Moving towards international best practice: a review of Africa’s top mineral regulatory regimes Peter Leon Partner, Webber Wentzel Johannesburg South Africa Chairman, Mining Law Committee International Bar Association Mine Africa: Promoting investment in Africa Toronto 9 March 2010

Structure Introduction to regulatory best practice An overview of commendable components of three of Africa’s best practice jurisdictions  Botswana ●Administrative discretion ●Fiscal and taxation conditions ●Dispute resolution  Ghana ●Administrative institutions ●Investment protection and dispute resolution  Namibia ●Administrative institutions ●Mining Cadastre

Introduction to regulatory best practice International competition for private investment has compelled countries to adopt legislative reforms which are investor friendly A mining regulatory regime should balance the interests of private investors, government, community as well as address environmental concerns A comprehensive economic, social and environmental management system should be developed. Such a system must include:  efficient macro-economic management  an effective legal and regulatory framework  security of tenure  objective criteria for the grant of exploration and mining licences  limited administrative discretion  a defined role for Government  efficient mining sector institutions and administrative capacity  physical and infrastructure services  competitive fiscal and taxation conditions and  effective investment protection

Botswana Background Background  Mining (and diamond mining in particular) is undoubtedly the mainstay of the Botswana economy. In 2008, mining accounted for no less than 36% of GDP, with diamond production contributing about 77% of the overall value of the mining sector  Botswana is ranked 36 out of 180 countries by Transparency International in its Global Corruption Report 2009  It is the highest ranked country in Africa  Two major investment services rank Botswana as the best credit risk in Africa

Botswana The Fraser Institute Survey In 2008/2009, the authoritative Fraser Institute's Annual Survey of mining companies (“the Fraser Institute Survey”) ranked Botswana 18 out of 71 jurisdictions on its policy potential index, and for the second year running, Botswana is the highest ranked jurisdiction in Africa In the 2007/2008 Fraser Institute Survey, Botswana was ranked 11 (out of 68) Botswana was ranked higher than several states in the United States, some Australian provinces, most Latin American countries (only Chile is ranked higher) and most mineral producing European countries

Botswana Administrative discretion The Botswana Mines and Minerals Act, 1999 (“the Mines Act”) is the principal legislation governing mining in Botswana  a key feature of the Mines Act is that the process of licensing – the grant, renewal and transfer of licences - is predictable and automatic  the Minister of Minerals, Energy and Water Resources (“the Minister”) grants mining licences in accordance with the Act. The Minister has little or no administrative discretion and licensing conditions that may be imposed are explicitly stated  the process is clear and transparent  the conditions that may be imposed on the holder of mining licence are set out clearly in the Act

Botswana Fiscal and taxation conditions Botswana has a simple and competitive taxation and royalties regime:  the Mines Act altered the previous taxation regime for mining companies. All mining companies, other than those which extract diamonds, are liable to income tax at a rate of 25%  there is a 100% capital write-off in the year the investment is made and losses are carried forward for an unlimited period  a variable income tax formula has been introduced on highly profitable mines and rises to a theoretical maximum of 50% (only applicable if taxable profit equals gross income)  royalties payable are easily determined

Ghana Background Mining accounted for 4.9% of Ghana’s GDP and minerals made up 34% of total exports in 2008 In 2007, the Ghanaian mining sector grew by 30%, growth stabilised at 8% in 2008 and 2009 Ghana hosts the second largest gold deposits in Africa after South Africa. Apart from gold, Ghana also produces significant quantities of bauxite, manganese and diamonds

Ghana The Fraser Institute Survey Ghana has recently taken effective steps to encourage foreign investment. These steps, particularly a new mining code in 2006, have increased security of tenure and limited administrative discretion in the mineral regulatory process The 2008/2009 Fraser Institute Survey ranked Ghana 35 (out of 71 jurisdictions surveyed), and fourth in Africa Ghana is ranked higher than several states in the United States, including Colorado, Idaho, Minnesota, Montana and New Mexico and only Chile, Mexico and Peru are ranked higher in Latin America In the 2007/2008 survey Ghana was ranked 23 (out of 68), and second in Africa

Ghana Overview of the regulatory framework The Ghanaian Minerals and Mining Act, 2006 (“the Minerals and Mining Act”) aims to:  develop a national policy on mining and consolidate the disparate laws on mining which existed at the time  increase investment by foreign mining companies in Ghana by removing the uncertainty concerning the availability and conditionality of mining rights as well as the bureaucratic gridlock which provided opportunities for corruption Mining legislation is applied equally to Ghanaians and foreign investors, except for provisions relating to small-scale mining of minerals, which is generally reserved for Ghanaians

