© Simmons & Simmons LLP 2011. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated partnerships and other entities.
Yves Baratte, Partner
Iain Duncan, Partner
31 October 2012
Exploring in New Frontiers: Overview of Key Local Issues
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Disclaimer
This document is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.
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Misconceptions about mining in developing countries / new frontiers
“The law does not matter there; the local governments do not apply their own laws”
“In these countries, natural resources are linked to national sovereignty and governmental relations are all that matters”
“In these countries, mining transactions are not as sophisticated as in developed countries”
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Challenges in developing countries / new frontiers
Governmental authorities sometimes do not know / do not apply their own Codes
… subject to more scrutiny
– NGOs and international institutions
– lenders
– anti-corruption laws (e.g. the UK Bribery Act 2010)
More unstable
– political contexts
– unreliability of local courts
Lack of infrastructure
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Overview: mining codes in selected “frontier” countries
Key mining laws
Key regulatory bodies
Significant terms of exploration and mining licences
Mining conventions / investment agreements / stabilisation arrangements
Security over and transfer of licences
Land acquisition rights
Obligations to divest to the State and/or local investors
Domestic market obligations
Benchmark selling obligations
Import restrictions
Production royalties / taxes
Forum for settlement of disputes
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Key mining laws: Africa
Country Key mining laws
Democratic Republic of Congo (“DRC”)
Mining Code – Law no. 007/2002 of 11 July 2002 (ongoing discussions about possible revision)
Implementation mining regulation- Decree no. 038/2003 of 26 March 2003
Guinea New Mining Code of 9 September 2011, and implementation decree (decree to be implemented)
Mozambique Mining Law 2002 (to be revised)
Mining Regulations - Decree 2006
PPP / Mega Projects Law 2011
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Key mining laws: Asia
Country Key mining laws
Mongolia Minerals Law (revised 2006)
Nuclear Energy Law 2009
Mining Prohibition in Specified Areas Law (2009)
Foreign Investment Law 2012
Law on Subsoil in conjunction with the Constitution of Mongolia
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Key regulatory bodies: Africa
Country Key regulatory bodies
DRC Ministry of Mines
Mining Registry (CAMI)
Guinea Ministry of Mines
The Centre of Mining Promotion and Development
National Mining Commission
National Department of Mines (art 9 Mining Code)
Mozambique Ministry of Natural Resources: awards mining rights
National Directorate for Mining: oversees all administrative procedures
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Key regulatory bodies: Asia
Country Key regulatory bodies
Mongolia Ministry of Mineral Resources and Energy (MMRE): defines State policies
Mineral Resources Authority of Mongolia (MRAM): issues, extends and revokes minerals licences
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Significant terms of exploration and mining licences: Africa
Country Significant terms of exploration and mining licences
DRC Exploration licences are granted on a first come first served basis at equal financial and technical capacity
Exploration licences are granted for a duration of 5 years, renewable twice for a period of 5 years each (except for diamonds). The surface area granted by the licence is reduced by half upon each renewal
Mining licences are granted to holders of exploration licences
Mining licences are granted for 30 years: renewable for additional periods of 15 years each
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Significant terms of exploration and mining licences: Africa
Country Significant terms of exploration and mining licences
Guinea Exploration permits are granted by the Ministry of Mines for a 2-3 year period with possibility of renewal (art 22, 23 and 24 Mining Code)
Exploitation permits are granted by the government for 15 years maximum with possibility of several renewals for a maximum period of 5 years each (art 30 and 32 Mining Code)
Mining concessions are granted for 25 years maximum with possibility of several renewals for a maximum period of 10 years each (art 39, 40 and 44 Mining Code)
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Significant terms of exploration and mining licences: Africa
Country Significant terms of exploration and mining licences
Mozambique Licences are granted by application to the Ministry
Mining concessions only granted to companies registered in Mozambique
Exploration licences: granted for an initial 5 year term (renewable for the same period) for an area up to 25,000 hectares
Mining concessions: duration is shorter of the economic life of the mine and 25 years and is renewable for the same period
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Significant terms of exploration and mining licences: Asia
Country Significant terms of exploration and mining licences
Mongolia Holding entity must be registered in Mongolia
Exploration licence initial term of 3 years renewable for 2 x 3 years / Mining Licence term 30 years renewable for 2 x 20 years
Generally exploration licences generally granted on a first come first served basis
Recent trend in revocation of licenses - in late 2010, hundreds of licences were revoked under the 2009 Water and Forest law
April 2010 – 31 December 2012 – stop on the issuance and transfer of exploration licenses
