New African Mining Codes

Legal, News — By on April 5, 2012 at 5:34 PM

 

Andrew Ridings, Partner, Holman Fenwick Willan

New African Mining Codes

The recent introduction of the Angolan Mining Code is one of a number of similar developments in African mining states. Zambia and Guinea have introduced new laws and regulations, and DR Congo is reviewing its 2002 Mining Code. Existing and prospective investors should consider the implications such changes may have on any mining activity currently underway or contemplated.

The Angolan Mining Code applies to all mining activities, from extraction to processing and development. It replaces several existing laws and regulations, and aims to provide a consolidated and structured code for the domestic mining industry. Certain provisions seek to increase the interest of the state in Angola’s natural resources: in return for granting mining rights, the Angolan state will obtain a stake of at least 10% in companies conducting mining activities.

 

Darren Wall, Associate, Holman Fenwick Willan

Africa is recognising its increasing attraction for foreign investors. In the 1990s and 2000s, many mining states were either emerging from a prolonged period of civil war, or adjusting to democracy following the end of de facto one-party rule. The focus of regulation was on attracting foreign investment, often offering generous tax exemptions and low royalty payments on exports. Following a decade of increasing stability, that focus is changing. Many African governments are now aiming to increase controls in the mining sector, and to provide benefits for local communities affected by mining activities. This is being achieved by a combination of tighter regulation of foreign investors and restrictions on tax exemptions. Existing investors with mining rights may also be subject to more stringent regulation.

The mining codes of Angola, Zambia and Guinea all demonstrate this shift in focus. For example, whilst Angola requires a minimum 10% participation in mining companies, Guinea requires a 15% free interest, and an option for the state to buy a further 20% stake, allowing a possible overall state interest of 35%. DR Congo is expected to introduce similar regulations following its review.

With Guinea and Angola rich in diamonds and gold, and Zambia having the largest copper exports in Africa, there is scope and appetite for new investors to establish a presence in these jurisdictions. However, mining projects require a large initial cost outlay for the necessary surveys and licensing procedures, not to mention equipment for exploration and extraction. In light of this, uncertainty about the effects of new regulation may cause concern.

A necessary first step is to carry out a comprehensive due diligence process, updated at regular intervals, encompassing all intended activities within the relevant jurisdiction. This allows investors to establish what regulatory requirements are in place before any significant cost outlay has been incurred. The process can also reveal the practical effect of the implementation of laws and regulations in practice.

Existing and new investors would also be wise to incorporate as many protections as possible into any contracts entered into with any state. For example, a stabilisation clause may protect investors from future changes in the law which could have a detrimental impact on the financial viability of a project. For investors with an established presence in countries that have either introduced new mining codes or are reviewing existing codes, it may be prudent to revisit contractual arrangements with the state to take account of future risks and the effect of any new regulation.

For more information, please contact Andrew Ridings, Partner, on +44 (0)20 7264 8158 or andrew.ridings@hfw.com, or Darren Wall, Associate, on +44 (0)20 7264 8229 or darren.wall@hfw.com, or your usual contact at HFW.

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