LEX Africa recently held a mining webinar, during which renowned expert mining lawyers from member law firms from South Africa, Mali, DRC, Ghana, Zambia and Tanzania discussed the latest mining trends within their respective countries. These knowledgeable speakers, who have a deep understanding of mining law and the practice thereof also highlighted investment opportunities and some of the challenges their countries are facing in this sector.
The areas they discussed included ESG and sustainability, minerals of the future, mineral beneficiation and the illegal mining issues their jurisdictions are contending with. The webinar was chaired by Athi Jara, a director at Werksmans in the mining and resources team.
Focus on ESG and sustainability
Athi Jara kicked off the webinar by noting that during the recent African Mining Indaba in Cape Town, the South African Minister of Mineral Resources and Energy said there is a renewed focus on ESG and sustainability by the global investment community and it is estimated that $50 trillion will be invested in ESG assets in Africa. “This is a third of the global estimate of assets under management, which is $145 trillion.”
Charles Mkokweza, managing partner and partner in charge of energy, resources and infrastructure at Corpus Legal Practitioners, in Lusaka,Zambia said, “We don’t have a specific comprehensive ESG code, but ESG has been trending and we have evidence of it in various statutes.”
He said this includes corporate law, which places certain duties on directors of companies including mining companies. And there is employment legislation that places certain expectations on all companies, such as adequate housing or payment of a housing allowance.
“Then we have the Mining Act itself, which places certain obligations on mining companies, such as preference for local products and services, and is creating a standard in terms of how the environment is protected by the mining companies, and the extent of liability for the impact of mining activities,” said Mkokweza. So in a nutshell, he said, ESG has become a lot more pronounced in Zambia, and it is a signatory to the Extractive Industries Transparency Initiative (EITI), which obligates mining companies to disclose how much tax they are paying as an aspect of ESG.
In addition, he said, in terms of activism, there is a push towards requiring mining companies to be accountable. “We recently had a case where one big mining company owned by Vedanta was sued in the UK, but the impact of the judgement was on its Zambian mining operation. The UK court ruled that the holding company was responsible for environmental damage even if it’s happening outside of the UK’s jurisdiction. This has triggered a few more cases that are Zambia specific and are based on ESG.”
In terms of assets that are ESG compliant in Zambia, most of the large-scale mining is initiated and orchestrated by Western-based companies that are already following the ESG compliance regime. “So we don’t have much of an issue with compliance in Zambia because of that. But we do have smaller, medium scale operators that are not as compliant as the western owned companies, said Mkokweza.
ESG has also been a recent thing in Mali, said Mamadou Coulibaly, tax and business law attorney at Satis Partners in Bamako, Mali. “In 2019 we had a new mining code, and since then Mali has placed a greater emphasis on the environment and community development than with previous codes.
“We also have all these global mining companies that have their own policies.” So it’s a mix now and the mining companies have to comply with some environmental provisions, he said.
“In the new mining code for example, we have introduced new funds dedicated to local development and that fund is 20% contributed to from all the mining revenues given to the government and 0.5% of a mining company’s revenues are supposed to be reallocated to the development of the local communities around the mining site.
“In addition, any change in the governance of the mining companies must be reported to the state under penalty,” he said. Mali is a signatory of the Kyoto Protocol and the Paris Agreement.
Seyram Dzikunu, partner, energy and infrastructure at Bentsi-Enchill, Letsa & Ankomah, in Accra, Ghana said, “We also don’t have a comprehensive ESG law or requirement, but you will find traces of it in our various legislation.” For example, she said, Ghana’s mining code and its Companies Act, passed in 2019, provide extensive governance reporting for companies.
“We also have our labour laws that provide extensive employee relationship and responsibilities for taking care of employees. And our environmental law, provides environmental protection, and prevention of pollution and it requires mining companies to provide annual environmental management reports.”
Ghana is also a signatory to the Kyoto Protocol and the Paris agreement. And in its efforts to support the Paris Agreement in 2021, it submitted an update of nationally determined principles and contributions and is hoping that the update will help it to reduce the impact of climate change and develop the economy sustainably, said Dzikunu.
She said the ministry of environment and science and technology is responsible for coordinating the update and the nationally determined principles (NDC). “We also have the environmental protection agency which is responsible for tracking the reporting requirement that Ghana has stated in its NDC. And we have recently set up a carbon registry to help with the compliance of article 6, which requires reduction of carbon emissions.”
The carbon registry will help Ghana to quantify any greenhouse emissions for projects, monitor these projects as to how they are reducing emissions and issue carbon credits on related projects. The country is also establishing a market to be able to trade carbon credits.
She added that the stock exchange has recently come up with an ESG reporting code for how listed companies should be reporting and provides a guide for other companies that are not listed.
In the Democratic Republic of Congo (DRC) there is increased awareness of ESG in industry and government, in relation to its huge potential for environmental issues, said Pathy Liongo, founder and managing partner of PLA Associates in Kinshasa. “They made certain commitments to COP 27, but as with the other jurisdictions, we don’t have comprehensive legislation yet, although you will find provision across several laws, which are relevant. In industry there is more and more discussion around ESG matters.” He said NGOs are pushing for people to realise the risks and opportunities regarding ESG, and DRC has a significant stake in the supply chain.
Because of its position as a mining jurisdiction there are a lot of risks and opportunities regarding ESG and because of that there have been conferences and discussions between the industry and the government to deal with ESG matters and how to seize the opportunities available, said Liongo
He said DRC has signed the Kyoto Protocol and Paris Agreement and the Mining Code itself includes a lot of provisions including the social impact of projects, protection of local population, certain obligations that apply to licence holders from the beginning of the operations to production to closing mines.
It also has an environmental law that contains certain obligations that apply to the mining sector. “The Labour Code has a small number of provisions that are relevant to ESG, the corporate law not so much. But if you put all those provisions together you have a body of obligations and requirements applicable to the mining industry in terms of ESG.” He added that the government has made commitments to address all aspects of ESG.
Chris Stevens, director at Werksmans Attorneys in Johannesburg, said
ESG is a big issue in SA, especially in the financing of projects. “We have a massive coal mining industry, and the ability to raise financing with the banks for coal mining projects is difficult. Many of the banks have stopped financing coal mining because of the related ESG issues.”
He said, regarding legislation, there is not much in the way of ESG. “We have onerous environmental legislation, which goes hand in hand with the mining legislation. Probably one of the most onerous in the world.” But that is impacted by the illegal mining that is going on, which has no regard for the environment. He said most of the mining companies are adopting first world standards and onerous requirements for environmental protection.
He said South Africa is also advanced in dealing with the social aspects of mining, and those who don’t comply with their social obligations risk losing their licence. “We also have a sophisticated governance regime, and the Companies Act is very stringent. So our legislation deals with ESG to a large extent.”
Athi Jara, director at Werksmans in the mining and resources team added to Stevens comments about South Africa, “We currently have a Climate Change Bill that is before parliament which tackles a number of issues, especially flowing from South Africa’s international commitments under the Kyoto Protocol and the Paris Agreement. And in 2019 the government enacted the Carbon Tax Act, which identifies specific sectors whose activities result in greenhouse gas emissions and imposes a carbon tax.”
She said the buzzword right now in South Africa is the idea of ‘just transition’ widely spoken about in the media, about the move from being a coal-fired electricity generation country towards more renewable energy. “But the concern is what then happens to the coal industry? What happens to whole towns that operate around coal mines? The economic activities and job creation there. And we currently have an energy crisis right now in SA, with load shedding.”
Minerals of the Future
Werksmans’ Athi Jara introduced the second webinar topic on minerals of the future by referring to the growing demand for minerals such as lithium, copper, rare earths and nickel. “South Africa recently published a strategy document that looks into the exploration of these minerals. And the Department of Mineral Resources is now trying to put measures in place to provide easy access to investors that are looking to explore these minerals.” She then posed the question to the participating members as to what has the response been to the demand for these minerals of the future. And how can their jurisdictions better position themselves to fully explore the potential?
Bentsi-Enchill’s Seyram Dzikunu said, “In Ghana we have discovered some of these minerals, such as lithium, and although there is no legislation that is directed at these minerals our existing mining laws are extensive enough to cover this. So the government is pushing to make sure that the discovery by Atlantic Lithium starts production in 2024 and is assisting them in every way possible to enable the exploration activity to start.
“Ghana has also set up a mineral income investment fund. The objective is to take the investment income – from the interest that it has in various mining companies – and use that revenue to invest in these new minerals and other mining assets.” The hope of the fund is to put the resources into these new minerals that have been discovered so that the country is able to take equity in these private companies and invest the income from this into new mining assets.
“Right now there is a plan to invest about $30 million of the minerals investment fund in Atlantic Lithium projects. So Ghana will be a beneficiary of the income derived from that project. It’s not going to be like the other minerals were of not putting anything in but just relying on the interest that the law provides for it. So we are positioning ourselves to be able to make more from the resource.”
She said the government is also trying to provide policies and guidance to the set of industries that will be able to process and use these new minerals, “So that we can benefit more from them than we have from other minerals for the past 100 years.”
