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Business News of Friday, 21 February 2020

Source: goldstreetbusiness.com

New mining bill tightens regulatory framework


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The impending new mining law, which will replace Act 730, in place since 2006, will see major tightening of the regulatory framework within which both exploration and producing firms operate.

The Minerals Commission has already completed its proposed amendments, most of which have been endorsed by stakeholder civil society organizations led by the British government funded Natural Resource Governance Institute (NRGI).

The proposals will now be formally presented to the Ghana Chamber of Mines – which will certainly protest many of the key changes – before being considered by cabinet and deliberated on by Parliament after which the bill will be passed into law.

While some of the proposed changes merely seek to keep up with new trends and the objectives of government – such as affirmative action towards bringing more women into the industry, others propose fundamental changes in the mining firms obligations to government and to host communities, which will translate into more benefits to both at the expense of the mining firms, and this is where the mining firms themselves can be expected to desperately seek to have them removed from the final law.

Perhaps the biggest change is the one whereby corporate social responsibility spending by mining producers will become compulsory rather than voluntary as obtains currently.

Section 42(3) of the draft law contains a brand new provision which states: “A holder of a mining lease shall sign a community development agreement (CDA) with the communities that may be impacted by mining operations of the holder within six months after the grant of a mining lease in a manner as prescribed in regulations.”

Martin Ayisi, Deputy CEO of the Minerals Commission (MinCom) explains that currently, while mining companies CSR spending is voluntary it is also tax deductible under Ghana’s tax laws. “This provision seeks to legalize it to put Ghana at par with other countries” he explains. He cites examples of other African countries that have made CDAs mandatory, including Kenya, Sierra Leone, South Africa, DRC, Guinea, Mali, Senegal, Burkina Faso, Tanzania and Ivory Coast among others.

MinCom has proposed that mining producers be made to set aside one percent of their annual revenues for this, whether they declare profits or not.

However, the mining companies can be expected to protest vehemently. Even those with dedicated foundations, such as Newmont and AngloGold Ashanti, will have to put aside a lot more for CSR than they are currently doing since, the new law will take CSR commitments from revenues rather than from net profits, and at a much higher rate than they do currently too.

Another major change will relate to stability agreements too, with the tenure of such agreements to be reduced from the current 15 years to just five years.

Ayisi explains that the whole idea of stability agreements, which prevent government from changing its fiscal regime as it relates to mining firms during their tenor, is to ameliorate risks – particularly those relating to project finance – incurred by investors, by ensuring that fiscal regime changes do not adversely affect the project economics.

However, he asserts, “most mining projects typically have a payback or capital recovery period averaging between two and five years”. He notes that DRC has reduced stability from 10 to 5 years in a new law passed in June 2018 and Kenya has proposed a period of five years too.

He also notes that the wording of the current mining law enables mining firms to extend stability well beyond fiscal issues to those of labour, environment, health and safety costs for instance, since it covers anything that can change their costs; mining companies can and indeed have taken advantage of the wording to ward off all kinds of changes in their costs including purely market driven changes.

Development agreements are to be abolished altogether since they have outlived their usefulness, as Ghana is now a mature mining jurisdiction with a robust mining regime. However existing development agreements signed with Newmont, Goldfields and AngloGold Ashanti will continue until they are renegotiated or they expire.

Another major change relates to the duration of prospecting (exploration) licenses. Currently, they are, in effect, open-ended because they can be renewed time after time. However, in the impending new law, a prospecting license shall not be renewed more than twice after the initial term of three years. Each such renewal cannot be for more than two years, bringing the total duration to a maximum of seven years.

This is to ensure that firms with exploration licenses actually use them rather than just leave them lying idle in the knowledge that they can be renewed until any time they get around to actually doing exploration work. Again MinCom gives examples of other African countries applying this strategy such as South Africa (maximum of 8 years), Namibia, (7 years), Kenya (9 years), Burkina Faso (9 years), and Uganda (7 years) among many other similar examples.

Importantly, the new law will make available to the public information relating to all mineral rights, stability agreements and any other agreement, license or permit granted in relation to a mineral right, as well as annual revenues of mining firms – including royalties, corporate taxes and dividends paid to government.

This is in line with the new Extractive Industries Transparency Initiative (EITI) standards of which Ghana is a signatory. Again MinCom lists lots of African countries already making its mining contracts public.

Here however is one of the few areas where NRGI is not satisfied, despite its appreciating the progress offered under the new proposals. But NRGI wants such contracts to be done through open tender so civil society can suggest inputs and amendments before a contract is signed rather than just being informed after the fact.

All these changes, and many more being proposed in the draft new mining law will make for a much tighter operating regime for Ghana’s mining industry, which will favour the State and the host communities, but will be vigorously protested by the mining firms, who will find life considerably harder in Ghana.

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