South Africa: Developments In The Mining Sector In Sub-Saharan Africa

AFRICA PLAYS HOST TO MORE THAN 1,850 MINING PROJECTS IN VARIOUS STAGES OF DEVELOPMENT BY MANY OF THE WORLD'S LARGEST MINING COMPANIES 1. A LARGE NUMBER OF DEALS HAVE REACHED FINANCIAL CLOSE IN RECENT YEARS, BUT RECENT LEGAL AND REGULATORY CHANGES HAVE POSED FRESH CHALLENGES IN A NUMBER OF AFRICAN MARKETS. IN THIS ARTICLE, WE WILL SEEK TO OUTLINE SOME OF THOSE CHANGES AND DISCUSS THE MINING LANDSCAPE MORE GENERALLY.

DEAL UPDATE

51 mining projects reached financial close in the years 2014-2018 (according to IJGlobal), which were structured as follows 2:

  • 26 were 100% debt-financed – nine with term loans only, five with term loans and other debt and two with bridge facilities;
  • 14 were 100% equity-financed; and
  • seven were mixed, with six being majority debt-financed and one being majority equity-financed.

According to IJGlobal, there are at present 35 mining projects at the financing or pre-financing stage in Sub-Saharan Africa. It is worth noting that traditional project financing remains rare for mining projects in Sub-Saharan Africa, with one notable, recent exception being the bauxite mine and associated rail and port infrastructure project in the Republic of Guinea.

A CHANGING LEGAL LANDSCAPE

Various jurisdictions in Africa have, however, been making a number of legal changes, which seek to increase their income from their mining sector and improve community engagement and participation in mining projects. A few recent examples are set out below:

  • Democratic Republic of Congo:The new mining code was published in the Official Gazette on 28 March 2018 and has since proved controversial. While it increased royalty payments, it also increased taxes by 2-10% and introduced a new "super profits" tax of 50% on profits exceeding 25% of those forecast in the mine feasibility study. It also includes an obligation for 0.3% of turnover to be contributed to development projects. The ownership rules require 10% of the capital of mining companies to be held by Congolese citizens, something which has raised concern among investors. These legal changes have been supported by the new President 3.
  • Ethiopia:To help ease a dollar shortage in the country, the Ethiopian Government is seeking to reform and expand its nascent mining sector. In a recent interview with Reuters, the Mining and Petroleum Minister, Samuel Urkato, expressed the intention to introduce tax incentives and ensure a competitive royalty regime in order to compete for global mining investments. The current law guarantees the Government a 5% minimum equity stake in projects, which it is noted is a lower share than many other African jurisdictions 4. It is hoped that these measures will help encourage investment into the country's mining sector, in particular given other jurisdictions in Africa appear to be taking a more aggressive approach.
  • Mozambique:The Economy and Environment Committee of the Mozambique Parliament undertook a visit to a ruby mining area to ensure that a law it has requiring 2.75% of tax revenues to be used for the development of the communities located in the mining districts is being enforced. In a similar vein to the law in the Democratic Republic of Congo (discussed above), a number of other jurisdictions in Africa are seeking to ensure that local communities are able to reap the benefits of the mining industry and governments are focused on ensuring local content requirements are met 5.
  • Zambia:Zambia has taken a number of steps over the past six months to deal with dwindling foreign currency reserves and increasing public debt. These have included: (i) increases in the country's sliding scale for royalties in September 2019 (including a new 10% tax when the price of copper exceeds $7,500 per tonne); (ii) an announcement in October 2018 that mines will have to pay royalties in dollars to help stabilise the Kwacha; (iii) the introduction of new mining duties and a new sales tax in December 2018; and (iv) the introduction (reported in January 2018) of a new 5% copper import duty 6.

INTERVIEW – ANTHONY LEPERE, SHEARMAN & STERLING

In order to see what practical implications these regulatory changes are having, we speak to Anthony Lepere:

Q: Who do you mainly advise?

A: Our clients consist of a full range of sponsors, including large multinational corporates to mid-sized and more junior companies. We tend to advise sponsors whose capital strategy combines equity and various types of debt, either because of the size and nature of the sponsor or the size and nature of the project proposed to be undertaken.

Q: What is some of your recent experience in African mining?

A: We have recently worked on projects in Guinea (bauxite), Sierra Leone (iron ore), Tanzania (gold), South Africa (gold), Zambia (copper) and the Democratic Republic of Congo (tin). We have been advising clients on the project development side in relation to new projects and in relation to disputes concerning existing projects.

Q: How do you see investors viewing some of the regulatory changes we see happening including as set out above? What other key challenges exist?

A: The prospect of increased taxes and royalty payments has been and always will be present, both in Africa and elsewhere. Our experience spans the full life-cycle of mining projects, from making sure that appropriate investment protections will be available when structuring investments all the way through to advising mature mining businesses engaged in disputes with the host State. Given the number of high quality resources situated in African jurisdictions, strong global market demand and the associated recovery in commodity prices, the recent regulatory changes we have seen are not particularly surprising. They are also unlikely to significantly impact investor appetite: investors that are highly sensitive to regulatory change are unlikely to allocate capital to mining in Africa in the first place. Changes in regulation also create opportunities for sponsors to leverage their natural strengths. For example, some of our larger sponsor clients benefit indirectly from state-to-state relationships and are therefore able to invest with greater confidence of receiving fair treatment; this in turn creates a virtuous cycle, as confident sponsors are better able to raise debt finance. By contrast, we have seen junior clients exploiting late life resources with associated infrastructure in more developed jurisdictions; such projects are well understood but no longer financially viable for larger sponsors when increased taxes and royalty payments are factored in.

It is worth mentioning that the lack of infrastructure remains the biggest barrier to further mining investment (in Africa and elsewhere). It is one thing to locate and then delineate high quality resources and quite another to establish a feasible pathway to either domestically process or export production.

CONCLUSION

While there remains a number of challenges in the mining sector in African markets, in particular in relation to a lack of infrastructure and recent changes to the regulatory environment, market data and our own experience suggests that there remains a healthy appetite for both investment in, and financing for, mining projects in Africa.

Footnotes

1 https://www.projectsiq.co.za/African-Mines.htm (accessed 27 March 2019).

2 To the extent data was available.

3 https://www.bloomberg.com/news/articles/2019-03-02/congo-presidentsupports-predecessor-s-mining-policies (accessed 12 April 2019) and https://www.lexology.com/library/detail.aspx?g=7e116ac8-47b7-41e3- ad84-9ce381daab66 (accessed 12 April 2019).

4 https://www.reuters.com/article/us-africa-mining-ethiopia/ethiopiafinalizing-mining-industry-reforms-minister-idUSKCN1PU1Q8 (accessed 12 April 2019).

5 http://m.miningweekly.com/article/mozambican-authorities-focusingattention-on-rubies-and-gold-2019-02-01 (accessed 12 April 2019).

6 https://www.reuters.com/article/africa-mining-zambia/zambia-willenforce-copper-import-tax-mining-minister-idUSL8N1ZG678 (accessed 12 April 2019).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions