“Gabon remains unexplored” is the conclusion of the Société Equatoriale des Mines (“SEM”), a wholly-owned State company created in 2011 to facilitate the development of the country’s natural resources. Developing the mining industry is seen as a means of reducing the dependence on oil resources which contribute to almost 40% of the country’s GDP, especially since Gabon seems to have significant manganese (the country is the world’s third producer), iron ore, gold and phosphate resources. The adoption of a new mining code, enacted through law no. 017/2014 dated 30 January 2015 and published in the Official Journal on 29 May 2015 (the “New Mining Code”), is intended to give a major boost to investments in this sector. The main features of the New Mining Code are described below.
The Minister in charge of Mines is tasked with implementation of the Government’s policy in the field. The Ministry shall assess all applications for decisions in relation to mining titles.
A regulatory authority is created by the New Mining Code. It is in charge, among others things, of supervising bidding rounds, analysing costs of mining operators, and assessing claims regarding potential breaches of rights in the performance of mining activities. It is unclear at this stage who will make up this body, as this has yet to be provided for by decree.
State’s Involvement in Mining Operations
Under the previous mining code (the “2000 Mining Code”), the State did not have free carry rights or options to acquire shareholdings in the share capital of mining title holders. The New Mining Code provides that the State shall have the right – which can be waived - to systematically hold a 10% mandatory interest in the share capital of holders of exploitation permits. Such interest shall be free from all charges / encumbrances and is non-dilutable. In addition, the State shall have the right to acquire at market value up to 25% of the share capital of the holder of an exploitation permit. In case of sale or assignment of a mining title (except where such transaction takes place between affiliates), the State has a pre-emption right.
The New Mining Code entrusts SEM with the role of “national operator”. It is likely that in practice SEM will be in charge of carrying the State’s participation in the share capital of mining titles holders.
As in the 2000 Mining Code, the New Mining Code provides for three types of mining titles: exploration permits, exploitations permits and mining concessions.
The following general rules apply to all mining titles:
- Applicants must demonstrate that they have the technical and financial capacities to carry out the envisaged mining works.
- Applicants for mining titles, as well as sub-contractors providing services in Gabon for 6 months or for cumulated periods that equal 6 months, shall incorporate a Gabonese company;
- In case of competing requests over the same zone, the “first-come-first-served” rule shall apply.
- All types of agreements providing for a merger, lease or assignment relating to a mining title shall be subject to approval by the relevant authority. In case of sale or assignment of a mining title, the approval of the transaction is deemed granted, if the Minister has not exercised the pre-emption right. The approval shall be granted by ministerial order. The new title holder shall be bound by the rights and obligations of the previous title holder under the mining convention until the expiry of the mining title. The State is free to invite the new title holder to renegotiate the assigned mining convention.
- The Minister may refuse to grant an approval on the following grounds: lack of technical and financial capacities of the applicant; strategic nature of the substances covered by the mining title; incompatibility with the State’s mining policy; risk of creating a monopoly or freezing the resources; or failure of the applicant to comply in respect of mining works with human rights obligations.
- Mining conventions shall be entered into between the mining title holder and the State at each stage of the mining works. A model mining convention shall be enacted by decree. Mining conventions cannot derogate from the mining code.
- Mining titles, which have expired, are automatically extended until a decision is taken about their renewal, provided that a renewal application has been filed before the mining title’s term.
- A mining title may be withdrawn on the following grounds:
- the activity has been suspended or severely restricted without good reason and in a way which goes against public interest for more than 6 months (exploration activities) or for more than 12 months (exploitation activities); or
- the title holder no longer has the financial guarantees or the technical capacities in the light of which the mining title was granted.
- An operator can hold the maximum number of 3 exploration permits (2 for diamonds). The permit area cannot exceed 1,500 sqm (5,000 sqm for diamonds). Such limitations did not exist under the 2000 Mining Code.
