Overview While Burkina Faso is currently experiencing political unrest, mining companies operating in the  country remain largely unaffected by the recent political changes.

Burkina Faso has been ranked by the Fraser Institute as one of the top five most attractive African  countries for mining investment.

It is becoming one of the most attractive mining destinations in Africa not only for its natural  resources (particularly gold, zinc, phosphates and manganese), but also due to its mining-friendly  administrations, solid land tenure system and a f lat arid landscape which lends itself favourably  for exploration activities. The Government of Burkina Faso is currently revising their mining legal  framework, to ensure that the jurisdiction remains attractive to foreign investors, but also to  allow the benefits from this sector to f low to the local community and business opportunities.

This memo provides an update on certain local law issues to be considered in relation to mining  projects in Burkina Faso, including: (i) possible amendments  of the Burkina Faso mining code (Part  I); (ii) available security in Burkina Faso and costs (Part II); and (iii) certain specific exchange control issues which may arise (Part III).

Part I: Update on the reform of the Burkina Faso Mining Code

Mining activities are regulated by the following acts:

  1. Mining Code (subject to proposed amendments)1;
  2. Mining Decree regarding the management of authorisations and mining titles2;
  3. Mining Decree regarding prescribed tax and mining royalties3; and
  4. Mining Decree regarding model mining conventions (for industrial exploitation permits,  artisanal semi-industrial exploitation and exploration permits)4,

(together, the “Mining Legislation”).  However, the Mining Legislation is not exclusive legal  framework for mining activities. Other legal instruments that also regulate the mining activities  include the Agrarian and Land Reorganisation Act, Code of Public Health, the Water Management Act,  Tax Code, Customs Code, Code of Environment, Forestry Code and the Criminal Code (amongst others).

A bill amending the Mining Code was adopted by the Council of Ministers and submitted to the  National Assembly in December 2013. It was eventually withdrawn as a result of opposition from  mining operators. We understand from local counsel that the reform is still under discussion. A new  bill was adopted by the Council of Ministers on 15 October 2014 and was about to be re-submitted to  the National Assembly (with possible amendments) before the political unrest.

The main changes the mining bill makes are as follows5:

  • period of stabilisation of the tax and custom regime limited to 20 years (currently no  limitation) and duration of mining conventions reduced from 25 years to 20 years;
  • extension of the 10% free carried State participation in the exploitation company to industrial small scale mining permits.
  • additional optional State participation in the exploitation company on commercial terms to be  negotiated between parties (N.B: from a legal perspective, the mining sponsor can decline to agree terms and the State cannot force the issue);
  • creation of a “preferential” dividend for the State (paid to the State before any other  allocation of the distributable profit);
  • new 20% tax on capital gains on any transfer of mining titles (which doesn’t apply to transfers  of licences to subsidiaries before conversion into an exploitation licence);
  • a number of tax and customs exemptions or preferential rates currently applicable to holders of  exploitation licenses have been removed from the mining code (e.g. patent contribution, employer  and apprentice tax);
  • creation of a mining fund for local development and other funds partially financed by mining  taxes (up to 1% of the annual turnover of the mining company) (it remains unclear whether such  taxes have been maintained in the new bill); and
  • specific provisions on preference to local businesses and local employees.

Part II: Taking security in Burkina Faso

Burkina Faso has been a member of the treaty for the Organisation and the Harmonisation of Business  Law in Africa (“OHADA”) since 6 March 1995. The revised OHADA Uniform Act on Security Law (“Uniform  Act”) adopted on 15 December 2010 brought substantial changes to the existing security legislation,  making secured lending more streamlined and effective.

OVERVIEW OF RELEVANT SECURITY FOR MINING TRANSACTIONS

The Uniform Act allows lenders to take security over a broad range of assets in Burkina Faso;  however, it does not regulate all types of security (e.g. it does not cover security over mining  titles). The main problem with taking security in Burkina Faso remains the significant costs of registration. Under the Uniform Act there is no concept of a f loating charge covering all or most of a company’s assets. Generally, each type of asset is  subject to a specific security with different creation and perfection requirements. It is possible  to take security over future assets and to secure future debts if such future assets or future  debts are sufficiently identified.

The forms of security (in addition to foreign security law) include:

  • pledge of shares or financial instruments (nantissement de valeurs mobilières et comptes  titres);
  • pledge of professional equipment and vehicles (gage de matériel professionnel et de véhicules);
  • pledge of inventory (gage de stocks);
  • pledge over bank accounts (nantissement de compte bancaire);
  • security over receivables (cession/nantissement de créances);
  • cash collateral (transfert fiduciaire de sommes d’argent);
  • guarantee and surety bonds;
  • mortgages (hypothèque); and
  • security over mining titles / mining convention.

