IL U4Lsf 1stqq2 WORLD BANK TECHNICAL PAPER NUMBER 181 AFRICA TECHNICAL DEPARTMENT SERIES trat2ey fair Affncain Mamin Mining Unit, Industry and Energy Division X rN21 >SUp0 RECENT WORLD BANK TECHNICAL PAPERS No. 117 Barghouti, Timmer, and Siegel, Rural Diversification: Lessonsfrom East Asia No. 118 Pritchard, Lending by the World Bankfor Agricultural Research: A Review of the Years 1981 through 1987 No. 119 Asia Region Technical Department, Flood Control in Bangladesh: A Plan for Action No. 120 Plusquellec, The Gezira Irrigation Scheme in Sudan: Objectives, Design, and Performance No. 121 Listorti, Environmental Health Components for Water Supply, Sanitation, and Urban Projects No. 122 Dessing, Support for Microenterprises: Lessons for Sub-Saharan Africa No. 123 Barghouti and Le Moigne, Irrigation in Sub-Saharan Africa: The Development of Public and Private Systems No. 124 Zymelman, Science, Education, and Development in Sub-Saharan Africa No. 125 van de Walle and Foster, Fertility Decline in Africa: Assessment and Prospects No. 126 Davis, MacKnight, IMO Staff, and Others, Environmental Considerations for Port and Harbor Developments No. 127 Doolette and Magrath, editors, Watershed Development in Asia: Strategies and Technologies No. 128 Gastellu-Etchegorry, editor, Satellite Remote Sensingfor Agricultural Projects No. 129 Berkoff, Irrigation Management on the Indo-Gangetic Plain No. 130 Agnes Kiss, editor, Living with Wildlife: Wildlife Resource Management with Local Participation in Africa No. 131 Nair, The Prospects for Agroforestry in the Tropics No. 132 Murphy, Casley, and Curry, Farmers' Estimations as a Source of Production Data: Methodological Guidelines for Cereals in Africa No. 133 Agriculture and Rural Development Department, ACIAR, AIDAB, and ISNAR, Agricultural Biotechnology: The Next "Green Revolution"? No. 134 de Haan and Bekure, Animal Health in Sub-Saharan Africa: Initial Experiences with Alternative Approaches No. 135 Walshe, Grindle, Nell, and Bachmann, Dairy Development in Sub-Saharan Africa: A Study of Issues and Options No. 136 Green, editor, Coconut Production: Present Status and PrioritiesforResearch No. 137 Constant and Sheldrick, An Outlookfor Fertilizer Demand, Supply, and Trade, 1988/89-1993/94 No. 138 Steel and Webster, Small Enterprises under Adjustment in Ghana No. 139 Environment Department, Environmental Assessment Sourcebook, vol. I: Policies, Procedures, and Cross-Sectoral Issues No. 140 Environment Department, Environmental Assessment Sourcebook, vol. J:: Sectoral Guidelines No. 141 Riverson, Gaviria, and Thriscutt, Rural Roads in Sub-Saharan Africa: Lessons from World Bank Experience No. 142 Kiss and Meerman, Integrated Pest Management and African Agriculture No. 143 Grut, Gray, and Egli, Forest Pricing and Concession Policies: Managing the High Forest of West and Central Africa No. 144 The World Bank/FAO/UNIDO/Industry Fertilizer Working Group, World and Regional Supply and Demand Balances for Nitrogen, Phosphate, and Potash, 1989/90-1995/96 No. 145 Ivanek, Nulty, and Holcer, Manufacturing Telecommunications Equipment in Newly Industrializing Countries: The Effect of Technological Progress No. 146 Dejene and Olivares, Integrating Environmental Issues into a Strategyfor Sustainable Agricultural Development: The Case of Mozambique No. 147 The World Bank/UNDP/CEC/FAO, Fisheries and Aquaculture Research Capabilities and Needs in Asia: Studies of India, Thailand, Malaysia, Indonesia, the Philippines, and the ASEAN Region (List continues on the inside back cover) WORLD BANK TECHNICAL PAPER NUMBER 181 AFRICA TECHNICAL DEPARTMENT SERIES Strategy for African Mining Mining Unit, Industry and Energ Division The World Bank Washington, D.C. Copyright ©3 1992 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing August 1992 Technical Papers are published to communicate the results of the Bank's work to the development community with the least possible delay. The typescript of this paper therefore has not been prepared in accordance with the procedures appropriate to formal printed texts, and the World Bank accepts no responsibility for errors. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. 