South Africa does not have specific legislation in place for minerals of the future, but some projects are starting up, said Werksmans’ Chris Stevens. For example, in Northern Natal there is a major lithium project. “And I am embroiled in a dispute where there are three different applicants competing for the same rights.” With regard to rare earths there are two projects the current owners are trying to get up and running involving cantilan rare earth of which South Africa has one of the biggest deposits in the world outside of China, said Stevens. The problem with these projects is that they are far from any infrastructure, so it’s expensive to get the product to the port. They are both in the Northern Cape. “The other issue is nuclear radiation, which seems to be present in some of these rare earth deposits. So one has to deal with the waste and the related onerous environmental legislation,” he said.
DRC has most of the sought-after minerals, including lithium, cobalt, and coltan, and it is trying to position itself as a significant player regarding minerals of the future, said PLA Associates’ Pathy Liongo. “The government has been taking a few initiatives, firstly with the mining code, and then declaring certain minerals as strategic ones and increasing the percentage of royalties on them.” He said plans are also afoot to become a producer of the batteries for which the minerals are produced.
Another initiative has been taken regarding artisanal cobalt, because the government has identified that there are big quantities being produced by artisanal miners. “The initiative is being undertaken by the state-owned company Gecamines whereby the artisanal miners sell the cobalt to that corporation and it will export it.”
The president is saying that DRC is a solutions country. The strategy is to develop a local transition industry so that DRC can have a stake in the global commodities directly, said Liongo. “And they have been reaching out to the likes of Samsung and others to say come and buy directly from us and develop a local industry to make batteries etc.”
On this topic, the LEX Africa members participating in the webinar were asked for their views on beneficiation as a means to grow the economies of African countries. They were also asked to indicate how their jurisdictions are addressing and responding to the issues of beneficiation, the challenges they face in creating a successful beneficiation industry, and whether any government policies have been published regarding mineral beneficiation.
Beneficiation is good, because it adds value to the minerals before they are exported or used for the domestic market and it is estimated that it can add more than 50% to the value of minerals, said Theophil Romward, advocate at FB Attorneys in Dar es Salaam. “This will generate revenues for the countries and add benefit in terms of employment opportunities, and technology transfer.”
He said Botswana is one of the countries that have benefited from beneficiation in the diamond sector, and studies show that beneficiation of diamonds has enabled Botswana to create more than 3000 jobs. “It is one of the largest manufacturing sectors in Botswana. So in my mind beneficiation enables African countries to grow their economy and maybe diversify the mining sector.”
He said Tanzania reformed its mining sector in 2017, which now contains provisions to restrict the exportation of raw minerals, under the Mineral Wealth and Resources Act. “So Tanzania is moving towards having beneficiation within the country.”
The country has not been able to benefit from its tanzanite resources because of low processing standards, and there has been a reluctance from mining companies to establish beneficiation plants in the country, said Romward.
In terms of policies and laws, the government is committing itself to supporting the private sector within the country and cooperating with regional and international organisations to enable beneficiation in the country. In 2017 there was a total ban on exporting raw minerals. However, there is provision for the exportation of raw minerals, although those companies will not receive the benefits that are given to those who promote local products in the external markets. “This indicates that there are circumstances where raw mineral can be exported.”
In 2018 the Minister for Minerals promulgated the Mining Beneficiation Regulations, whereby minerals may be exported to an extent without being beneficiated 100%. “In my view maybe this takes care of the situation where a company does not have beneficiation facilities in the country. If there is a total restriction then perhaps no one will be interested in establishing facilities in the country” said Romward.
Despite these challenges Tanzania has positioned itself better to change the pattern of exporting all minerals in their raw state, he said. “I think this is a good indication of moving towards a future where we are beneficiating minerals in the country providing we invest in establishing beneficiation facilities, and create an environment to attract investors to come into the country to establish beneficiation facilities.”
In the DRC, the government has restricted the exportation of the minerals in concentrated form, said PLA Associates’ Pathy Liongo. “There is an obligation to process raw minerals locally, which is a challenge because we don’t have the technology, so the process of transformation is slow to come, but licences are available and are being issued. The strategy is to at least have the processing and transformation done locally. So it’s both in the law and in the government policy to attain local beneficiation of the minerals,” he said.
Zambia has walked the journey of beneficiation before, said Corpus Legal Practitioners’ Charles Mkokweza. “We have a 55-year history of trying to achieve that and learning some lessons in the process.” He said back in 1968 the government set up a fabrication company for copper, known as Zambia Metro Fabricators.
“The whole idea was to ensure that a good portion of the copper that was exported should be fabricated into finished products so that exports are more valuable. But unfortunately, things have not turned out that way,” said Mkokweza.
