72018Aug
Mining in Africa: Developments and outlook in 2018

Mining in Africa: Developments and outlook in 2018

At LEX Africa’s most recent seminar, members discussed challenges and changes seen in this progressive sector.

Issues between communities and mining companies are not unique to Africa, particularly in instances where rural land is explored for natural resources.

Chris Stevens, Head of Mining and Resources practice at Werksmans Attorneys — a LEX Africa member in South Africa — chaired an in-depth panel discussion on this and other topics at a seminar held in Johannesburg in June.

“We think community, social, labour and environmental issues are purely in Africa and the rest of the world is pristine and clear of all these problems. But it’s not true. Even in pristine places like Australia and Canada, they have community issues, they have indigenisation issues, they have labour issues, they have terrible environmental issues.”

Mr. Stevens posited that the reason why more community issues could be found in Africa than the rest of the world, was because mining companies often sought to develop remote rural areas “…where there is no infrastructure, no towns and often where there are existing indigenous communities that operate according to a specific set of customs and laws, burial traditions and spiritual and religious connections to the land…” that transnational mining companies have to be cognisant of.

He spoke on South Africa’s challenges in this regard, adding that the country had witnessed conflict between an existing community and the mining company interested in exploring the land.

In extreme cases, such as what unfolded in Marikana in South Africa, protests may turn violent, said Mr. Stevens. At Lonmin’s mine in Marikana, the conflict centred around provision for the community. He said Lonmin fell behind on their social and labour plan for the existing community of which housing was a major component. Community compensation is also a large part of South Africa’s Mining Charter.

Mr. Stevens said the issue — which left 34 miners dead and 78 others injured — also highlighted the boundaries of State responsibility versus company responsibility in rural communities.

Marikana was “a prime example of that conflict between who had responsibility (State or Company to provide for the community) and the community taking from both. And it resulted in bloodshed.”

Mr. Stevens also highlighted another dynamic of mining in rural areas that presented in the form of infighting within a community. He cited the community of Xolobeni in South Africa’s Eastern Cape, where some community members were pro-mining (i.e. open to exposing their community to new jobs and the potential for economic upliftment through mining) while others were anti-mining (opposed to mining the area in favour of preserving the community’s traditional and spiritual connection to the land). The community also approached the court for intervention in the matter against Australia’s Mineral Resources Commodities, saying their position was that the courts needed to make a clear distinction between consent and consultation. The Xolobeni community challenged the law that because mineral resources are State owned, mining companies need only consult affected communities before government issues a mining licence to said company. The community asserted their tribal and traditional connection to the land.

On South Africa’s border, Zimbabwe is also facing a time of drastic change.

Evans Moyo, partner at Scanlen and Holderness — a LEX Africa member in Zimbabwe – said as investor confidence grew in the country (owing to the political change of leadership), the overarching sentiment for mining companies is that “Zimbabwe is open for business.”

Mr. Moyo said the effect of mining on Zimbabwe’s economy could see the sector accelerate growth.

Gold, diamonds, platinum, chrome and lithium formed part of Zimbabwe’s 60 natural resources that, if mined, could jumpstart foreign investment in the southern African country. Presently, Zimbabwe’s mining strategy produces an estimated 60 percent of the country’s annual foreign exchange earnings.

“However, as a result of years of stagnated funding, Zimbabwe’s exploration activity lags behind the modernised approaches used by other mining nations, hence the established need for foreign investment in Zimbabwe’s mining sector.”

Mr. Moyo said under new dispensation, the most significant and immediate changes made was to scrap the compulsory indigenisation requirement for mining companies to abide by. This was done, with the exception of diamond and platinum industries. “Even in respect of those the law is under review,” he said.

Mr. Moyo said the proposed Mines and Minerals Amendment bill that started in 2015 is still before Parliament. “The bill has delayed in part on account of certain contentious provisions in it raised inter alia during public hearings…”

Some of the proposed changes include radical changes to protect the environment which could see the imposition of liability on directors for unacceptable negative impact on environment. The cadastre system will also require environment impact assessments before any mining right or title is issued.

