Developing Mining Projects in a Changing Legal Framework

By Yves Baratte & Simon Ratledge

Posted: 25th July 2013 10:26

Reform is once again a marked feature in the global landscape of mining regulation.  To name but a few- in Gabon, the approval by Cabinet in March 2013 of changes to the 2000 mining code, in the Democratic Republic of Congo (DRC), the on-going proposal to amend the mining code of 2002 (said to be the most modern African mining code of its time drafted with the support of the World Bank), in Mozambique an anticipated new mining code, in countries as diverse as Zambia and Greenland, on-going discussions about the reform of key mining laws, whilst countries such as Mongolia and Guinea have witnessed successive reforms in the mining sector.  Almost without fail, any change of government in a resource rich country appears accompanied with the promise of a revamped set of mining regulations.  A trend which is not limited to developing countries as the examples of Canada and Australia attest.
 
The accelerated pace of mining law reform is perhaps the most striking feature to emerge – most of the mining laws under revision date back no further than the early years 2000, the record being held perhaps by Guinea where an entirely new mining code was passed in 2011 and then substantially modified in 2013.  In some jurisdictions annual revisions (albeit more minor than wholesale) are altogether uncommon these days.
 
Two consistent themes emerge from the general trend of reform: firstly, the objective of increasing the host country’s share in the financial results of projects and secondly, the goal of increasing “transparency”/state control.  As subsets of these two main themes, the following regulations/proposals are common features of the various reforms:

Fortunately, these legal reforms also present an opportunity to introduce certain process improvements, including:

Many of these reforms were brought about as a response to the level of profits enjoyed by mining companies during the recent boom in commodity prices and the inequity perceived by some host states.  Yet, a major cause for concern to many, the reforms now fall in a downward-sliding market, where the financial impact of additional state payments that apply irrespective of the profits, like royalties (generally applied to sales not return) or free-carry shareholdings, risk being critical for certain fledgling ventures.  In turn, funding, in particular for exploration and development, is proving much more difficult and the relative competitiveness of projects and host countries (in financial but also stability/general policy terms) is scrutinised more and more carefully by investors and mining companies alike.
 
So what protections exist to curb the potentially adverse economic impact of certain reforms? What of the much talked about “stability provisions”?  Stability provisions can take several forms: including on the one hand state commitments in mining regulation not to implement regulatory change for a certain period of time after enactment, or as in the DRC, undertakings to apply the existing legal regime (in particular as regards taxes) to each project for a certain duration from the granting of the mining licence, and on the other hand, contractual stability clauses provided in mining agreements entered into between the host states and mining investors.
 
While the changing legal environment is something mining investors are getting used to deal with, like fluctuating commodity prices, these stability clauses remain a key protection in seeking to provide a stable legal environment (although the enforceability of contractual clauses limiting the application of changes enacted by a law is subject to certain conditions, in particular in civil law countries).  When such protections can be worked in to mining agreements careful drafting of the principles is, of course, paramount as is, wherever possible, the negotiation of robust dispute resolution provisions either through international arbitration or, depending on the relevant country, reliable local or international courts.
 
Yves Baratte and Simon Ratledge are project partners in the Paris office of Simmons & Simmons, specialised in mining and energy projects.  They have been involved in a wide range of major international mining projects (including permitting and regulatory matters, joint-ventures, negotiations with host states, mergers and acquisitions and international dispute resolution) and project financings with a particular focus on projects in North Africa and sub-Saharan Africa. 

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