Keywords: Mauritania, mining, New Model Mining Convention, tax,
Mining has long been intrinsic to the development and
progression of the North African country Mauritania, with income
from the exportation of iron ore, copper, gold and petroleum
contributing to more than a quarter of the country's gross
domestic product.
The country's mining industry is seen as a strategic asset in
its long-term growth strategy, and it remains attractive to
overseas investors, although recent reforms within the sector have
had a significant impact on its tax and legal framework.
New Model Mining Convention Law
The New Model Mining Convention Law passed on February 2012 is
designed to provide a standard and harmonised framework reflecting
the provisions of the Mining Code implemented in 2008, which will
serve as a basis for negotiation between the Mauritanian State and
investors.
Importantly for current and potential investors, this law specifies
that a standard mining convention which is not compliant with the
new model cannot be approved. Although this provision appears
particularly strict, there probably remains some room for
negotiation between the parties, especially if the mining
convention is ratified at a later stage by parliament.
The law also states that the administration remains free to decide
whether it is appropriate or not to negotiate and sign a mining
convention, but in practice major projects will require the
protection of a mining convention.
Expanding on a provision introduced in the Mining Code in 2009, the
New Model Mining Convention also now refers to the 10 per cent
"free participation" and optional maximum 10 per cent
additional participation in cash to be granted by the relevant
investor to the Mauritanian State in the operating company.
The New Model Mining Convention specifies that the 10 per cent
"free participation" mentioned above cannot be subject to
dilution in case of share capital increase, as is usual in other
African countries. Unfortunately, the new model does not provide
further details on the regime applicable to such participations
(issuance date, no priority on dividends, no application to
existing permits etc.)
To ensure investment in new mining sites benefits the local
economy, the new model also contains provisions on training and
placing a priority on employing local people. Similarly, the
regulation also ensures mines comply with environmental laws and
use national laboratory services.
Other significant provisions include a governmental right of prior
scrutiny, in case more than 10 per cent of shares of the operating
company are assigned, or its majority shareholders change.
From a tax perspective, the New Model Mining Convention suggests
that the 36 month "tax holiday" set out in the Mining
Code applies on the basis of the production level indicated in the
feasibility study provided for the purpose of the relevant
exploitation licence.
Should the investors decide to increase the production by 10 per
cent above the level specified in the feasibility study, the
standard tax regime would apply to the income generated by the
excess production. This is an example where provisions of the New
Model Mining Convention are more detailed than in the Mining Code
on which it is based.
To sum up, investors should take careful note of the New Model
Mining Convention, which is not a mere replication of such the
Mining Code. Therefore, careful review is essential to ensure
investors' future interests are protected.
The Mining Code Amendment
Investors should also familiarise themselves with the law
amending the Mining Code passed on February 2012, the second change
to the Mining Code since it was introduced in 2008.
In particular, this amendment sets out new royalty rates calculated
(for iron ore, gold and copper) on the basis of the international
market prices for the relevant minerals . For example, while the
previous royalty rate for iron ore was set at 2 per cent of the
production in the Mining Code, the new royalty rate is now 2.5 per
cent, if the iron ore is transformed into steel in Mauritania, or
ranging from 2.5 per cent (if the 'Steel Index Price is less
than $1000 per ounce) to 4 per cent (if the 'Steel Index Price
exceeds $1800 ounce) if the iron ore is exported.
From a tax perspective, the Mining Code Amendment sets a specific
10 per cent capital gain tax arising from transfers of exploitation
licences and also suggests a new mining training tax equal to one
per cent of the net income of the mining company will be created by
future regulations. This will obviously have a meaningful impact on
the economics of the operating company.
From a regulatory standpoint, this amendment states that the area
of the exploration licence will be automatically reduced by 25 per
cent upon each renewal of the licence. It also sets reduced maximum
surface areas for exploration licences (1,000 km² instead of
2,000 km² for iron ore).
In short, these latest reforms are consistent with the Mauritanian
government's intention to encourage investment in the country,
while at the same time trying to obtain its share of the benefits
generated by the mining industry.
Previously published in Mining Magazine, October 2012.
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