Proposed amendments to the Burkina Faso Mining Code

March 2012

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Introduction

The Government of Burkina Faso is currently considering amendments to the Mining Code (Law no. 0312003/AN dated 8 May 2003). A preliminary draft new Mining Code integrating proposed amendments has been circulated to the Mining Industry for its consideration and comments.

This preliminary draft appears to be geared toward bringing clarity, correcting the flaws and better defining the obligations imposed upon mining operators, rather than constituting an in-depth reform of the industry. In addition, as currently proposed, the new Mining Code would preserve the validity of the existing mining conventions. Nevertheless, new obligations are proposed and some will affect even the operators who are party to an existing mining convention.

Participation of the State

While the current Mining Code only refers to a 10% free carried governmental participation in the capital of mining companies, the proposed new text would provide that “any form of additional State participation in the share capital of the operating company is contributory and realized by negotiation.”  This provision does not imply any particular obligation and, to some extent, its content “goes without saying”. Nevertheless, its introduction shows an intention on the part of the Government to acquire additional participation in the capital of mining companies.

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Mining Conventions and their duration

The proposed draft Mining Code would limit the requirement to conclude a Mining Convention to holders of Exploitation Permits only, while obligations of holders of exploration licenses would now be defined in the Code and its Terms of Reference to be set out within the mining regulations.

In addition, the duration of mining conventions would be reduced from 25 years to 20 years and the renewal periods from 10 to 5 years.

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Preference to local businesses and recruitment

The proposed new Mining Code would introduce more detailed obligations about the preference to be given to:

  1. local businesses for any type of goods and services, provided they offer equal conditions as to quality, price and delivery terms;
  2. local employees for the recruitment of senior executive positions, to the extent they offer equal qualifications and that they have the required competence to efficiently carry on mining operations;
  3. local residents for work that does not require qualification.

Mining companies would be required to carry out training plan for local managers in view of the gradual replacement of expatriate personnel.

Nevertheless, as currently proposed, the new Mining Code would not introduce any concept of quotas, any obligations to train local staff abroad, or any other more onerous obligations, like in the new Mining Code in Guinea.

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Transfer, assignment of rights attached to mining titles

Contracts relating to the assignment or transfer of rights and obligations attached to mining titles would remain subject to the approval of the Minister of Mines as well as taxation at the now fixed rate of 20 per cent on the gains realized. However, the transfer of an exploration permit before its conversion into an exploitation permit, for the purposes of segregating exploitation activities in a separate subsidiary would become exempt from the payment of 20 per cent tax.

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Creation of a Local Development Mining Fund

The preliminary draft Mining Code provides for the creation of a Local Development Mining Fund which will be jointly financed by holders of exploitation permits - up to 0.25 per cent of their respective turnover - and by the State - up to 25 per cent of mining royalties perceived.

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Stabilisation of the fiscal regime

Under the current Mining Code, companies are guaranteed stability of the tax regime but the taxes likely to have the most impact - mining taxes, royalties and duties - are excluded from this stability guarantee. The proposed new Mining Code continues to exclude these taxes and also reduces the stability guarantee of the included taxes from the duration of the permit to a maximum period of 20 years.

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Tax regime

Based on the preliminary draft Mining Code, several changes would be made to the tax regime, with exemptions introduced during the exploration phases and additional tax burden imposed during the exploitation phases.  Notable changes include the following:

  • The introduction of the concept of an ‘Extension Phase’ not to exceed three (3) years, during which the holder of an exploitation license can benefit from the same customs advantages as during the preparatory work phase.  The Extension Phase is defined as an investment program approved by the Ministry of Mines initiated by a company which has reached exploitation for at least 2 years and which entails (a) an increase of at least 50 per cent of mineral reserves; (b) additional investment in equipments and materials of at least 25 per cent from the original equipments and materials; (c) a significant increase in employment.
  • During the exploitation stage, the holder of an exploitation permit will be taxed on industrial and commercial profits as well as revenues on tangible assets at normal rates; while the current regime provides for reduced rates for each of those taxes.
  • A number of tax exemptions currently applicable to holders of exploitation licenses, including on patent contribution, employer and apprentice tax and others have been removed.

Finally, under the preliminary draft Mining Code, tax advantages applicable to the acquisition of equipment could be transferred to the benefit of leasing companies when the acquisition is made by way of a leasing contract (credit bail).

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Conclusion

It remains to be seen whether the final version of the Mining Code will be substantially similar to the current preliminary draft and if and when the new Code will be introduced. But the circulation of this preliminary draft shows a clear indication on the part of Burkina Faso - so far considered as one of the most stable regimes in French Africa - to introduce changes to the Mining Sector with the view of increasing benefits to the country and its people.

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