Ghana Administrative discretion and administrative institutions Under the Ghana Minerals and Mining Act:  all minerals in Ghana are owned by the State, with the Minister of Lands, Forestry and Mines (“the Minister”) formally granting exclusive exploration and mining rights  the licensing process was reformed to reduce the unbound discretion that the Secretary of Lands and Natural Resources previously held to grant mining licences and impose regulatory conditions  under the new law: ●rights are formally granted by the Minister to applicants who demonstrate adequate technical, financial and managerial capability to engage in mining activities. The Minister must act on the recommendation of the Minerals Commission, in negotiating, granting, renewing, suspending or revoking mining rights ●all applications for mining rights must be submitted to the Minerals Commission for processing

Ghana Minerals Commission The Minerals Commission’s role was expanded under the Ghana Mines and Minerals Act to create an efficient mining sector institution and ensure administrative capacity to process licence applications The Minerals Commission is the main promotional and regulatory body for the minerals sector in Ghana, and is responsible for “the regulation and management of the utilization of the mineral resources of Ghana and the coordination of the policies in relation to them” The Commission’s members are appointed by the President in consultation with the Council of State The Commission is required by law to formulate recommendations on minerals policy; monitor the implementation of these policies; assess “stability agreements” and report to Parliament; collect data on national mineral resources

Ghana Investment protection and dispute resolution Mining companies may conclude a "stability agreement” with the government. A stability agreement protects the holder from the adverse effects of changes in the law for a period of up to 15 years, but must be ratified by Parliament The Minerals and Mining Act provides for dispute resolution under international arbitration. Where one of the parties is not a citizen of Ghana, three alternatives are provided: ●arbitration in accordance with international standards for investment disputes, if agreed by the parties; ●if the parties do not agree, arbitration takes place under the mechanism established by any applicable bilateral or multilateral investment treaty; and ●if no such treaty is applicable the dispute shall be resolved under the United Nations Commission on International Trade Rules (“UNCITRAL Rules”)

Namibia Background The Namibian mining sector accounted for around 16% of GDP in 2008 and provides for more than 50% of its foreign exchange earnings Namibia's main mining products include diamonds, uranium, gold, zinc, copper and lead Namibia was ranked 34 out of 71 jurisdictions in the 2008/2009 Fraser Institute Survey, and was third in Africa

Namibia Regulatory framework The Minerals (Prospecting and Mining ) Act of 1992 (“the Namibian Minerals Act”) is the primary piece of legislation regulating the minerals industry in Namibia. The Namibian government published “ the Minerals Policy of Namibia” in order to make public its goals and policies in this sector and these promote confidence and certainty among investors. The Minerals Policy guides the implementation of the Namibian Minerals Act

Namibia Administrative institutions The Namibian Minerals Act divides the day to day administration of the Act and the broader policy formulation and implementation to ensure greater efficiency in the performance of these functions The Minister must appoint a Minerals Commissioner who is responsible receiving licence applications and monitoring compliance with the Namibian Minerals Act, generally, as well as specific licence conditions Minerals Board of Namibia  The board advises the Minister generally, or in respect of a particular matter, and makes recommendations to him or her, in relation to – ●The minerals policy of Nambia and its implementation ●the amendment or application of the provisions of this Nambian Minerals Act; and ●any matter referred to the board by the Minister

Namibia Mining Cadastre The Namibian Department of Minerals and Energy operates a “Computerised Title Management System” (“CTMS”) This system covers all transactions throughout the lifetime of a mineral title - including all relevant spatial information in a geological information survey Title information can be archived and updated, and all required documents are generated by the system Geographic information on the titles, as well as related topics like geology and administrative boundaries, are fully integrated and can be visualized, queried and printed in the form of a map Under the Namibian Minerals Act mineral titles are public documents which can be accessed free of charge The system, which was established in 1996 and last updated in 2006, has greatly improved the efficiency with which the Minerals Commissioner can process and monitor licence applications

Conclusions These three important African mining jurisdictions have, to varying degrees, become best practice jurisdictions A key feature of these regimes is a clear regulatory regime which is efficiently administered The countries benefit from an increase in foreign investment through the payment of tax and royalties, as well as the indirect benefits such as increased employment and the growth of industries related to the minerals sector The essential components of these regimes include:  limiting administrative discretion  the creation of specialised agencies to administer the minerals legislation  clear taxation and royalties regimes  efficient systems for the management of mining related information  effective investment protection mechanisms including international arbitration of disputes

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