1. Developing international best practice regulatory models for the international mining industry An African perspective Peter Leon Partner, Webber Wentzel Johannesburg South Africa Chairman, Mining Law Committee International Bar Association International Bar Association Annual Conference 2009 Madrid 6 October 2009

2. Structure Introduction to regulatory best practice
Good practice jurisdictions
Ghana
Botswana
A jurisdiction not realising its full potential
South Africa

3. Introduction to regulatory best practice
International competition for private investment has compelled countries to adopt legislative reforms which promote foreign investment
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 the following essential elements:
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

4. Ghana – realising potential Background
Mining accounted for 6.16% of Ghana’s GDP and minerals made up 41% of total exports in 2007
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 has significantly de-politicised the mineral regulatory process as well as sharply limited administrative discretion
International arbitration is provided automatically for the resolution of all international investment disputes
Omayra Bermudez-Lugo “The Mineral Industry of Ghana” in United States Geological Survey 2007 Minerals Yearbook
Business Monitor International, "The Ghana Mining Report 2008",

5. Ghana – realising potential direction 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
In 2008/2009, the authoritative Fraser Institute's Annual Survey of mining companies (“the Fraser Institute Survey”) ranked Ghana 35 (out of 71 jurisdictions surveyed) on the Fraser Institute’s policy potential index
The policy potential index is a composite index which measures the effects of government policies on mining activities including uncertainty concerning the administration, interpretation and enforcement of existing regulations; environmental regulations; regulatory duplication and inconsistencies; taxation; indigenous land claims and protected areas; infrastructure; socio-economic agreements; political stability; labour issues; geological database and security
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 40 out of 65 in the 2006/2007 survey. According to the Fraser Institute, Ghana’s reduced ranking was due to anxiety about issues which were not related to its regulatory regime, but mainly changes in the infrastructure and physical security indices, as well as the global economic climate
In the 2007/2008 survey 22% of respondents listed infrastructure as a mild deterrent and in 2008/2009 this figure had risen to 45%. In the 2007/2008 survey 53% of respondents thought security issues were not a concern but his figure fell to 31% in 2008/2009.
Fraser Institute's Annual Survey of Mining Companies 2008/2009

6. Ghana – realising potential Regulatory framework (1)
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. The Minerals and Mining Act aims to increase investment by foreign mining companies in Ghana
reduce the unbound discretion that the Secretary of Lands and Natural Resources previously held to grant mining licences and impose regulatory conditions
remove the uncertainty concerning the availability and conditionality of mining rights and the bureaucratic gridlock which provided opportunities for corruption
Act 703 Minerals and Mining Act, 2006 (“Ghana Minerals and Mining Act”)
Section 79 of the Ghana Minerals and Mining Act.
Section 111 of the Ghana Minerals and Mining Act.

7. Ghana – realising potential Regulatory framework (2)
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 to mining companies
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. A mine is “small scale” if it covers an area that is less than a certain size designated by the Minister. A non-citizen may not be granted a licence unless the proposed investment in the operation is more than US $10 million
licensing
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
an applicant for a mining lease must submit a work programme and, if successful, must, within two years, comply with this. If the holder fails to comply or undertake mineral operations within two years, the Minister may suspend or revoke the lease
Sections 11 and 12 of the Minerals and Mining Act.
See sections 32, 34, 39 and 69 of Minerals and Mining Act on the different types of licences.

8. Ghana – realising potential Regulatory framework (3)
The Minerals Commission
A government agency established under Article 269 of the 1992 Constitution of Ghana and the Minerals Commission Act
The Minerals Commission, as the main promotional and regulatory body for the minerals sector in Ghana, 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.
Act 450, Minerals Commission Act, 1993 (“Minerals Commission Act”)
On appointment see Article 269 read with Article 70 of the Constitution of Ghana.
The composition of the board is, however, not stipulated and the President may appoint whomever he wishes, provided the procedural requirements in the Constitution of Ghana are met – See Article 70 of the Constitution of Ghana read with section 3(3) of the Minerals Commission Act

9. Ghana – realising potential Regulatory framework (4)
The Commission is required by law to:
formulate recommendations of national policy for the exploration and exploitation of mineral resources
monitor the implementation of established Government policies on minerals and report on these to the Minister
monitor the operations of all bodies or establishments with responsibility for minerals and report to the Minister
receive and assess public agreements relating to minerals and report to Parliament and
secure a firm basis of comprehensive data collection on national mineral resources and the technologies of exploration and exploitation for national decision making
Section 2 of the Minerals Commission Act.

