Ivory Coast: Amendments to the mining code

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1 Financial institutions Energy Infrastructure, mining and commodities Transport Technology and innovation Life sciences and healthcare Ivory Coast: Amendments to the mining code Briefing August 2014 Introduction In March 2012, the Government of the Republic of the Ivory Coast (Côte d Ivoire) announced its intention to carry out a reform of its mining legal framework, in order to attract new investors. The executive branch of the country sought to diversify its economy and hoped to double its gold production (which had reached approximately 12 tonnes in 2013) by Since the time of such announcement, several drafts were communicated to the principal players in the sector, providing them with a preview of the contemplated reforms (we have discussed the draft of September 2013 in a previous memorandum). On 5 March 2014, the Parliament of the Republic of the Ivory Coast finally voted into law a text effecting a reform of the regime previously dating from law n of 18 July (the Mining Code of 1995), and the President of the Republic promulgated on 24 March 2014 law n bearing the new mining code (the New Mining Code). In the following summary, we will indicate the principal changes introduced by the New Mining Code, particularly with respect to the regime applicable to exploration and industrial exploitation of mines.

2 Mining titles Exploration permit The New Mining Code introduces new criteria for the attribution of exploration permits (PR), including a requirement that the applicant have realised at least two mining exploration projects in the last ten years, have a person in charge of the technical aspects of the works who has at least seven years of professional experience, and can prove that it has the necessary financial capacity to bear the costs of the exploration works, by constituting a financial reserve constituted with a prime ranking local bank. The PR will henceforth be issued for an initial period of four years (as compared with three years in the 1995 Mining Code) and will be renewable twice for periods of three years each (previously two years). However, the period for exceptional renewal is reduced from three to two years. The maximum surface area of the PR is also reduced from 1,000 km² to 400 km², which is further reduced by one-quarter (rather than one-half) on renewal of the mining title, and the holder of the title may retain the full surface area if the works so require, by payment of an option price. The New Mining Code reinforces the requirement that works begin by reducing the time period for commencement from one year to six months. The use of products extracted during exploration works is henceforth subject to the payment of mining taxes relating thereto, in addition to the prior declaration thereof to the mining administration. Exploitation permits As regards the exploitation permit (PE), the New Mining Code provides a more detailed description of the contents of the feasibility study to be produced, which must include, among others, a socio-economic impact study (SEIS), an environmental impact study and a community development plan. In addition, the holders of the PE must be able to demonstrate, within six months of the award of the title, or face possible withdrawal of the title, the availability of a team of experienced mining engineers and geologists, a technical person in charge of the works with at least seven years of professional experience and a financial reserve constituted with a prime ranking local bank. The PE is granted for the life of the mine, up to a maximum period of 20 years, and the maximum term of successive renewals is henceforth fixed at ten years each. Similarly to PRs, the obligations relating to commencement of the works are more restrictive, with the period reduced from two years to one year. General provisions In addition, the New Mining Code introduces new grounds for withdrawal of titles, including absence of proof of the constitution of the financial reserve by the holder of the PR or the PE, as the case may be; the undertaking of exploitation activities in the area covered by a PR; the failure to perform obligations of the title holder relating to mining exploration works or community development, or child labour by an exploitation company. The same is true of the following new cases of withdrawal, which apply both to PRs and PEs: fraudulent acquisition of a mining title and any instance of corruption or attempted corruption in the context of the attribution of the relevant title. In addition, the authorised periods for the delay or suspension of exploration activities and commencement of exploitation activities, and for the production of a request for a PE following demonstration of the existence of a deposit, are decreased to six months. The transfer and the transmission of mining titles remain authorised subject to approval by the Minister of Mines and regulatory conditions. However, the New Mining Code modifies the nature of the PE, which becomes an indivisible real property right which can be the subject of a mortgage. This change is likely to facilitate the financing of mining projects in the Ivory Coast. 02 Norton Rose Fulbright August 2014

3 Mining conventions Although in practice, the government of the Ivory Coast has already concluded mining conventions with several mining companies, there is no mention of them in the 1995 Mining Code. The New Mining Code now contains a chapter relating specifically to mining conventions, specifying that the holder of a PE must conclude such a convention within 60 working days of the granting of its title, for an initial period of validity of 12 years, renewable for successive periods of 10 years each. The text specifies that mining conventions aim principally at stabilising tax and customs regimes, but they may not depart from the provisions of the law. Their content and implementation remain to be determined by subsequent decree. They can provide for dispute resolution by international arbitration. Relations with the State and with local industry Participation of the State in mining companies Unlike mining reforms in certain neighbouring countries, the New Mining Code does not increase the non-contributing share of the State in exploitation companies, which remains at ten per cent. However, it fixes the maximum percentage of the State s additional and contributing shareholding at 15 per cent, provided that such limit does not take into account shares which may be held by state-owned companies in the share capital of the exploitation company. In addition, in the event that the State effects investments in the exploration phase, its contributing shareholding is no longer limited to a maximum amount. Local participation The increase of benefits granted to local populations by mining operations figured among the objectives advanced for the reform of the Ivorian mining legislation, and the New Mining Code contains several provisions to this effect. In the first place, it is expressly indicated that the State encourages the participation of Ivoirians in the share capital of mining companies and reserves the right to condition the authorisation of industrial mining activities on such participation. In addition, holders of mining titles are required to grant preference to local enterprises in the choice of sub-contractors, at equivalent conditions of quality, price and quantity. Moreover, it is henceforth necessary that sub-contractors be approved and that sub-contracting agreements be transmitted to the state administration. Holders of mining titles and their sub-contractors must also grant preference to local entreprises for construction, supply and services agreements, again at equivalent conditions of quality, price and quantity. Furthermore, holders of mining titles and their sub-contractors must employ personnel on a priority basis of Ivoirian nationality and establish and finance a training programme for such personnel. Added to this is the implementation of a training plan for small and medium-sized national companies in order to increase their participation in the supply of goods and services to PE holders in mining projects, and a contribution to the financing of the strengthening of capacity of administrative agents and the education of Ivoirian mining engineers and geologists. Norton Rose Fulbright August

