Concerns regarding resource nationalism reforms are a regular topic within the mining industry and international mining conferences, such as the African Mining INDABA currently ongoing in Cape Town, South Africa, are often the perfect venue for these concerns to be openly expressed and discussed.
Over the past few years, several African countries have substantially overhauled their mining laws, although some have worked harder at affording stability protection to those miners that had believed in their country (often during difficult times) and massively invested to develop world-class mining projects.
Whilst Tanzania’s recent legislative changes will be much discussed this year, by voting a major revision to its mining code on 27 January 2018, the Democratic Republic of Congo’s Parliament has positioned the DRC centre stage on this subject.
The DRC mining code revision process which started in 2012, some 10 years after the Code was originally adopted, has finally led to a bill that was approved by both houses on 27 of January 2018.
The bill is ambitious and challenging.
The text is awaiting some “tidying up” before being put to President Kabila for promulgation. Such clarification would be useful as several provisions seem at this stage unpractical, unclear or possibly inconsistent. Mining companies and investors will also be concerned about the economic and practical impacts of the changes. If promulgated ‘as is’ the bill will not only increase future investors’ obligations but might also be read as immediately impacting current operations and existing rights.
Some of the key changes to the mining code would include:
- Exploitation licences reduced from 30 to 25 years, exploration licences renewable only once.
- State free carry non-dilutable equity stake increased from 5% to 10% and increased by 5% on each renewal of a mining licence.
- 10% share capital stake to be held by Congolese private citizens for creating a mining company.
- Covenant to comply with the social responsibility undertakings given to local communities.
- Increased obligations regarding local processing and local contents.
- Mining Code tax benefits extended to mining companies’ subcontractors only if they are controlled by Congolese shareholders.
- Increased tax and custom burden.
- Royalties increased from 2% to 3.5% for non-ferrous and base metals and from 2.5 to 3.5% for precious metals and calculated on the gross market value of the products.
- Creation of a special 10% royalty on minerals deemed by the State to be “strategic substances”, the list of such substances to be determined by the upcoming application texts.
- Creation of a special 50% tax on excess profits, defined as profits made when a commodity exceeds by 25% the price used in the bankable feasibility study.
- Validity of assignment of mining titles subject a 1% registration fee based on the price, which may itself be subsequently reviewed by the authorities.
- Direct and indirect change of control of an exploitation title holder subject to the prior approval of the State.
- Obligation to repatriate funds increased from 40% to 60% during the ‘investment return phase’ and to 100% thereafter, with no possibility of using funds repatriated to pay external debt.
- At least 40% of the funds required to develop the project to be contributed by way of capital injection, rather than financed through debt.
- Registration fees of mortgages charging exploitation permit increased from a modest flat fee to a percentage of the secured amount.
- Immediate application of the Code to holders of mining conventions.
- Uncertainty as to whether the revision is immediately applicable and overrides existing rights and stability provisions or whether tax, customs and exchange control benefits of existing title holders are kept whole for another 5 years.
These are only a few of the changes which the revision is introducing. Given its complexity, further analysis of the text and its impact on individual operations will be needed. However, to the legal professionals who have followed the evolution, over the past 10 years, of the mining legislative and contractual framework in Africa’ major mining hubs, it seems already clear that significant efforts on the part of the Government, mining companies, financiers and their respective advisors will be necessary to address the consequences of this bill if it is implemented in its current state.
How will latest changes to Volcker Rule affect non-US banks?
Kathleen A. Scott discusses the final Volcker Rule, focusing on some of the issues raised by non-US banks in their comments.