“One of the contentious issues relates to riverbed mining which it had been proposed that it be allowed only in joint partnership with the government.”

There are also provisions being made for a two-phase grant system (exploration and mining) which governs coal, mineral oils and natural gases.

“It is also proposed to prohibit export of raw or unprocessed minerals except with the written consent of the Minister. The minister shall also determine incentives for beneficiation.”

Mr. Moyo said a safety, health and rehabilitation fund has also been proposed. “[The fund is] to be established with every miner making an annual contribution at a rate to be prescribed which shall differentiate between small scale and large-scale miners.”

Zimbabwe’s reformation to mining laws is undoubtedly aimed at attracting the funding it needs to regenerate its economic growth. Said Mr. Moyo: “Needless to say radical and meaningful changes to mining legislation is of great importance hence the attention which the proposed changes to the mines and minerals Act is receiving.”

To the left of Zimbabwe, separated by a mere 511 feet, Namibia’s mining sector generated an estimated USD 2.1 billion in revenue in December 2017. Of that, an estimated USD 412 million was the total revenue to government.

Meyer van den Berg, specialist lawyer in Mineral Law at Koep & Partners in Namibia, said the country’s mining industry indirectly contributes to the livelihood of around 100,000 persons (approx. 3.89 person of population). He said while mining and exploration is mainly undertaken by the private sector, Epangelo Mining Company is also involved in the industry albeit in a limited manner.

Epangelo is a State-owned mining entity that was created to be a local leader and the largest diversified natural resources company in Namibia’s mining industry.

Mr. VD Berg said new developments in the sector included exploration from Swakop Uranium and positive growth gold production from B2Gold. He said the sector also saw an increased interest in battery minerals mining such as lithium, cobalt, cadmium, graphite and nickel. There was also interest in processing of tailings and consistent interest in the mining of other industrial minerals, dimension stone and semiprecious stones.

But amidst the growth trends in the country’s sectors, Mr. VD Berg said there were also challenges. He said National empowerment policies under the New Equitable Economic Empowerment Framework (NEEEF)  hopes to address economic inequalities by focusing on ownership, management and control and employment equity amongst other issues.

In April, Mines Minister Tom Alweendo told Reuters: “I am not going to withdraw them (black ownership requirements) unilaterally. Obviously, we first have to discuss and see if they are really serving the purpose of why they exist. If the answer is, they don’t, then maybe we should change.” Mr. Alweendo further added: “To give exploration licences to many people who won’t add value, I think we are just slowing down the (black) empowerment that we want to achieve at the end of the day.”

Mr. VD Berg added that amongst the challenges, environmental legislation, uncertainty with royalty rates and administrative issues where problem areas that required solutions.

In central sub-Saharan Africa, the DRC has also made major changes to its mining code.

Pathy Liongo, from Emery Mukendi, Wafwana & Associates — a LEX Africa member in DRC – said the amendments came as a result of government’s assessment that the mining sector had not contributed enough to economic and social development.

Mr. Liongo said it was also necessary to set right some shortcomings and weaknesses including: “The low participation of the State in the capital, the issue of excess profits, the absence of a set of specifications incorporating social and environmental obligations, the low rate of fixed fees for the registration of mortgages and transfer contracts and the eligibility for Rights and quarries of Natural persons.”

He said the new code now provided for research, industrial exploitation, semi-industrial and artisanal mining, processing, storage, detention, transport, marketing and the export of mineral substances.

“They also apply to the processing activities of mineral substances and quarry products carried out by the holder of a mining or quarrying right.”

Mr. Liongo said the new mining code impacted registration rights wherein the rate of the mortgage of a mining right varies between 0.5 and 0.1 percent of the value of the right and the transfer of a mining right would be one percent of the price of the transfer

Mining royalties would also change to the gross business value instead of net worth as it was previously. Rates, he said, would vary between 0 percent and 10 percent.

