The Parliament of Côte d'Ivoire adopted a new mining code (the "New Code") on March 5, 2014.
Growing up in Côte d'Ivoire, I recall the daily television program unfailingly ending with a Government-sponsored announcement stating: "the success of this country rests on agriculture". The New Code marks a strategic shift for the Ivorian Government as, presumably inspired by the success of neighboring countries such as Ghana and Burkina Faso, it attempts to diversify its agriculture-based economy and take advantage of its rich mineral endowment.
Côte d'Ivoire does have a few things going for it. According to sources, more than a third of the Birimian Greenstone Belt (the mineral-rich geological formation stretching from Ghana to Senegal which has made Burkina Faso and Ghana leading mining jurisdictions in Africa) is located in Côte d'Ivoire. As well, its relative abundance of rivers and access to power (including hydropower) stands as a comparative advantage for Côte d'Ivoire. In addition, the country appears to be stabilizing politically. This however all means little without the existence of a legal framework satisfactory enough to give investors the confidence to deploy capital in the country.
With the New Code, Côte d'Ivoire aims to update its mining legislation so as to render it consistent with current best practices and attract mining investment into its burgeoning mining sector.
The New Code was the product of extensive consultations between industry and the mining ministry. Some of the earlier iterations included concepts such as windfall taxes or production sharing agreements. In the end, the New Code appears to be a document representing a consensus of the mining community, mining ministry, and other stakeholders.
Our sources have indicated that members of Parliament have requested that certain articles be rewritten. However, the requested changes appear to be rather minimal, and it is expected that once these changes are made, the approval of the New Code will be forthcoming.
In accordance with common practice in civil law jurisdictions, mining codes are typically accompanied by application decrees ("Application Decrees"), which comprise the mining regulations which, for purposes of understanding the legal requirements in a particular jurisdiction, are as important as the actual mining code.
The Application Decrees have yet to be adopted, however, and it is expected that the Government of Côte d'Ivoire will move quickly to ensure they are enacted. They will include some of the more contentious provisions including royalty rates, the structure and management of the local community fund, and details on the mining convention.
The existing mining code dates back to July 1995 (the "1995 Code"). In connection with the adoption of the New Code, Fasken Martineau was engaged to perform a diagnostic study of the 1995 Code on behalf of the Côte d'Ivoire Government, and also provided input with respect to the New Code.
We set out below some of the highlights of the New Code.
Highlights Of Côte D’ivoire’s New Mining Code
- Exploration Permits: the majority of mining codes in West Africa subscribe to the 3X3X3 format, whereby a company is granted an exploration permit for 3 years, subsequent to which it is entitled to renew it twice for 3 years each, subject to the relinquishment of half of the permit area upon each renewal. The New Code provides for a 4X3X3 format (4 years, with 2 possible renewals of 3 years each). This change was implemented to accommodate base metal producers who took the view that exploration for base metals is more labor intensive and requires more time. It should also be noted that renewals will be subject to the relinquishment of ¼ of the permit area, as opposed to the more typical relinquishment of ½ of the permit.
- Eligibility Requirements for Exploration Permits / The Issue of Speculation: the eligibility requirements to apply for an exploration license in the majority of African jurisdictions is "technical and financial capability". This term is however oftentimes undefined, and in practice, the threshold for obtaining an exploration permit is usually quite low. In an effort to reduce what is commonly referred to as "speculation" (i.e., companies or individuals who acquire permits with a view to resell and not complete the legally prescribed work on the property), the New Code requires applicants to demonstrate the completion of a minimum of two exploration projects in the two previous years, and to have an exploration manager with at least 7 years of experience who has managed a minimum of 2 projects. The New Code further requires the applicant to demonstrate financial capability by providing account statements of an account held at an Ivorian bank pursuant to the requirements to be established in the Application Decrees.
- Nationality Requirement: the majority of current mining codes in Francophone Africa do not require that the holder of an exploration permit be a national of the country. This is intended to encourage exploration. The New Code requires companies applying for exploration permits to be incorporated in Côte d'Ivoire.