10. Ghana – realising potential Regulatory framework (5)
The following conditions are imposed on the holder of a mining licence:
the state is entitled to a "free-carried" equity interest of 10% in mining ventures, with any further participation to be agreed with the holder of the mining right
mining royalties vary from 3% to 6% of the gross value of minerals produced
Incentives:
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
mining companies benefit from various financial incentives, such as 75% of capital expenditure incurred during the year of initial investment and 50% in subsequent years; companies can carry forward losses not exceeding capital allowances; prospecting and exploration costs can be capitalised when construction of the mine begins; export duties are exempted for minerals; imports of machinery, plant and equipment used for the construction of the mining operations are also exempted
a mining company may retain some of its earnings in external foreign currency. This assists in the transfer of capital and dividends, as well as the purchase of equipment and machinery
Free carry is governed by section 43 of the Ghana Minerals and Mining Act.
Mining royalties are governed by section 25 of the Ghana Minerals and Mining Act.
On stability agreements see section 48 of the Ghana Minerals and Mining Act.
See generally “Mining in Ghana”

11. Ghana – realising potential Regulatory framework (6)
Dispute resolution
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”)
Section 27 of the Ghana Minerals and Mining Act

12. Ghana – realising potential Lessons
Ghana has taken steps to actively encourage foreign investment in its mining industry by following international best practice
The Minerals Commission provides a specialised body to review mining licences before making recommendations to the Minister. The criteria for evaluation are clear and the process is transparent. This makes the application for mineral rights more predictable and less politicised
Stability agreements provide investors with additional security and predictability
Automatic recourse to international arbitration is an added bonus
Other fiscal incentives likewise encourage foreign investment

13. Botswana – best practice in Africa? Background
Mining (and diamond mining in particular) is undoubtedly the mainstay of the Botswana economy. In 2007, mining accounted for no less than 35% 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
Harold R Newman “ The mineral industry of Botswana” in United States Geological Survey 2007 Minerals Yearbook
CIA World Fact Book – Botswana
Global Corruption Report

14. Botswana – best practice in Africa? The Fraser Institute Survey
Botswana is ranked 18 out of 71 jurisdictions in the 2008/2009 Fraser Institute Survey, 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). A rise from a position of 38 (out of 65) in the 2006/2007 survey
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
Ghana is ranked higher than Ireland, Norway and Spain
Fraser Institute's Annual Survey on Mining Companies 2008/2009

15. Botswana – best practice in Africa? Regulatory framework (1)
The Botswana Mines and Minerals Act, 1999 (“the Act”)
a key feature of the 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 Act introduced a new "retention licence" which accommodates persons who discover a resource but cannot immediately mine it economically
prospecting licences are issued for up to three years and renewed for two periods of two years each. Mining licences are issues for up to 25 years, renewable for further periods of 25 years at a time
Diamond industry exemption - section 51 of the Botswana Mines and Minerals Act. The scheme established by the Mines and Minerals Act does not apply to diamond mining, the terms of a diamond mining license including all technical, financial and commercial aspects of the proposed projects. This is largely due to the diamond industries powerful role in Botswana’s economy. Diamonds are by far the most significant resource in Botswana and Botswana has close relationships with diamond companies, particularly De Beers. For example Debswana, the worlds largest diamond producer by value, is a joint venture between De Beers Century AG and the Botswana government. This negotiation allows Botswana to reach a mutually beneficial arrangement for the exploitation of its most valuable resource
Harold R. Newman, “The mineral industry of Botswana” in United States Geological Survey 2007 Minerals Yearbook.
See also