He said a study by the World Bank in 2011 on how the approach to beneficiation should be taken revealed that it would take five things to build a beneficiation initiative. These were access to market, access to raw materials, access to capital and finance for capital equipment, access to skills, labour and technology, and profitability.
“For Zambia, access to market was a big challenge. Unlike raw copper that is exported and you know where it’s going, in terms of finished products there were a lot of variables. Beneficiation make sense when it’s closer to the market or it’s established where the market is.
“So most investors in this space would look for a jurisdiction where the market consumes the finished product. And capital is cheaper outside Africa. Investors need to know there is easy access to skilled labour, up to date technology and access to beneficiation.”
He said Zambia and DRC have worked together to create an industry that will consume the finished product. “So in April 2022, the two countries signed an agreement to create a value chain for the copper and cobalt produced within the region, which is in the order of 90% to 95% of the continent. The US has acceded to that agreement and is willing to provide both technical and financial support, and an MOU was signed in December last year.”
He said the two countries recently signed a funding agreement with an arm of the United Nations for economic development for Africa to fund a pre-feasibility study to establish how a special economic zone can be established across the two countries in a collaborative way to create this market, so that the countries are not so dependent on the export market.
“This is an opportunity for those invested in the battery market especially to see how they can participate, because it’s more of a collaborative effort. And it’s not just about DRC and Zambia, but I suspect it will be predicated in other parts of Africa where the minerals are.”
Bentsi-Enchill’s Seyram Dzikunu said, “We do not have a beneficiation industry yet in Ghana. But over the past few years, the government has been trying to push the development of refineries and industry to improve raw minerals. And two gold refineries have been set up.” One is an Egyptian company called the Gold Coast Refinery, which is supposed to be one of the first and biggest gold refineries in West Africa.
“We also have the Royal Gold Refinery, which has been set up with an Indian company and a precious minerals company which is a government agency. They are all hoping that with this will stop the country from exporting raw mineral resources and will refine some of them before exporting them.”
However, she said, the large mining companies are hesitant to use these refineries because of issues of ESG and governance reporting and their ability to sell these resources on the international markets. “These refineries do not have the international certification standards needed to process the minerals.”
She said the government has asked these companies to get ready, because it is going to exercise its right to ask for a portion of these minerals to be refined in the country. So they are trying to conduct due diligence on the new refineries to ensure they meet the standards required so that they can sell their product on the international market.
In terms of their copper and cobalt endowment, it doesn’t make sense for Zambia to set up a processing plant for finished products when DRC is exporting the primary product to markets that have been established for a long time, said Corpus Legal Practitioners’ Charles Mkokweza. “There has to be a paradigm shift. We have to work together to create the economic zones, create the market and have some level of control.
If you have a local market for what you are producing that should help and export comes after that. That’s why it makes sense to create a beneficiation industry, because there is a certain level of control you have over the market,” he said.
“But if the reliance is just for the export, the dictates of the international market make it difficult for you to rely on how profitable it will be. We have platforms as Africa where we can start to build a regional framework.”
Werksmans’ Chris Stevens said, “South Africa has quite sophisticated legislation dealing with beneficiation of the most lucrative minerals. The precious metals act regulates the export of precious metals and gold and the biggest platinum refineries in the world are in South Africa, and there is Rand Refinery for gold.”
He added that the Diamonds Act strictly regulates the export of unpolished and uncut diamonds and a certain portion have to be beneficiated locally. However, there are no real regulations for any other types of minerals, although regulations are in the process of being enacted.
Satis Partners’ Mamadou Coulibaly, said Mali has major issues with illegal mining. “One of these is gold panning, which is a traditional way to exploit gold in our country. This can lead to illegal occupation of mining sites and issues with the owners of the mining titles, especially international companies.
“We have a special unit under the Minister of Mines to help the mining companies deal with these issues.” He said this activity is mostly done by the local communities around the mining sites, and the mining companies cannot build an army to protect themselves.
“So they should look for a way to inform the government and look to their ESG projects to mitigate the risk of the illegal occupation of their mining sites. We used to have mining companies exploiting gold from the rivers. This has been banned by the mining code, but a lot of illegal activity with dredging for gold on the rivers is still happening, which causes a lot of environmental issues. “It’s an ongoing issue due to the poverty in our country,” said Coulibaly.
Werksmans’ Athi Jara said South Africa has also grappled with the issue of illegal mining. “A policy document released by the Department of Mineral Resources estimates that the country has lost some ZAR70 billion due to illegal mining in the gold mining industry. Last year the country published the Small-Scale Mining and Artisanal Policy to deal with this issue.”
The recording to this webinar can be found here: https://youtu.be/vkxL-Fl-PJw