New mining code in Guinea heralds changes in mining sector

September 2011

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Introduction

On 9 September 2011, the Republic of Guinea formally adopted a new mining code. Not yet promulgated, no official version of the new code is currently available. Once promulgated, the code will repeal all provisions which contradict it, including the previous mining code of 30 June 1995.

In this briefing, we summarise what we believe are the key changes to the mining sector in Guinea heralded by the new code (based entirely on our reading of the unofficial version currently to hand and without sight of any background documentation).

State’s equity participation in mining projects

The Guinean State is entitled to an overall shareholding of up to 35 per cent in the share capital of mining companies in Guinea.

This participation is fixed as follows and fluctuates according to the mineral substance involved:

  • a free and non-dilutive shareholding of up to 15 per cent (the free interest)
  • an option to purchase an additional shareholding of 20 per cent at a price to be agreed with the investor (the contributing interest).

Under the previous mining code, the State was only entitled to 15 per cent of the share capital of mining companies involved in precious substances projects.

The percentages given above are set for projects involving bauxite, iron ore, gold and diamonds as well as radioactive and other minerals. For other substances (such as alumina, aluminium or steel), the percentage of free interest is reduced and the contributing interest increased, always reaching a 35 per cent overall participation.

The contributing interest can be reduced in exchange for an increase in the mining tax rate.

Under the new code, a shareholders’ agreement will identify decisions which cannot be adopted without prior consultation with the Guinean State; it is not clear whether this will entail veto rights in favour of the latter.

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Mining conventions

As under the previous code, mining conventions will follow a model adopted by decree – although it is not clear whether a new decree will be issued to adopt a new model. Rather surprisingly, the new code only refers to mining concessions being granted together with a mining convention; this raises the question as to whether a mining convention is no longer required when an exploitation permit is issued.

The maximum duration of a mining convention is 25 years, renewable for one or several periods of 10 years.

Mining conventions cannot deviate from the provisions of the new code (but they can still guarantee to the mining title holder that these conditions will remain unvaried).

Mining conventions will be signed by the Minister of Mines, following the advice of the National Mining Committee and the authorization of the Council of Ministers. Mining conventions will then be submitted to the legal opinion of the Supreme Court and ratified by Parliament.

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Mining titles

As under the previous code, the new mining code has divided the mining titles into prospecting permits, exploitation permits and mining concessions. Any official act relating to any of these permits must be published in the official Gazette and on the website of the Ministry of Mines.

Late start of development work under an exploitation permit or mining concession will lead to payment of penalties.

Prospecting permits

An individual or entity may not hold more than three prospecting permits for bauxite and iron ore within a maximum limit of 1,050 km2 and not more than five mine prospecting permits for other substances within a maximum limit of 250 km2.

The area of a prospecting permit cannot exceed 350 km2 for industrial prospecting permits involving bauxite and iron ore (under the previous code it was 500 km2 ) or 50 km2 for industrial permits involving other substances (under the previous code it was 500 km2) or 16 km2 for semi-industrial prospecting permits. No derogation is possible.

When a permit is renewed, the reduced area transferred to the Guinean State must be accessible and, if possible, will constitute a block, the sides of which are attached to one of the sides of the permit area.

Exploitation permits

Industrial exploitation permits are issued for a maximum of 15 years (under the previous code it was 10 years).

Mining concessions

A project is deemed to be a mining concession if it involves investment of at least one billion US dollars.

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Change of control

Any direct or indirect change of control of the company holding an interest in a mining title must be submitted to the approval or validation of the Ministry of Mines.

The direct or indirect acquisition of 5 per cent of the share capital of the entity holding the title is also subject to validation by the Ministry of Mines.

Any modification of the shareholding in the entity holding the mining title, following a regular stock exchange transaction, must be communicated through an information note to the Ministry of Mines within 48 hours. Any modification of the direct shareholding must be published in the official Gazette and on the website of the Ministry of Mines.

The law provides that the concept of 'change of control' is to be defined in a ministerial decree.

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Transparency and anti-bribery

Any company requesting or holding a mining title, and its direct sub-contractors, must provide the Centre de Promotion et de Développement Minier (CPDM) with the following information regarding each entity constituting that company or sub-contractor:

  • the identity of its shareholders
  • a list of each subsidiary and its relationship with the company or sub-contractor and information on the jurisdiction where it operates
  • the identity of its managers and senior managerial employees
  • the identity of each shareholder and each person deemed to control the company, as well as each person holding 5 per cent or more of the voting rights and the chain within which such rights are exercised.

Any company working in or with an interest in the Guinean mining sector – and any official, manager, employee, representative, shareholder or sub-contractor of this company – must not offer, give or promise to give an advantage to an official member of the Guinean Government or an elected person in order to influence a decision or an act adopted in the mining sector; or to any other individual, association, company or legal entity in order to exert influence on any such decision or act.

A code of good conduct must be signed between the holder of a mining title and the Ministry of Mines. The absence of this code will lead to the withdrawal of the mining title.

An anti-bribery monitoring plan must be submitted to the Ministry of Mines each year.