16. Botswana – best practice in Africa? Regulatory framework (2)
The State may impose conditions on the holder of a mining licence:
the Government's right to free equity participation has been abolished and replaced with an option to acquire up to a maximum of 15% in new mining ventures on commercial terms. The government must also pay a pro-rata share of all costs incurred in acquiring the mining licence and all expenditure on the mine incurred subsequent to acquiring the licence
royalties payable are easily determined. Payable at rates of 10% (for precious stones), 5% (for radioactive minerals, precious metals, semi-precious stones and coal) and 3% (for other minerals including building and industrial mineral products)
Incentives:
the Act revised 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)
Dispute resolution
a dispute under the Act must be referred to arbitration under the International Centre for the Settlement of Investment Dispute’s (“ICSID”) rules or in terms of an agreement between the parties
Section 25 to 36 of the Botswana Mines and Minerals Act govern the retention licence
Whereas previously the entitlement would have been lost if the resource could not be brought into product, now the development can be deferred for two successive three year periods. In the first the holder of the retention permit will have exclusive rights, subject to confirmation that the development is impracticable. The second three-year period is subject to a higher licence fee and third parties will have a limited rights of access to assess the prospect.
Section 40 of the Botswana Mines and Minerals Act governs government investment.
Sections 13 to 24 of the Botswana Mines and Minerals Act govern prospecting licenses.
On taxation generally see:
Section 66 of the Botswana Mines and Minerals Act governs royalties.
On dispute resolution see section 2 on interpretation

17. Botswana – best practice in Africa? Lessons
Botswana’s economy is largely dependent on mineral resources. Botswana has attempted to promote secure tenure and increase the predictability and transparency of mineral regulation
the application process for a mineral right is clear cut and formulaic; if the Act’s requirements are met a licence must be granted. Administrative discretion is kept to a minimum
the retention licence is a useful tool to create more flexibility in the mineral exploration process
Foreign investors are automatically entitled to have recourse to international arbitration

18. South Africa – a stunted giant Background
the South African mining sector directly contributed 5.5% directly to the country’s gross domestic product (“GDP”) in the second quarter of 2009, down slightly from 5.6% for The mining sector contributed 32% of SA’s total export earnings in 2008
South Africa has the world's largest reserves of chrome, gold, vanadium, manganese and Platinum Group Metals (“PGMs”). It is the world's fourth-largest producer of diamonds
"South Africa mining report q "
Fraser Institute's Annual Survey on Mining Companies 2008/2009
Fraser Institute's Annual Survey on Mining Companies 2004 (
Department of Trade and Industry Structure of South African Trade: Exports

19. South Africa – a stunted giant The Fraser Institute Survey
South Africa has vast mineral resources, but investor confidence is muted owing to uncertainty created by its new mineral regulatory regime. The Fraser Institute Survey for 2008/2009 ranked South Africa 49th (out of 71 jurisdictions surveyed) on its policy potential index. South Africa has fallen from position 27 (out of 47 ranked jurisdictions) in 2002/2003. The only African mining jurisdictions ranked lower are the Democratic Republic of Congo (“DRC”) (ranked 63rd) and Zimbabwe (ranked 65th)
South Africa is, however, ranked 27 (out of 71) on the Survey's mineral potential index, which is based on a jurisdiction’s mineral potential (assuming best regulatory practice). South Africa would thus be the third among African mining jurisdictions, if it followed best practice regulation.
Fraser Institute's Annual Survey on Mining Companies 2008/2009
Fraser Institute's Annual Survey on Mining Companies 2004 (
Note that the survey ranks certain states and provinces within a country as separate jurisdictions.

20. South Africa – a stunted giant The regulatory framework (1)
In 2004, the Mineral and Petroleum Resources Development Act, 2002 ("the MPRDA”), took effect. Its objectives are to:
provide for equitable access to mineral resources
promote economic growth and mineral resource development
provide for security of tenure in respect of prospecting, exploration, mining and production operations
While the MPRDA has opened up the SA mining sector and promoted Black economic empowerment (“BEE”) it has failed on the last two of these objectives. This is so, because;
wide administrative discretion under the MPRDA, as well as uncertainty in the regulatory framework and its application, discourage investment and undermine security of tenure
A Minerals and Mining Policy for South Africa, Department of Minerals and Energy, 1998, para
Section 3 of the MPRDA. Section 3 (2) states that "[a]s the custodian of the nation's mineral and petroleum resources, the state, acting through the Minister, may –
grant, issue, refuse, control, administer and manage any reconnaissance permission, prospecting right, permission to remove, mining right, mining permit, retention permit, technical co-operation permit, reconnaissance permit, exploration right and production right; and
in consultation with the Minister of Finance, determine and levy, any fee or consideration payable in terms of any relevant Act of Parliament.

