Mining developments: New regulatory changes are part of ambitious long-term targets

The mining sector is a key pillar of Côte d’Ivoire’s economic diversification strategy due to both its high potential for foreign investment and government revenues and its currently low level of development. Much of the modest attention the mining sector has received thus far has been focused on gold and, to a lesser extent, manganese and diamonds which, until recently, were banned from exportation by the United Nations. However, the country has sizeable reserves of other metals and minerals, particularly bauxite, nickel, copper and iron ore.

Although 35% of the Birimian Greenstone Belt, a mineral-rich geological formation crossing the West African region, is situated within the country’s borders, it produces less than 5% of the belt’s total output, adding a modest 1% to Côte d’Ivoire’s economy, compared to 30% from the agricultural sector.

Neighbouring Ghana, meanwhile, which sits on some 19% of the belt, consistently ranks among the world’s largest gold producers. Minerals production among other countries along the belt, including smaller economies such as Burkina Faso, Guinea and Mali, also outrank Côte d’Ivoire.

A New Framework

In March 2014, the national parliament passed a new mining code, following two years of public and private sector consultations. The progress made is part of President Alassane Ouattara’s administration’s stated ambition of raising the mining sector’s contribution to GDP to 8% by 2030. The reasons for the timing of the new code are manifold, ranging from the several years of prolonged political unrest that dampened economic growth to a lack of cohesive policy planning in the initial period that followed. To help stimulate the sector, the regulatory framework was revised with the objectives of increasing foreign investment; modernising the legal, Customs and tax framework in line with regional and international standards; and accounting for the expectations of the government and of communities in terms of the mining’s contribution to development.

Among the key amendments that the new legislation stipulates is an extension of the duration of exploration permits from seven to 10 years, with the option to extend by two, 12-month periods. Meanwhile, the maximum exploration surface area was reduced from 1000 sq km to 400 sq km, with the aim of facilitating a larger number of operations.

Incentives

In a bid to further entice investors, a number of “investment-friendly” components have been integrated into the new rules.

First, government suggestions of windfall taxes were dropped in the final stages of the process, while the government set up a scaled ad valorem tax aimed at capturing a more significant portion of revenue, as it increases according to commodity price variations during production. Meanwhile, the authorities also introduced a series of tax and Customs incentives for exploration as well as production, which provide operators in Côte d’Ivoire with a comparative advantage to those in other countries in West Africa.

Additionally, the new legislation reinforced rules regarding community development, environmental protection and the industry’s participation in training and capacity building in Côte d’Ivoire, and created mandatory funds dedicated to these factors.

According to government sources, the law will also bring improved transparency, a key point of criticism of the old regime. As such, the text stipulates that any civil servant with access to specific types of data and information related to the mining sector is prohibited from taking a direct or indirect interest in mining and mining services for up to five years following the conclusion of their appointment. Disclosure standards will be further improved by the country’s compliance with the guidelines of the Extractive Industries Transparency Initiative, a globally accepted certification for full disclosure of public revenues from extractive industries, since early 2014.

Initial reactions from industry players have been largely positive. “The new mining code is a big step forward; it makes our mining sector much more attractive,” Nouho Koné, then chairman of Côte d’Ivoire’s Mining Association, declared to local media shortly after the government’s announcement of the law. Operators also lauded the close collaboration with the private sector throughout the legislative process.

“Investors are deterred by the political and infrastructural risks associated with Africa, but in Côte d'Ivoire we have shown how these challenges can be overcome by a true partnership between a mining company, the government and the people,” Mark Bristow, CEO of Randgold Resources, a UK-based mining company operating the largest number of concessions in the country, declared to local media.

New Finds

The regulatory progress fortuitously coincides with a number of promising new finds. In January 2014, British operator Amara Mining announced the discovery of a deposit of high-quality gold at Yaouré, near Yamoussoukro, estimated at 6.3m oz, placing it among the country’s largest reserves. The project is expected to generate significant investment, with the economic benefits of the project to be outlined in a feasibility study to be completed in early 2015. Around the same time as Amara’s discovery in 2014, Canadian mining company Endeavour Mining started operations on the Agbaou project, the country’s fourth producing gold mine. Its annual output is estimated at 100,000 oz, bringing Côte d’Ivoire’s national total output up to 20%.

Diversification Options

Meanwhile, the government is hopeful of increasing production of various other minerals such as manganese, with reserves estimated by the government at 18m tonnes, as well as iron-ore at 4bn tonnes and nickel at 40m tonnes.

Following successful negotiations early in 2013, China National Geological and Mining Corporation and Côte d’Ivoire’s state mining company Society for Mining Development in Côte d’Ivoire (Société pour le Developpement Minier de la Côte d’Ivoire, SODEMI) extracted the first manganese from the Lauzoua mine, located 180 km west of Abidjan, in April 2013. Annual domestic production was projected to reach 300,000 tonnes for 2014, up from 245,500 tonnes in 2013, according the state company.

The new facilities would lead to a tripling of manganese output, with scope for further upside growth. At present, the country’s only producing manganese mine is the Bondoukou project, owned by the Indian group Dharni Sampda. The project, which is located on the country’s border with Ghana, produced around 250,000 tonnes in 2012. Forecasting on these and upcoming operations, SODEMI expects that national annual production can be increased to around 1m tonnes by the end of 2016.

A Ways To Go

While optimism on the passage of the new mining code and additional exploration and production activity dominate the segment, concerns remain about the implementation of the new legislation. One critical item is uncertainty over the manner in which the code’s guidelines will be applied.

Exploration companies have also expressed concerns about the new requirements for exploration permits including minimum investment and capitalisation obligations, as well as stringent conditions of technical and financial capacity not generally in line with the practice of junior companies. “Such requirements make investors wary, not only as the recent slide in the gold price has put margins under pressure, but also it fails to reflect a sound understanding of the working of the global mining industry,” Koné told OBG.

Exploration budgets follow a gradual allocation to allow for adaptation to the quality and quantity of new finds. “The key is to allow operators to control their exploration funding,” Koné added. Another issue is the lack of cadastral efficiency, which has been left out of the scope of the new regulations. At the time of writing, Côte d’Ivoire had a total of 22 permits outstanding, but investors are faced with lengthy procedures to request the details. “The cadastre is the entry point for many new investors; it is therefore crucial that efficiency and responsiveness are guaranteed. We have some ways to go here,” Koné said.

Prospects

The passage of the new mining code is a significant step in the country’s wider ambition to develop a globally competitive and diversified mining industry. Consultation with the private sector has been a noteworthy contributor to its positive reception by mining companies during the definition of the guidelines, but if such optimism is to be maintained, similar practices will need to be ensured during its application. In the longer run, aside from regulatory reform, successful mineral diversification will require additional transportation networks in Côte d’Ivoire and improvements in both mining finance markets and global commodities prices. Plans for the development of a more robust regional rail connection linking Côte d’Ivoire with Burkina Faso and Benin are promising signs, and the mining sector should also benefit from additional infrastructure from the creation of new power plants and the extension of the Abidjan port or the construction a dedicated mineral terminal.