- Mining Permits: the application for a mining permit is subject, among other things, to the completion of a feasibility study, including an environmental impact assessment plan and a socio-economic impact assessment plan. The mining permit is granted for the life of mine as set out in the feasibility study subject to a maximum period of 20 years. The mining permit may then be renewed for 10-year periods. It should be noted that the New Code allows the holder of a mining permit to apply to suspend operations for a 2-year period (renewable once for one year) in case of unfavorable market conditions or force majeure. Moreover, pursuant to the New Code, a mining permit is a real property right, and may therefore, subject to the Mines Minister's approval, be mortgaged, such as in the context of a bank financing.
- Carried Interest: mining permits are subject to the grant of a 10% free carried interest in favor of the Government in the share capital of the project company, which is standard in most Francophone African mining codes. In addition, the Government may acquire up to 15% of the shares of the project company, provided however that the acquisition of the additional shares will be at market price and subject to negotiation between the parties.
- Mining Royalties: the rates of mining royalties are not specified in the New Code. They are expected to be included in the Application Decrees. The indication we have received suggest that the royalties will be in the form of a sliding scale royalty, which in the case of gold will depend on its spot price. The sliding scale royalty is a clever mechanism, as when coupled with tax stability, it allows for companies to have reasonable certainty with respect to the fiscal regime for the life of their projects, but also allows the Government to benefit from increases in commodity prices. It represents an interesting compromise between profit-based royalties and conventional ad valorem royalties.
- Tax Stability: the New Code provides for tax stability. The fact that it is built in the law is significant, as it underscores the intention of the Government to reassure investors in respect of tax stability. However, tax stability in a contractual setting is oftentimes more valuable to investors. In this regard, the expectation is that a tax stability provision will be provided for in the model mining convention.
- Mining Convention: one of the novelties of the New Code is the mining convention to be entered into within 60 business days following the grant of a mining permit. Pursuant to the New Code, the details of the mining convention will be set out in the Application Decrees. One of the questions is whether the mining convention is going to in standard form to be adopted by mining companies with no possible derogation (as is the case in Burkina Faso) or whether it will be open to negotiations. It is the author's view that this aspect is going to be critical.
- Tax Incentives: in order to compete with countries such as Burkina Faso and Ghana which presumably have more established mining industries, Côte d'Ivoire included a number of fiscal incentives in the New Code, including inter alia, VAT relief for imported goods, an income tax holiday for the first five years as of commercial production and reduction of land and water use taxes.
- Local Community Fund: in an effort to ensure that local communities benefit from mining, the New Code requires holders of a mining permit to prepare a community development plan and an investment plan in consultation with the local communities. The holder is also required to set up a fund in which it is to contribute to annually in order to realize socio-economic development plans. The details of this fund are to be set out in the Application Decrees.
- Equator Principles and ITIE: the New Code states that the holder of an exploration or mining permit undertakes to comply with the Equator principles and with the Extractive Industry Transparency Initiative. Côte d'Ivoire is EITI compliant, which means that it has completed at least one reconciliation report checking revenues paid by companies to governments, and also effectively passed a validation report, where the process which produces reconciliation reports is put under review.
- Local Content and Capacity Training: holders of mining permits are required to give priority to qualified Ivorian firms, to establish training programs for local firms, and to contribute to the capacity building of the mining administration. Details on the above are to be set out in the Application Decrees.
- Exchange Controls: holders of mineral permits are allowed to (i) open and operate bank accounts in local or foreign currency in Côte d'Ivoire, (ii) receive abroad all funds acquired or borrowed abroad with the exception of revenue from the sale of their production which must be repatriated to Côte d'Ivoire, (iii) transfer abroad dividends. In practice, some miners have expressed concerns with the way exchange controls actually work. It remains to be seen whether the New Code will set the tone for a more satisfactory exchange control regime from the miners' perspective.
- Rehabilitation Fund: the New Code requires mining companies to set up a bank account as of the beginning of the mining phase in order to cover environmental costs. This is analogous to a rehabilitation and reclamation bond. This provision was welcomed by environmental groups and is consistent with stricter environmental requirements in the new generation of mining codes.
As stated above, the New Code will become effective after the amendments requested by Parliament are adopted. As well, it is evident that we will only get the true flavor of the mining legislation once the relevant Application Decrees are adopted.