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Mining conventions/investment agreements/stabilisation arrangements: Africa
Country Mining conventions/investment agreements/stabilisation arrangements
DRC No mining convention since the Mining Code of 2002
Guinea Mining Convention for a maximum of 25 years (art 18 Mining Code) for mining concessions
Mozambique Government may enter into a Mining Contract for ‘large scale projects’
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Mining conventions/investment agreements/stabilisation arrangements: Asia
Country Mining conventions/investment agreements/stabilisation arrangements
Mongolia If licence holder to invest more than US$50million during first 5 years it can request that an investment agreement be entered into, which would contain e.g.: tax stability provisions; environmental protection provisions; provisions re development of the region and creation of more employment
Term will depend on the amount of the investment over the first 5 years: US$50m – US$100m: 10 years; more than US$100m - US$300m: 15 years; more than US$300m: 30 years
Some uncertainty regarding ‘agreed’ terms of Investment Agreements? (see Oyu Tolgoi project)
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Security over and transfer of licences: Africa
Country Security over and transfer of licences
DRC Titles can be transferred or leased subject to an administrative process (art 178 Mining Code)
Titles and immovable assets can be mortgaged (art 168 Mining Code)
The mining production can be pledged (art 176 Mining Code)
Option agreements (art 193 Mining Code)
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Security over and transfer of licences: Africa
Guinea Only mining licences and concession can be transferred
Any change of control whether direct or indirect of any holder of a mining title interest will be subject to prior approval from the Ministry of Mines (art 90 Mining Code)
Any decision to transfer, transmit or farm-out in full or in part, and any formal acquisition of a mining title is subject to a favorable opinion or validation of the National Commission of Mines before being submitted for approval by the Minister of Mines
Any acquisition whether direct of indirect of more than 5% of the share capital of a permit holder is subject to approval by the Ministry of Mines (art 90 Mining Code)
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Security over and transfer of licences: Africa
Guinea (contd.) The exploration permit gives its holder a movable right, indivisible, non-transferable and not subject to security and mortgage (art 19 Mining Code)
The exploitation licence creates for its holder a movable right divisible and leasable. This right may be used as security to guarantee loans for operations (art 28 Mining Code)
The mining concession is an immovable right, divisible, leasable and may be mortgaged to secure loans for mining operation (art 35 Mining Code)
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Security over and transfer of licences: Africa
Country Security over and transfer of licences
Mozambique Exploration licences and mining concessions are transferable, subject to prior approval on application to the Minister
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Security over and transfer of licences: Asia
Country Security over and transfer of licences
Mongolia Licences may be transferred (not sold) to certain parties after sale of mine, equipment and reports, although note transfers to ‘ineligible persons’ are prohibited and the Investment Agreement may contain further restrictions
Licence holder may pledge its licence to a bank or non-banking financial institution. Pledge is transferable with government approval
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Land acquisition rights: Africa
Country Land acquisition rights
DRC The State is the owner of the soil and subsoil (art 3 Mining Code)
The holder of the mining title owns the substances it extracts, this property is distinct from the property of the soil and subsoil (art 3 Mining Code)
Licence holders must pay compensation for any disturbance or damage caused to the occupier / land
Guinea Minerals and fossils contained in the ground or the surface and ground water and geothermal deposits are the property of the State (art 3 Mining Code)
The holder of the mining title owns the substances it extracts, this property is distinct from the property of the soil and subsoil
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Land acquisition rights: Africa
Country Land acquisition rights
Mozambique Land use permit (DUAT – which is a form of land concession) must be obtained within 3 years of grant of mining concession and prior to commencing mining
Relocation plans must be prepared: compensation payable by mining concession holder; either as cash based on value of assets held by displaced communities or cost of or relocation / reconstruction elsewhere
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Land acquisition rights: Asia
Country Land acquisition rights
Mongolia Land owners and users must be compensated for ‘relocation costs’
Also see terms of Investment Agreement
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Obligations to divest to the State and / or local investors: Africa
Country Obligations to divest to the State and / or local investors
DRC The State is entitled to a “free-carry” 5% shareholding in any holder of exploitation titles (art 71(d) Mining Code)
Guinea The State is entitled to a free-carry shareholding in the holder of any mining title, between 2.5% (aluminium) and 15% (bauxite, iron ore, gold, diamond, radioactive minerals)
In addition, the State may purchase additional shares up to a total shareholding of 35% (art 150 Mining Code)
Mozambique PPP Law – level to be set out in Contract
But note revisions to Mining Law?