21. South Africa – a stunted giant The regulatory framework (2)
Administrative discretion
The MPRDA abolished the existing dual system of public and private ownership of mineral rights and replaced it with a system of state custodianship of mineral resources "for the benefit of all”. Mineral rights are controlled by the Minster of Minerals and Energy (now of Mineral Resources) (“the Minister”) who has broad discretion in the grant of licences
The conversion of old order rights and the grant of new order rights are subject to the fulfilment of certain requirements, many of which are discretionary. These requirements include an assessment of whether the applicant has furthered the objects of the MPRDA, in particular creating opportunities for Historically Disadvantaged South Africans ("HDSAs") and employment creation, has adhered to the Mining Charter and has provided financially or otherwise for a social and labour plan
The Mineral and Petroleum Resources Development Amendment Act, 2008 (“the Amendment Act”) now empowers the Minister to refuse conversion of an 'old order mining right', if the applicant does not provide "documentary proof" as to how it intends giving effect to the MPRDA's empowerment and social and labour objectives
Objectives include, inter alia, BEE ownership, human resource development (e.g. literacy, numeracy and mentoring programmes), employment equity and beneficiation activities.
Signed by key stakeholders in the South African mining industry on 11 October, 2002

22. South Africa – a stunted giant The regulatory framework (3)
Security of tenure
The Minister's prior written approval is required for the cession or sale of any mining or prospecting right, or any interest in such a right, or in a company or close corporation and "[a]ny cession, transfer, letting, subletting, assignment, alienation or disposal" without the Minister’s approval is void
Section 47 of the MPRDA grants the Minister the power to suspend or cancel rights if the holder is conducting a prospecting or mining operation in breach of the MPRDA or a term of the right
Mining is a high risk, capital intensive industry
Administrative discretion in the grant, renewal and transfer of licences, as well as giving the Minister power to suspend or cancel mining rights, are not conducive to investor confidence

23. South Africa – a stunted giant The regulatory framework(4)
Inequitable implementation
The Broad-based Socio-Economic Empowerment Charter for the South African Mining Industry, 2002 ("the Mining Charter") aims to provide the framework for the promotion of BEE
the significance of the Mining Charter is compliance with it – and in particular its equity divestiture requirements - is generally obligatory for the conversion of old order mining rights, as well as the grant of new order rights. Under the Mining Charter's ownership provisions mining companies must transfer 15 percent of their assets or equity to BEE groups or individuals by 1 May 2009 and 26 percent by 1 May 2014
Given South Africa’s past and the genuine need to redistribute wealth in the country, these aims are obviously necessary and desirable. The implementation of the Mining Charter regrettably has not met these goals. BEE has principally only benefited a small elite, thus displaying aspects of crony capitalism
Act 49 of 2008, GG 32151, GN 437 of 21 April 2009.
Section 94 (4) of the Amendment Act however stipulates that the amendments to Schedule II of the MPRDA are deemed to have come into operation on 1 May, 2004 and thus Schedule II applies retrospectively.
Preamble to the Amendment Act.
Amendment to Item 7 (2) (k) of Schedule II to the MPRDA. Insertion to Item 7 (2) (d) of Schedule II to the MPRDA
3A. If the applicant does not comply with the requirements of the subitem (2) and (3), the Regional
Manager must in writing request the applicant to comply within 60 days of such request.
3B. If the applicant does not comply with subitem 3A, the Minister must refuse to convert the right and must notify the applicant in writing of the decision within 30 days with reasons.
3C. If the application relates to land occupied by the community, the Minister may impose such conditions as are necessary to promote the rights and interests of the community, including conditions requiring the participation of the community."
subsection 5 has been inserted to section 11

24. South Africa – a stunted giant Lessons
South Africa has vast mineral reserves, but is perceived internationally as an uncertain investment destination
In the past five years there have been significant changes in the mineral regulatory framework which have created an inhospitable investment climate
Most significantly, however, the Minister has been given a broad discretion to exercise broad powers over prospecting and mining rights, most notably the power to refuse to transfer rights and to withdraw rights if certain conditions are not met.
The Mining Charter has not benefited HDSAs generally, but has, for the most part, enriched a small class of BEE beneficiaries
South Africa could do well to learn from its immediate neighbour, Botswana as well as its far northern neighbour, Ghana

25. Thanks