- The holder of the exploration permit must allow the pursuit of authorised artisanal exploitation activities within the permit’s area until it applies for an exploitation permit.
- Exploration permits may be awarded without a call for tender. However, for those deposits that are known, the State may decide to organize a call for tender.
- Exploration permits are awarded by order of the Minister in charge of Mines for 3 years and are renewable twice for the same duration.
- The third period of validity of an exploration permit may be extended in case of a discovery that could be economically viable in order to allow technical, economical and commercial assessment of such discovery.
- If a new permit is granted to an applicant over the area covered by an expired permit, no compensation shall be granted to the previous permit holder.
Exploitation permits and mining concessions
- Two types of mining titles may be granted for exploitation works: an exploitation permit1 and a mining concession, the only difference between these titles being their duration:
- exploitation permit: 10 years renewable for one or more periods of maximum 5 years each; and
- concession: 25 years renewable for one or more periods of maximum 10 years each.
- The exploitation permits and the mining concessions cannot exceed 1,500 sqm.
- An environmental impact assessment and a feasibility study must be appended to applications for an exploitation permit or a mining concession.
- Exploitation must start within 5 years as from the execution of the mining convention, unless an extension has been granted.
As a new feature, the New Mining Code provides for a list of substances which will be considered as strategic (among others: uranium, thorium, niobium, tantalum, lithium and rare earths). The State may declare that other substances are of economical or geostrategic interest. Classification as a strategic substance has no impact on the validity of a mining title, nor on its fiscal terms. However, the Minister in charge of Mines may impose, for economic reasons, that the holders of mining titles respect, for strategic substances, specific requirements relating to the construction and operation of the various structures and facilities. The State may build up stocks of strategic substances and set out production thresholds for such substances.
“Local content” requirements
While no “local content” requirements applied under the 2000 Mining Code, the New Mining Code imposes numerous and detailed “local content” requirements:
- mining title holders must contribute to a training fund and to a mining support fund;
- in terms of employment of national workers, the title holder and its sub-contractors must:
- hire in priority Gabonese workers with equal qualifications and experience;
- set up an annual training program for their employees;
- create internship positions; and
- set up a plan for the transfer of know-how and the increase of the number of Gabonese workers in the company.
- preference to be given by mining title holders and their subcontractors to Gabonese companies provided that they offer equivalent prices, quantities and delivery terms. It is worth noting that the New Mining Code provides that preference for Gabonese companies is the counterpart of the tax and customs benefits granted under the mining code. It can be inferred from this provision that such benefits could be suspended, should the mining title holder not comply with the requirement relating to preference to be given to Gabonese companies;
- minimum portion of activity to be set aside for small and medium-sized companies owned or controlled by Gabonese companies to be clarified by a regulation. Such minimum portion shall range between 5% (during exploration, development and between the 5th and the 10th year of exploitation) and 15% (beyond the 25th year of exploitation); and
- mining conventions may set out the share of the production which is to be transformed in Gabon.
As a matter of principle, mining title holders shall be subject to the standard fiscal regime.
The following exemptions will apply for mining title holders and their sub-contractors2:
- During the exploration phase:
- domestic VAT in respect of certain goods for carrying out geological and mining activities, as set out by a ministerial order;
- the corporation tax;
- the flat minimum corporation tax (impôt minimum forfaitaire);
- the business licence tax;
- property tax on property other than houses; and
- registration fees on deeds bearing capital increase and on professional leases.
- During the exploitation phase, holders of mining titles relating to projects having an exploitation period of at least 10 years, and their sub-contractors, will be exempted from the payment of the corporation tax and the flat minimum corporation tax during the first 5 years after the commencement of the exploitation phase. This tax holiday can be up to 8 years for the most important mining projects, i.e. those having a lifespan of 20 years or more. However, the tax holiday would cease to apply to those mining title holders who get a return on investment during the exemption period. We note that the abovementioned exemptions will be effective as from the commencement of exploitation rather first taxable profit, which will make it difficult for some investors (for example, those carrying out large scale mining projects can take a number of years to reach commercial production) to fully benefit from the tax holiday.