Any breach of a legal provision regarding bribery is subject to criminal sanctions and the withdrawal of the mining title.

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Employment and training

The previous mining code had established general principles around preference to be given to the employment of Guinean nationals and with regard to training and technology transfer; the new code introduces a number of strengthened obligations (articles 108 and 109).

Specific quotas of Guinean nationals are provided for each category of workers of a mining company and each stage of a mining project. Any breach of these quotas will be subject to a fine.

A Guinean national with appropriate skills must be appointed as managing director of a mining company after a five-year period following the beginning of the exploitation. The deputy managing director must be a Guinean national as soon as the exploitation company starts its activity.

The holder of a mining title (and its sub-contractors) must hire, on a priority basis, residents of local or neighbouring communities and, in all cases, exclusively Guinean nationals for works which do not require any qualification.

Each year the title holder must submit a report on the employment of Guinean nationals to the Ministry of Mines and the Ministry of Employment.

The duration of the working permits of expatriate workers of a company holding a mining title cannot exceed three years.

The title holder must submit to the Office National de la Formation et du Perfectionnement Professionnel a training and development programme which will promote as much as possible technology and skill transfer to the benefit of Guinean companies/workers and a programme de guinéisation (i.e. to ensure that as much of its personnel as possible is Guinean) in accordance with established quotas.

The authorities may request that a mining company complete their employees’ training through participation in mining operations abroad.

Mining companies must establish a career and succession plan for their employees.

All of the above obligations also apply to companies working for the mining companies.

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Local sub-contractors

The obligation for title holders to give preference to Guinean companies for construction, supply or services contracts is now subject to specific quotas. Title holders must submit an annual public report to the Ministry of Mines.

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Force majeure

The new mining code has introduced a new provision relating to force majeure (article 87).  Its legal definition excludes “economical hardship as a result of market price variations” and any act or event which would only lead to a more onerous or difficult completion of a party’s obligation.

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Environment and health

Under the new mining code (article 143), holders of authorizations and mining/quarry titles must:

  • prevent or minimize any negative impact of their activities on health and environment
  • prevent and/or reprocess any discharge in order to neutralize the impact on nature
  • promote or maintain the living environment and good health of local population
  • prevent and deal with the HIV Aids virus locally
  • manage waste materials through minimizing their production and ensuring they are not dangerous.

Holders of exploitation permits or mining concessions must also meet obligations relating to the closure and rehabilitation of their developed sites, including the opening of a trust account (compte fiduciaire) in order to warrant this rehabilitation (article 144).

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New public bodies

The new code has created several new public bodies:

  • the National Mine Committee (Commission Nationale des Mines)
  • the Technical Titles Committee (Comité Technique des Titres)
  • the National Directorate of Geology (Direction Nationale de la Géologie)
  • the Study and Strategy Office (Bureau d’Etude et de Stratégies).

Their composition, organization and function is to be fixed by formal decrees.  

The new code also refers to a mining registry (cadastre minier) which will be managed by the CPDM.  The mining registry is defined as a public register containing a list of all mining and quarry titles and their corresponding maps.

The Guinean Company of Mining Heritage (Société Guinéenne du Patrimoine Minier) has already been established (under Law L/2011/005/CNT dated 10 August 2011 and the Decree D/2011/2 dated 11 August 2011).

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Taxation

The new code has introduced a new tax and duties regime applicable to all.

Unlike the previous code, the new mining code does not provide for the stability of a tax regime under an existing mining convention. It does, however, contain a stability clause which seems to apply to the fiscal regime introduced by the new code and which guarantees the stability of tax and customs regimes to the holders of exploitation permits and the beneficiaries of mining conventions, provided that the period of stability does not exceed 10 years. (There is an exception in the case of a mining concession where the holder may obtain an additional five-year stability period in exchange for the payment of an annual stability premium to be defined with the investor.)

During this period of stability, the mining title holders may not be penalized by higher tax rates and no new tax shall be applicable to them, with the exception of fixed rights and mining taxes and royalties.

At this stage, fixed rights are provided under article 159 but their rate has not yet been established (or at least made public). Mining taxes on gold and diamonds are set at 5 per cent.

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Validity of previous title

The ownership of mining titles which pre-date the new code will remain valid.

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Transitional provisions

Once the new mining code becomes effective, its ‘mandatory provisions’ – all those provisions concerning mining tax, customs rights, employment, training, transparency and anti-bribery – will, within 60 days, apply to all mining companies that have reached the exploitation phase.

Where there is an inconsistency between a mining convention duly signed and ratified before the enactment of the new code and the code’s other provisions (other than the mandatory provisions), the Government of Guinea and the other parties to the convention will work together as soon as possible in order to harmonize the agreement with the new legal provisions.

Existing mining titles at the date of enactment of the new mining code will be subject to a health adjustment plan to be approved by the competent authority within a six-month period.

All mining titles and mining conventions must be published in the official Gazette and on the Ministry’s website; confidentiality clauses contained in any titles or conventions cannot be invoked to restrict their publication.

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Preparation

We would advise our clients to review any existing mining conventions to bring them in line with Guinea’s new mining code and we are available to look at any specific scenario and advise accordingly.

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