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Obligations to divest to the State and / or local investors: Asia
Country Obligations to divest to the State and / or local investors
Mongolia For ‘deposits of strategic importance’: State ownership of up to 34% or up to 50% where the State has contributed to exploration of the deposit
At least 10% of shares of companies holding strategic deposits must be held on the Mongolian stock exchange
New review and approval process for foreign investments made into entities in strategically important industries (including resources)
Different approvals required depending on percentage investment made in an entity by foreign investor (including state owned enterprises)
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Domestic market obligations: Africa
Country Domestic market obligations
DRC Restrictions on the export of unprocessed ore
Freedom to hire subject to giving priority to Congolese nationals which offer equal qualifications and experience
Guinea Obligation to use local companies in priority when local companies offer similar commercial conditions as foreign companies in terms of price, quantities, delays for delivery and payments
Obligation to promote the development of small businesses (art 107 Mining Code)
Obligation to use local workforce in priority (art 108 Mining Code)
Mozambique Ministry of Labour has wide discretion to allow or refuse the hiring of foreign employees above the expatriate quota.
Otherwise, limited domestic market obligations
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Domestic market obligations: Asia
Country Domestic market obligations
Mongolia No obligation to purchase / use local goods
At least 90% of workforce must be Mongolian citizens
Investment Agreement will contain local development / employment obligations
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Import restrictions
Country Import restrictions
Mozambique No specific restrictions on the importation of services and equipment; however customs duties exemptions will only be awarded if no comparable equipment is produced in Mozambique
Importation of funds is subject to registration and approval
Mongolia No substantial restrictions on the importation of machinery and equipment
Limited restrictions on importation of funds – Mongolia has a limited foreign exchange regulatory regime, with liberal policies for converting and transferring funds
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Production royalties / taxes: Africa
Country Production royalties / taxes
DRC Corporate tax: 30% of taxable income
Royalties: 0.5% (iron ore and ferrous metals), 2% for non-ferrous metals, 4% for diamonds, 2.5% for precious metals, 1% for industrial minerals (art 241 Mining Code)
10% withholding tax on dividend payments (0% on interest payments to foreign lenders)
Guinea Rates vary from 3% for cobalt, titanium, molybdenum, 3% for uranium and 5% for gems (art 161 Mining Code)
Corporate tax: 35% of taxable income (2007 source)
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Production royalties / taxes: Africa
Country Production royalties / taxes
Mozambique Surface tax: annual payment based on the size of the mining area. Mining/production phase: rate is 2,500 Mozambican meticais (MZN) per km2 for the first 5 years and 5,000 MZN for each subsequent year
Production tax: rates vary from 3% to 10%
Introduction of a capital gains tax
Also note Award Fee, Fixed Concession Fee and Variable Concession Fee under PPP Law
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Production royalties / taxes: Asia
Country Production royalties / taxes
Mongolia Basic level production royalties
Plus progressive surtax royalty which varies depending on type of minerals, their market prices and degree of processing
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Forum for settlement of disputes: Africa
Country Forum for settlement of disputes
DRC Possible to settle disputes by international arbitration but obligation to give notice when the title is granted
Guinea Possible to settle disputes before an arbitration tribunal (art 219 Mining
Code)Mozambique Mozambique recognises and enforces arbitral awards made in States
which have signed the New York Convention
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Forum for settlement of disputes: Asia
Country Forum for settlement of disputes
Mongolia Signatory to the New York Convention
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simmons-simmons.comelexica.com
Yves BaratteT +33 1 53 29 16 [email protected]
Iain DuncanT +44 207 825 31 37 [email protected]