- More generally, the Government has the possibility, concerning tax and customs matters, to grant further exemptions to operators of large-scale mining projects.
The following specific taxes shall apply to mining title holders.
Fixed fee: as under the 2000 Mining Code, a fixed fee shall be due for the issuance, renewal or assignment of mining titles between affiliated entities. Moreover – and this is a new feature - in case of assignment, merger, lease, transformation, conveyance or transfer between companies which are not affiliates, a fixed fee equivalent to 5% of the amount of the transaction shall apply.
Surface tax: as under the 2000 Mining Code, mining title holders shall be subject to a surface tax levied on the area covered by the mining title. This tax shall range between 1,000 and 5,000 FCFA / sqm / year for exploration permits and shall amount to 100,000 FCFA / sqm / year for exploitation permits and 120,000 FCFA/sqm/year for concessions.
Proportional mining royalty or “Ad valorem” royalty: the “ad valorem” royalty is to be determined at the end of each year in respect of each exploitation on the basis of the “carreau-mine” value of the ore sold under a mining title. For exportations, the “carreau-mine” value is defined as the difference between: (i) the official selling price and (ii) the costs incurred to get the product to its point of delivery in Gabon. The New Mining Code provides that a “Joint Technical Committee” will be created and will be in charge of determining the official price of selling for each ore, on the basis of the real market price of the ore in transactions between independent buyers and sellers. The allowable deductions are: exit taxes, notably the harbour dues, transportation costs, quality assessment costs and marketing fees. Failing determination of the actual allowable deductions, the “ad valorem” royalty shall be calculated on 70% of Free-on Board (FOB) price for exportations and 60% of the sale price for local sales. The rate of the “ad valorem” royalty shall be set in each mining convention and comply with the limits provided for by the code: between 3 and 5% for base metals and other substances, 5 and 8% for precious metals (while under the 2000 Mining Code, the limits were 4 to 6%) and 8 and 10% for precious stones.
Export tax: an export tax ranging between 0% and 5% shall apply to substances which will be subject to an obligation of local processing.
Mining titles awarded before the entry into force of the New Mining Code, as well as mining conventions entered into before that date, shall remain in force until their expiry date. However, the rules set out by the New Mining Code shall govern the renewal of a mining title and the transition from an exploration permit to an exploitation permit.
Moreover, subject to sanctions, the holders of such mining titles must:
- within 1 year, comply with the provisions of the New Mining Code relating to health and safety;
- within 2 years, apply for legal regularisation that is indispensable for the validity of the mining title or the mining convention (this provision is quite vague and it is difficult at this stage to understand its purpose); and
- within 3 years, comply with the new environmental provisions set out by the New Mining Code.
While this is not clearly stated, we understand that the abovementioned deadlines shall apply as from the entry into force of the New Mining Code.
As a matter of principle, mining title holders are guaranteed the stabilisation of the tax and customs regime laid down in the mining convention. This guarantee is two-fold:
- guarantee that (i) there will be no change in respect of the rates and the bases of taxes and other applicable fees since the date the mining convention has been entered into and (ii) no other tax or fee of whatever nature shall be due by the mining title holder or the beneficiary of a mining title; and
- any change implemented after the entry into force of the mining convention shall guarantee both parties fiscal stability as initially agreed in the mining convention, in accordance with the principle of fiscal balance between the State and the mining title holder.
Investment protection and arbitration
Disputes relating to mining conventions that are amicably settled may be referred to an arbitral court.
Moreover, the State guarantees that it will recognize the awards rendered in the framework of bilateral or multilateral investment treaties (notably MIGA and ICSID) and arbitral awards rendered under the 1958 New York Convention.