Mining law specialist Peter Leon took the opportunity to tell the story of the growth of resource nationalism on the continent of Africa when he addressed MineAfrica’s eleventh annual seminar in Toronto last week.
Webber Wentzel’s Africa mining head used the platform of the large Prospectors and Developers Association of Canada (PDAC) international convention, trade show and investors’ exchange to lay out how Ghana, in its 2012 national budget, had introduced fiscal reforms for mining companies; the Democratic Republic of Congo (DRC) was mulling a draft code that proposed taxing “super profits”; Tanzania was considering a windfall profit tax; and the Ivory Coast was looking to adjusting royalties.
The fiscal reforms applicable in Ghana included increasing the corporate tax rate from 25% to 35%, reducing capital allowances from 80% to 20% for five years, and ring-fencing mining projects for tax purposes.
DRC’s cogitation was about retaining 50% of the “super profit” arising when mineral prices rise above 25% of the reference price used in feasibility studies.
Then there was also the State equity carry, which occurred when the State, through regulation, solicited a share of a mining company, which might be free carried, in which case it is acquired free, gratis and for nothing, or contributed, in which case it is paid for.
Guinea’s 2011 mining code, Leon pointed out, granted an automatic 15% free-carried, nondilutable interest to the State in new bauxite, iron-ore, uranium, gold and diamond projects, while DRC’s draft code proposed a minimum free-carried, nondilutable 35% share of all new projects. Botswana, Burkina Faso, Ivory Coast, Ethiopia, Senegal and Tanzania also had legislation entitling the State to a share in mining projects.
Not always purely resource nationalist focused were indigenisation and local equity requirements, which could be costly, complicated, elite enriching and possibly in breach of the nondiscrimination norm under international investment treaties. Indigenisation, he said, often reflected a social transformation aim, especially in countries with historical racial inequalities. In Zimbabwe, foreign companies had to transfer 51% ownership to a local State-selected partner, in Kenya, mining companies had to cede at least 35% of their equity to local investors, and, of course, in South Africa 26% is the number.
By way of risk mitigation, Leon advocated that mining companies should maintain a transparent relationship with governments and adopt sound corporate social responsibility strategies.
The International Bar Association’s model mine development agreement, he noted, was there to assist parties and could serve as a helpful template for negotiations.