New rules: Changes to the mining code are expected before the end of 2013

The Emerging Gabon strategy is aiming to foster more exploration and production in the mining sector, as well as expansion of local downstream processing capacity. A new mining code under development over the past two years is expected to pass Parliament by the end of 2013 with no major surprises for mining firms, although, as in many other mineral-producing countries, fiscal production terms are being revisited.

Other changes include the creation of the Société Equatoriale des Mines (SEM) in 2011, which now acts as the manager of the state’s stakes in some existing, and all future, mining projects. Meanwhile, the restructuring of the Directorate of Mining and Geology, segregating the exploration and production functions, is set to be completed in 2013.

STATE STAKE: Striking a balance between optimising public interest in mining projects and attracting foreign investment will be key to attaining medium-term objectives. “Gabon remains a greenfield proposition despite the need to continue testing mining operations for greater potential. The priority is to encourage exploration and the mining code should avoid setting too many restrictions on investors,” Thomas Pucheu, vice-president of the Mining Union of Gabon (l’Union Minière du Gabon, UMIGA), told OBG.

The SEM already holds stakes in two of Gabon’s three producing mines: 28.9% in the Moanda manganese mine and 25% in the Bakoudou gold project. One of the major new provisions under the 2013 mining code is the formalisation of this equity role in all producing projects, with the mandatory award of a 10% stake to SEM and the option for the state firm to acquire up to 25% more at market prices. While this clause will not be retroactive, SEM expects to exercise moral suasion through negotiations with China’s Compagnie Industrielle et Commerciale des Mines de Huazhou to acquire at least 10% in its operation.

EXPLORATION IMPACT: The new code brings only minor changes to existing exploration rules. The right to prospect is valid for three years and the licence can be renewed twice, while the area eligible for a subsequent exploration licence is reduced from 2000 sq km to 1500 sq km, with a maximum of three per company (down from four). The maximum permit area for diamonds is set at 5000 sq km, with a ceiling of two permits. Firms bidding for an exploration permit are required to incorporate a subsidiary locally, with an office in Gabon, in advance of permit award.

More restrictive is the potential for sanctions for any firm that suspends its work programme for more than three months, prompting reservations from UMIGA. “Junior mining firms have a short window of opportunity to carry out exploration, given their financial constraints. The number of permits they can apply for should not be too restricted and the authorities should encourage joint ventures and partnerships in this regard. An exploration project can take up to 10 years from the greenfield stage until feasibility,” said Pucheu.

PRODUCTION & PROCESSING: More significant revisions affect production contracts, although much remains to be defined. With an effective government take of around 60% (inclusive of para-fiscal provisions such as the various fund contributions), these fiscal terms remain in line with the African average for royalty and tax structures, according to UMIGA. The new rules add contributions to two new funds. The Industrial Responsibility Fund will require contributions of 0.75-1% of turnover during the production phase, aimed at compensating victims of any catastrophe after the mining firm has left. The second, the Social Responsibility Fund, will be split into two provisions, one for diversified investment funded by a 1.125% of turnover to support social infrastructure, and one for mining investment funded by a 2.6% fee, aimed at developing the local supply chain, training and downstream processing. All existing mining contracts – typically 10 years for gold and 30 years for manganese – include stability clauses that freeze existing fiscal terms. Significant new provision aims at requiring mining companies to process some of their production in Gabon.