Keywords: Minerals, Sierra Leone, Liberia, Mining
Mining in Sierra Leone has always been identified with diamonds but the post conflict era has seen development in iron ore and rutile and a gold sector emerge.
Key mining activity in Liberia has focused on iron ore and diamond production and is recovering since the UN Security Council lifted sanctions against Liberia in 2007. In 2009 Mano River Resources Inc secured a 25 year mining license from the Liberian government to develop the New Liberty gold project –the first ever hard rock goldmine in Liberia.
The Mineral and Mines Act 2009 (the "2009 Act") replaced the 1994 regime and brought in major changes to the way the mining sector is governed in Sierra Leone. It addressed several new issues which were not covered by the 1994 Act including health and safety, environmental protection and community development. The regime has been described as consistent with all the main ECOWAS principles and policies.
The 2009 Act clearly sets out that applications for mineral rights will be considered on a first come – first served basis and enables the government to award mineral rights on a public tender basis. There are five types of licences which can be granted – 1) Reconnaissance licence; 2) Exploration licence; 3) Artisanal mining licence; 4) Small scale mining licence; and 5) Large scale mining licence. The most relevant of these for large scale projects are the exploration licence and the large scale mining licence. Exploration licences are granted for four years initially and can be retained for a maximum of nine years although the area under licence has to be reduced after 4 years. Large scale mining licences are granted for 25 years at a time and are can be renewed for 15 year periods.
The Sierra Leone government like many others, is concerned about rights being awarded without the project being developed and so the 2009 Act clarified that the Director of Mines can suspend or cancel a mineral right if the mineral right holder fails to meet any minimum annual programme of work or required work expenditure.
The "Act Adopting a New Minerals and Mining Law" was adopted in 2000 (the "2000 Act") and holders of mineral rights acquire ownership of the minerals extracted under this law. The regime sets out six licences as follows: 1) Reconnaissance licence; 2) Prospecting licence; 3) Exploration licence; 4) Class A mining Licence; 5) Class B mining licence; 6) Class C mining licence. Class A mining licences are required for large scale mining, Class B licences are required for small scale industrial mining and Class C mining licences are required for very small scale mining (up to 25 acres). The most important licences for large scale projects are the exploration licence and the Class A licence (which lasts for up to 25 years and is renewable for further 25 year periods subject to demonstration of mineral reserves). In order to be granted either of these, the mining company also has to enter into a Mineral Development Agreement with the Liberian Government. The Mineral Development Agreement is initially for 25 years but is renewable until the reserves are exhausted and most of the terms are negotiable.
Policing mineral rights is something which the Liberian government appear to take very seriously, announcing earlier this year the cancellation of 25 mining licences due to various contraventions of the law on mining and minerals (one concessionaire has already had their licence reinstated).
The regime has been described as outdated and the Liberian government has recently outlined plans to conduct a nationwide stakeholder consultation (starting on 14 November 2012) aimed at reviewing the 2000 Act.
Tax on good services is payable at a rate of 15% and corporate income tax is payable at 30% and the 2009 Act brought in new royalty rates for special stones at 15%, precious stones at 3% (amended in 2011), precious metals at 5% and all other minerals of 3%.
"Special stones" was a new category established in 2009 for precious stones valued at more than $500,000 and being greater than 10.8 carats. Obtala Resources plc recovered a 23.30 carat and a 11.92 carat "special" stone from its Bakidu operation in Sierra Leone in 2010.
The main opposition party in Sierra Leone (the Sierra Leone People's Party) has indicated that it will reform the current regime if it wins the forthcoming presidential election on 17 November. The current regime has been criticised for agreeing mining deals that do not conform to the law – a prominent example is the agreement with London Mining which specified a tax rate of 6% instead of the rate specified by statute (although this has since been renegotiated).
It is apparent that there is still significant uncertainty around the tax regime in Sierra Leone, for example African Minerals shares fell by 6% following an article suggesting the Sierra Leone government may raise taxes and there have also been reports that the government will reduce the precious metals tax rate to 3% from the current 5%. The regime brought in 2009 was meant to increase government revenue but has triggered a slide in official exports and is likely to be reformed.
Corporation tax is payable at 25% and tax on goods and services is 7%. Royalties are payable on iron at 4.5%, gold and other precious metals at 3% on and diamonds at 3%. In addition the Liberian Government reserves the right, in the 2000 Act, to receive an equity interest in any Class A mining licence holder of between 10 and 15 percent of the mining right holder's issued and outstanding share capital.
Health and safety and labour issues
The 2009 Act codified and consolidated the regime on health and safety. It sets out duties of workers and of mineral rights holders in one place. Examples of the duties imposed on mining right holders include ensuring that all persons working at the mine have the necessary skills to undertake their work safely, ensuring that people who are not employees but who may be directly affected by activities at the mine are not exposed to any health and safety hazards and to establish a policy for the compensation of injured workers.
Under the 2000 Act, the mining right holder must take any and all measures to mitigate or eliminate the risk of danger to the community and the mine workers that may be caused by the mine. All accidents have to be reported periodically and serious accidents have to be reported as soon as possible. Mining right holders are obliged to draw up work place safety regulations which must be preapproved by the Minister of Mines, Lands and Energy. The employment of foreign unskilled labour is prohibited and a preference has to be given to Liberian citizens as regards skilled/technical/administrative/financial/managerial positions.
The 2009 Act requires all small scale and large scale mining licence holders to acquire an Environmental Impact Assessment Licence in accordance with the Environmental Protection Act 2000. The application process to obtain an Environmental Impact Assessment Licence includes public consultation to identify possible environmental impacts of the project. All small scale and large scale mining licence holders must provide financial assurance for any environmental damage.
The 2000 Act requires mining right holders to take all reasonable preventive, corrective and restorative action to limit pollution, contamination or environmental damage caused by the mine or its development. An Environmental Impact Assessment Study must be submitted before a Class A or Class B mining licence will be granted. The 2000 Act notes that this study must pay special attention to any adverse effects the mining may have on nearby communities.
Litigation in Sierra Leone tends to be slow and expensive and should be avoided where possible. The International Finance Corporation in its "2013 Doing Business" survey estimates the cost of enforcing contracts in Sierra Leone as on average amounting to 149.5% of the claim (although the International Finance Corporation acknowledges that the establishment of a fast track commercial court in 2011 made enforcing contracts easier).
Sierra Leone is not a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards but is a party to the 1965 International Centre for Settle of Investment Disputes which applies to disputes between the state and nationals of other states.
The International Finance Corporation reported in its "2013 Doing Business" survey that enforcing contracts was made easier in Liberia by the creation of a specialised commercial cost, however the cost of enforcing contracts was still estimated at 35% of the claim value. Liberia is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and therefore arbitration is a good alternative.
Originally published on, 23 November 2012
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