PERFECTION  PROCESS

Recent amendments to the Uniform Act have streamlined the perfection process. Since 2011, a public,  centralised computerised record for OHADA security interests has existed at all levels (local,  national and regional). The record is maintained by  the “Registre de Commerce et du Crédit  Mobilier” (“RCCM”) – of which Burkina Faso has its own office. Security interests must be  registered here in order to be enforceable against third parties. Depending on  the date of  registration, different priority rankings can be created over the assets, and security interests  can be recorded by any of the creditor, security agent or  the debtor.

The perfection process varies in respect of different security types; however, it can be summarised  as follows: (i) approval by the appropriate corporate entity; (ii) registration with the  appropriate local authorities (tax authorities and RCCM); (iii) for most security, notification to  the relevant pledged debtors or applicable banks.

The mortgage perfection process follows a different approach: a mortgage must be executed before a notary and registered with the tax authorities as  well as the relevant mortgage registry (conservation des hypothèques). On a practical level, the  perfection steps mentioned above can, in certain cases, cause certain difficulties (especially in  terms of delays).

It should however be noted that it is currently impossible to register a mortgage over a mining  title in Burkina Faso as no specific registry exists with which to register it.

COSTS OF PERFECTING SECURITY IN BURKINA FASO

The costs of taking security in Burkina Faso remain prominent despite the Uniform Act reforms.  These costs include:

  • a 1.05% fee calculated on the registered secured amount in relation to mortgages (and  notarisation costs to be determined on the basis of the secured amount); and
  • a fee equal to 1% of the registered secured amount in relation to security registered with the  RCCM. We have practical experience in how parties seek to address these costs.

ENFORCEMENT

Following recent amendments to the Uniform Act, upon an enforcement event, secured lenders in  Burkina Faso are (generally) vested with three options:

  1. the court-sale of pledged assets;
  2. a petition to court for appropriation of an asset; or
  3. the self-appropriation of the pledged asset without court order (if agreed between the parties  in the relevant security agreement).

SECURITY AGENT

An important Uniform Act introduction was to recognise the appointment of a security agent (agent  des sûretés). Similar to the Anglo-Saxon security trustee role, a security agent (a local or  foreign credit institution or bank (it cannot be a fund or a SPV)) can represent secured creditors  for virtually all matters related to security observations.

ARBITRATION

The role of arbitration has deep roots in Sub-Saharan Africa, including Burkina Faso, and forms or  arbitration have long played a central role in dispute resolution within the customary laws of  ethnic groups in the region. While the use of arbitration for commercial disputes has been more  limited, recent efforts have been made to promote arbitration to resolve commercial disputes. As a  result revised and modernised legal frameworks governing arbitration have been introduced, with  local arbitration centres becoming more prevalent and active. Burkina Faso is a signatory to the  following major arbitration conventions:

  1. The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards as  adopted on 21 June 1984, which is widely recognised as the foundation instrument of international arbitration which requires signatory states to recognise arbitration agreements made  in writing, and to refuse to litigate disputes subject to an arbitration agreement.  Signatory  states must also recognise and enforce arbitral awards, subject to certain exceptions or  reservations.
  2. ICSID Convention as adopted on 14 October 1966, which provides a system for settlement by conciliation and arbitration of investment disputes between host states and foreign investors.
  3. The OHADA Uniform Act on Arbitration which sets out the basic rules for any arbitration where  the seat of arbitration is an OHADA member state.

BILATERAL INVESTMENT TREATIES AND MEMBERSHIP OF INTERNATIONAL ORGANISATIONS

Burkina Faso has bilateral investment treaties with Belgium, Luxembourg, Guinea, Malaysia,  Netherlands and Switzerland. Bilateral treaties which are not yet in force relate to Benin, Chad,  the Comoros, Ghana, South Korea, Mauritania, Morocco and Tunisia.

Burkina Faso is also a member of the World Trade Organisation (since June 1995), the West African  Monetary Economic Union (whose currency is in CFA Franc)6 and the Economic Community of the Western  African States, together with several other regional organisations such as the Multilateral  Investment Guarantee Agency, the African Union and the New Partnership for Africa’s Development. 

Part III: Exchange control issues

The bank account/exchange control regulations stem from the Burkina Faso mining code and the West  African Economic and Monetary Union regulations. We are familiar with local practice in relation to  the interpretation of such regulations.

The main difficulties of structuring accounts in Burkina Faso in relation to gold mining projects  in particular are as follows:

  • proceeds of gold sales must be repatriated to Burkina Faso within one month of payment under  the relevant agreement;
  • the creation of an offshore account is subject to the prior authorisation of the Minister of Finance in Burkina Faso (and the granting of such authorisation may be subject to certain  conditions);
  • as a matter of practice, it is not possible to obtain authorisation from the Minister of  Finance to create more than one offshore account; and
  • most of the payments to be made into/out of  the onshore account must be made through an  authorised intermediary bank in Burkina Faso.

As a result, care has to be taken in the creation and subsequent operation of any account – onshore  or offshore.