local company before making their application.
The procedure for requesting an exploitation title involves submitting an application to the Minister, four months prior to the expiry of the underlying exploration licence, including, among others:
- details of the exploration licence on which the exploitation title request is based and details of the area over which the exploitation title is requested
- a feasibility study setting out the expected characteristics and performance of the mining structure, a financial evaluation of the project and its socio-economic impact
- a detailed report of the exploration phase, including the estimated reserves, concentrations and the types of minerals and details of the metallurgical tests undertaken
- a development and exploitation plan for the deposit
- an investment plan and a timetable for the project’s completion
- an environmental impact study
- a description to the changes to the articles of association or the capital of the exploration licence holder, carried in view of the exploitation phase
- a copy of any shareholders’ agreement or other similar agreement in connection with the project.
Rights under an exploitation title
Under Article 28 of the Mining Code, the rights granted to an exploitation title holder include, among others:
- an exclusive right of exploitation and the free disposal of mineral substances for which the mining title has been issued, within the limits of the perimeter and indefinitely in depth
- the right to renew the title in accordance with the provisions of the Mining Code
- in the case of an exploitation licence, a right to transform such title into a mining concession in case of discovery of important additional reserves
- a right to transport the extracted substances as well as their derivatives or concentrates to stockpiling, treatment or uploading points as well
- as a right to their sale whether on internal and external markets
- a right to the stability of legal, administrative, financial and tax conditions, in compliance with the provisions of the mining convention.
Obligations attached to the exploitation title
An exploitation title holder must:
- begin the mining operations as soon as possible and carry them out according to industry standards, in a manner which does not compromise the reserves and which protects the environment
- regularly inform the Minister of the methods and results of the exploitation and the results of the exploration works for any proven and probable additional reserves.
If investment operations have not been duly engaged by the title holder within one year from the effective date of the exploitation title, the tax benefits provided in the Mining Code may be declared null and void following formal notice by the Minister.
The Government’s ownership rights
The Government is entitled to a ten per cent free-carried participation in the share capital of the exploitation company. It may also negotiate an additional participation for itself and for the national private sector.
Renunciation of an exploitation title
An exploitation title holder may renounce its title at any time, either partly or in full, subject to a year’s notice to the Minister and the terms of its mining convention. Such renunciation does not discharge the title holder from its obligations and undertakings subscribed prior to the renunciation taking effect, in particular its environmental and site rehabilitation obligations.
Withdrawal of an exploitation title
Exploitation titles may be withdrawn by decree, following a formal notice of the Minister having remained without effect for three months, in case of violation of the provisions of the Mining Code and breach, by the title holder, of its obligations and notably in the following cases:
- unjustified suspension of the mining exploitation for one year
- breach by the title holder of its obligations and undertakings under the mining convention
- non-payment of fees
- non-performance of the works programme and the annual budgets, without justification
- failure to maintain adequate records of the exploitation activities, sale, transport of the ore as per the applicable legislation
- any transfer, assignment or lease of the rights granted by the title without the prior consent of the Minister.
Transfer, assignment and lease
Exploitation titles are considered as non-divisible real property rights, and may be transferred, assigned or leased subject to the Minister’s prior approval. The approval request must include information on the proposed beneficiaries and all underlying contractual documentation entered into between the parties.
The mining convention is concluded between a title holder and the government and sets out the rights and obligations of both parties as well as the conditions for the completion of the mining operations. It guarantees stability in respect to tax, economic and exchange control conditions to which the title holder is subject. The mining convention covers both the exploration and the exploitation phases and is attached to the applicable exploration licence, exploitation licence or mining concession.
The mining convention will be entered into in accordance with the procedures set out under Articles 42 and 43 of the Mining Regulations. In particular, it will be negotiated with the Mining Directorate during a period not exceeding three months from the notification of the approval of the application file; the tax, customs, and financial provisions of the mining convention are also subject to sign off by the Finance Minister.
Prior to the issuance of the exploitation title, the government and the applicant may negotiate the underlying amendment to the mining convention executed at the time of the grant of the exploration licence, in order to take into account any change in the economic climate, but also any additional discoveries which were not taken into account as part of the feasibility study.
The grant, renewal, extension or transformation and assignment, transfer or lease of mining titles are subject to the payment of fixed fees, applicable as follows:
- exploration licence: FCFA 500,000
- mining concession: FCFA 7,500,000
- exploitation licences: FCFA 1,500,000.
Tax regime during the exploration phase
Holders of valid exploration licences will be exempt from the Senegalese tax regime and any tax whatsoever during the entire period for which the exploration licence is granted (including renewals of the licence).
Exploration licence holders are also exempt from all customs duties and fees, including VAT and levies made by the Senegalese Council Shippers (COSEC), for the following:
- general materials, building materials, supplies, machines, engines and equipment, and commercial vehicles included in the approved programme, in addition to spare parts, products and materials not produced or made in the Republic of Senegal which are required for the mining project and the exploration plan
- the fuels and lubricants which are supplied to fixed facilities, drilling materials, and other equipment required for the exploration operations
- the petroleum products used to produce energy required for the completion of the exploration plan
- the parts and spare parts for the machines and equipment required for the completion of the approved exploration plan.