4 Tax and customs provisions Taxation of capital gains Although consideration was given thereto in the various drafts submitted to the mining industry, the New Mining Code did not retain the principle of taxation of capital gains resulting from an indirect change of control of the holder of a mining title. It deals solely with capital gains realised on the transfer of mining titles, which are henceforth taxed at ordinary rates under the General Tax Code. Ad valorem tax As regards ad valorem tax, its tax basis which remains unchanged is henceforth defined directly in the New Mining Code, but the rate will be determined by subsequent government decree. However, it is specified that holders of PEs for raw diamonds will not be subject to such tax. Exemptions during the exploration phase The New Mining Code provides tax incentives during the exploration phase, i.e., exemption from the tax on profits, the minimum flat tax (impôt minimum forfaitaire), real property taxes and registration taxes on contributions to capital of the company realised at the time of the constitution of the company or any increase in share capital. Exemptions during the exploitation phase The most significant tax advantages occur, however, during the exploitation phase, as the State guarantees the stability of tax and customs treatment to holders of PEs. The tax on additional profit, the terms of which were never really clearly defined, is henceforth abolished. In addition, the New Mining Code provides for numerous exemptions for holders of PEs, their affiliated companies and their approved sub-contractors, particularly for customs duties on fuel and export duties and taxes on products of the mine. Holders of PEs are also entitled, but only up to the date of first commercial production, to exemption from VAT on foreign imports and services, local acquisition of goods and services and sales related to mining operations. There are also exemptions from the tax on industrial and commercial profits and the minimum flat tax for five years following first commercial production, and exemption from the tax on real estate and from the business license tax (contribution des patentes) (with the exception of transformation of extracted materials) for the entire duration of the validity of the permit. Exchange control Applying the principles of the UEMOA (West African Economic and Monetary Union) Regulation, the New Mining Code provides that proceeds of the sale of minerals must be repatriated to the Ivory Coast within the prescribed periods, not exceeding one month from the due date for payment (which in turn must not exceed 120 days following the date of shipment of the minerals). 04 Norton Rose Fulbright August 2014

5 Good governance and environmental and social provisions Following the trend established by mining reforms in neighbouring countries, the New Mining Code devotes an entire section to principles of good governance and community development. First of all, the State expressly guarantees the respect, protection and implementation of human rights and imposes the same obligation on holders of mining titles. The use of child labour in mining activities is moreover specifically prohibited. In addition, holders of PEs are required to establish a community development plan and an investment plan, in addition to the constitution of a fund to which they are required to contribute annually for the realisation of socioeconomic projects for the benefit of local communities. The rehabilitation and closing of mines are dealt with in a new section. In addition to the escrow account for rehabilitation of the environment provided for under the 1995 Mining Code, applicants for PEs are henceforth required to establish a plan for the closing and the rehabilitation in the framework of the SEIS. They also assume civil liability for a period of five years following the closing of the site for damages and accidents which could be triggered by the prior installations. Furthermore, the New Mining Code retains the desire, introduced in the various previous drafts, to subject holders of mining titles to the good governance principles and criteria of the Extractive Industries Transparency Initiative (EITI) and the Equator Principles, which strike at both active and passive corruption in the mining sector, as well as the Kimberly Process Certification Scheme aimed at preventing illegal traffic in diamonds. Transitory provisions Mining titles and mining conventions which remain valid on the date of entry into force of the New Mining Code will continue to be valid for their remaining term, but subsequent renewals must be effected in conformity with the new law. Holders of such mining titles and beneficiaries of such mining conventions may however request directly to be subject to the New Mining Code, subject to regulatory conditions. Norton Rose Fulbright August

6 Conclusion The New Mining Code of the Ivory Coast follows the trend of recent mining reforms in Frenchspeaking sub-saharan Africa, including provisions aimed at increasing the participation of the local population in mining operations and according a particular significance to principles of good governance and transparency. However, finalisation of various application decrees will be necessary in order to have a full picture of the new legal framework of the mining sector in the country. Norton Rose Fulbright has a strong track record in the mining sector, in addition to extensive knowledge of the legal framework and the practical issues pertaining to business in the Ivory Coast and neighbouring countries. We regularly advise mining companies with respect to their investments in Africa and throughout the world. The purpose of this publication is to provide information as to developments in the law. It does not contain a full analysis of the law, nor does it constitute an opinion of Norton Rose Fulbright on the points of law discussed. 06 Norton Rose Fulbright August 2014

7 Contacts Poupak Bahamin Partner, Paris, Africa Tel poupak.bahamin@nortonrosefulbright.com Martin McCann Partner, London, Africa Tel martin.mccann@nortonrosefulbright.com Mark Bankes Consultant, London Tel mark.bankes@nortonrosefulbright.com Sabine Bertin Senior associate, Paris Tel sabine.bertin@nortonrosefulbright.com Antoine Thibaud Associate, Paris Tel antoine.thibaud@nortonrosefulbright.com Norton Rose Fulbright August

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