From the perspective of customs, fuels and lubricants for mining activities would incur a rate increase from three to five percent.  “The benefit of preferential customs regime ceases from the sixth year from the date of the granting of the exploitation mining title. The rate has increased from two to five percent.”

The new mining code would also introduce a special tax on capital gains on the sale of shares to second- or third-level shareholders. Mr Liongo said this would apply even if they are carried out abroad.

There would also be the introduction of the “… allocation for contribution to community development projects whose minimum amount is equal to 0.3 percent of the turnover for the fiscal year in which it is established.

Mr. Liongo said the impact of the new mining code would likely be a ‘wait and see’ game. He said mining in the DRC was like most African countries in that the mining codes were “cyclic and sawtooth”. He said the country had now experienced four generations of mining codes, which could best be categorised as the colonialist mining code, the nationalist code, the liberal and attractive mining code and in 2018, the nationalist and restrictive mining code.

“[There seems to be some] difficulty to find the middle ground; attract investors and give income to the State,” he said adding that “many large mining companies are not content” with the code.

In Ghana, mining retained its position as the top domestic revenue earner. The sector accounted for 16.3 percent of all domestic revenue (together with quarrying).

Divine Letsa, Head of the Construction, Infrastructure & Transport at Bentsi-Enchill, Letsa & Ankomah told the panel that the total mining fiscal receipts amounted to an estimated USD 480 million. He said according to Ghana’s revenue authority, there was an increase from GHS 696.9 million to GHS 969.6 million in corporate income tax receipts and an increase from GHS 550.7 million to GHS 702.4 million in mineral royalties.

“Government holds a free carried interest of 10 percent in all mining companies in Ghana.”

Mr. Letsa said the key laws around the sector’s regulatory framework provides that the “ownership of minerals is vested in the President in trust for the people of Ghana.” She said Parliamentary approval is required for grants of mineral rights, but not for their subsequent transfer or assignment.

“[In the] Minerals and Mining Act 2006 (Act 703) [provision is made for] land subdivision [which] introduced a cadastral system under which the country is divided into geographical blocks of 21 hectares each.”

Key laws also made for more comprehensive provisions on compensation for surface rights holders and a dispute resolution procedure. Mr. Letsa said the legislation also stipulated the “obligation of mineral rights holders to provide the Minerals Commission with reports/records on mineral operations and geological information, which shall be confidential.” Government also instituted a flat, five percent royalty rate, he said.

In terms of recent developments, Mr. Letsa said the Multilateral Mining Integration Project was developed to counter the adverse effects of illegal mining. “[The] project is multi-faceted and involves investment in reclamation of affected lands, implementation of social intervention schemes to integrate galamseyers (a local Ghanaian term which means illegal small-scale gold mining in Ghana), adapting technology to ensure efficient mining and capacity building of stakeholders.”

This project is expected to run for five years at an estimated cost of USD 500 million.

He said the Precious Minerals Marketing Company (PMMC) – a State-owned enterprise – appointed a national assayer and that its jurisdiction would expand from assaying of gold produced on small-scale to large-scale gold production as well.

Mr. Letsa said pipeline projects had integrated the aluminum industry as well. “[The] aim is to bring the aluminium industry under a single entity (an Authority) to ensure effective management of bauxite resources, add value to alumina produced locally and promote employment.”

This authority, he said would be instructed to hold all of Ghana’s bauxite reserves and would have the power to enter into joint ventures with private entities.

Mr. Letsa said that while the proposed bill is yet to be laid before Parliament for debating, government has allayed fears that the authority will assume some regulatory functions of the Minerals Commission. He said the authority would be created for purely commercial reasons.

There is also a proposed Mineral Royalties Fund which will be decided upon. The fund is expected to hold all royalties from Ghana’s minerals with the objective to “monetise Ghana’s royalty receivables for upfront cash from local or international markets.”

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