Subcontractors and geo-service companies employed by title holders and approved by the Minister may also benefit from such customs exemptions.
Equipment, supplies and materials directly intended for mining exploration operations which may be re-exported or assigned after use shall benefit from temporary admission, entailing the suspension of import and export taxes and duties.
Tax regime during the exploitation phase
Any mining substance exploitation operation is subject to the payment of an annual mining royalty, the rate of which is set at three per cent of the carreau-mine value.
Title holders benefit from the same exemptions of customs duties and fees as exploration title holders, as well as the temporary admission regime for certain equipment. The benefits apply over the course of the investment period for a new project, or for the increase of the production capacity of an existing project. This investment period takes effect at the date at which an exploitation licence is granted and ends on the date that the Minister is notified of the date of first production. It cannot, however, exceed four years for a mining concession, and two years for an exploitation permit.
Title holders are exempt for the entire duration of the exploitation phase from any export taxes on the production generated by their exploitation activities on the perimeter of their mining licence.
In addition, the Mining Code provides for the following exemptions:
- exemption from VAT for goods and services purchased from local or foreign suppliers
- exemption from exit taxes and duties
- exemption from the statutory minimum tax (impôt minimum forfaitaire)
- exemption from taxes on built and non-built properties other than buildings used for residential purposes
- exemption from the flat rate paid by employers (contribution forfaitaire de l’employeur)
- exemption from duties and fees relating to the establishment of a company and capital increases.
These exemptions apply from the date of the grant of the relevant title and extend to three years for exploitation licences and seven years for mining concessions.
Exploitation licence holders are subject to the payment of corporate tax, in compliance with the general tax code. Mining concession holders are exempt from corporate tax; this exemption lasts for seven years from the grant of the mining title.
Finally, in the case of mining concessions requiring significant investments, exemptions can apply for a duration equal to the repayment period of loan facilities, up to a maximum of 15 years.
Stabilisation rights under the Mining Code
Mining title holders benefit from stabilisation of tax and customs regimes for the entire validity period of their licence. Tax and customs regimes governing an exploration licence may not be challenged upon the grant of the corresponding exploitation licence, although the title holder may negotiate amendments to align such regime with the conditions of the exploitation operations.
Any modifications made to the basis, collection rules and rates of the taxes, duties and royalties to which the mining title holder is subject are not enforceable without the express request of the title holder and the adoption of the new provisions.
Occupation of land
Subject to the laws in force, the granting of a mining licence confers a right of occupancy which entitles the mining title holder to:
- occupy the lands required to carry out exploration and exploitation works and any related activities, in addition to building housing for the staff working on the site
- carry out infrastructure works required to complete the mining exploration and exploitation operations, particularly in relation to the transport of supplies, materials, equipment and extracted products
- search for and extract building materials and metals required for the mining operations.
Buildings and infrastructure built for the purposes of a mining project can only be expropriated or requisitioned by the government in the case of force majeure or public necessity. In the event of expropriation, the government would pay fair compensation to the mining title holder, in accordance with the applicable laws.
Compensation to third parties and the Government
- Landowners or occupants are entitled to compensation for all damages suffered due to the occupation of their land by mining title holders, within or outside the title perimeters.
- The holder of a mining licence must compensate the government or any person for any material damages and loss it may have caused.
Rehabilitation of mining sites
The holder of a mining licence must rehabilitate any site covered by an expired title, apart from areas which remain covered by an exploitation licence.
Choice of partners, suppliers and subcontractors
Mining title holders may freely choose their suppliers, sub-contractors and service providers as well as their partners. However, mining title holders and their suppliers and sub-contractors shall use, whenever possible, (i) services and material originating from the Republic of Senegal; and (ii) products made or sold in the Republic of Senegal, provided these services and products are available at competitive conditions regarding their price, quality, warranties and time delivery.
Free export of mineral substances
Subject to exchange control and the provisions of the Mining Code, title holders may freely export the extracted mineral substances, their derivatives, and concentrates after having completed all the legal and regulatory formalities.
Accountancy and reporting
The holder of an exploration licence must maintain regular book-keeping of all capital expenditure relating to a mining project.
In addition, mining title holders must provide the Minister with various reports during the year, notably:
- a quarterly report containing information on human resources, the geological, geochemical, geophysical and mining operations and production statistics (as the case may be)
- an annual report containing general corporate information on the company, a summary of all the technical data obtained from the exploration or exploitation works, human resources information, a section on the material used and a financial section including a statement of the expenditures for the past year
- a statement for the calculation of the mining royalty, before the end of the first quarter of each year
- a statement of the market value of the sales completed during the past year, before the end of the second quarter of each year.