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Permission to copy portions for classroom use is granted through the Copyright Clearance Center, 27 Congress Street, Salem, Massachusetts 01970, U.S.A. The complete backlist of publications from the World Bank is shown in the annual Index of Publications, which contains an alphabetical title list (with full ordering information) and indexes of subjects, authors, and countries and regions. The latest edition is available free of charge from the Distribution Unit, Office of the Publisher, Department F, The World Bank, 1818 H Street, N.W., Washington, D.C. 20433, U.S.A., or from Publications, The World Bank, 66, avenue d'I6na, 75116 Paris, France. ISSN: 0253-7494 In the Africa Techrical Departinent of the World Bank, John E. Strongman is the Head of the Mining Unit, Ernst Bolte is senior economist, Peter Fozzard is senior geologist, Peter van der Veen is principal mining engineer, and Micheline Mescher is a consultant. Philip Daniel is a fellow at the Institute of Development Studies at Sussex University in the United Kingdom. Keith Suttill is associate editor of Engineering and Mining Journal in London. Library of Congress Cataloging-in-Publication Data is available. Library of Congress Card Number 92-24426 AFRICA TECINICAL DEPARTMENT SERIES Technical Paper Series No. 122 Dessing, Support for Microenterprises: Lessons for Sub-Saharan Africa No. 130 Kiss, editor, Living with Wildlife: Wildlife Resource Management with Local Participation in Africa No. 132 Murphy, Casley, and Curry, Farners' Estinations as a Source of Production Data: Methodological Guidelines for Cereals in Africa No. 135 Walshe, Grindle, Nell, and Bachmann, Dairy Development in Sub-Saharan Africa: A Study of Issues and Options No. 141 Riverson, Gaviria, and Thriscutt, Rural Roads in Sub-Saharan Africa Lessons from World Bank Experience No.142 Kiss and Meerman, Integrated Pest Management and African Agriculture No.143 Grut, Gray, and Egli, Forest Pricing and Concession Policies: Managing the High Forests of West and Central Africa No.157 Critchley, Reij, and Seznec, Water Harvestingfor Plant Production, vol. II: Case Studies and Conclusions for Sub-Saharan Africa No. 161 Riverson and Carapetis, Intermediate Means of Transport in Sub-Saharan Africa: Its Potential for Improving Rural Travel and Transport No. 165 Kellaghan and Greaney, Using Examinations to Improve Education: A Study in Fourteen African Countries No. 179 Speirs and Olsen, Indigenous Integrated Farming Systems in the Sahel Discussion Paper Series No. 82 Psacharopoulos, Why Educational Policies Can Fail: An Overview of Selected African Experiences No. 83 Craig, Comparative African Experiences in Implementing Educational Policies No. 84 Kiros, Implementing Educational Policies in Ethiopia No. 85 Eshiwani, Implementing Educational Policies in Kenya No. 86 Galabawa, Implementing Educational Policies in Tanzania No. 87 Thelejani, Implementing Educational Policies in Lesotho No. 88 Magalula, Implementing Educational Policies in Swaziland No. 89 Odaet, Implementing Educational Policies in Uganda No. 90 Achola, Implementing Educational Policies in Zambia No.91 Maravanyika, Implementing Educational Policies in Zimbabwe No. 101 Russell, Jacobsen, and Stanley, International Migration and Development in Sub-Saharan Africa, vol. I: Overview No. 102 Russell, Jacobsen, and Stanley, International Migration and Development in Sub-Saharan Africa, vol. 1: Country Analyses No. 132 Fuller and Habte, editors, Adjusting Educational Policies: Conserving Resources while Raising School Quality No. 147 Jaeger, The Effects of Economic Policies on African Agriculture: From Past Harm to Future Hope Foreword The mining sector is an important World mining activity is largely carried out by the source of tax revenues and foreign exchange which private sector and, in particular, international are essential to Africa's economic recovery. enterprises that have built-up the necessary Artisanal mining provides a living for nearly one technical, managerial and financial capabilities to million miners and their families in over thirty find new deposits and to successfully develop countries. Commercial-scale mining takes place in them. African producers, both small and large nineteen countries, accounting for nearly one-half alike, must be competitive if they are to survive of exports, one-third of tax receipts and one-tenth . and prosper. If there is to be a significant of overall economic activity. The continent is well improvement in mining sector growth, Africa has endowed with mineral resources. Africa has world to align itself more closely with conditions that class deposits and is a major producer of minerals mining companies and governments have and gemstones such as bauxite, cobalt, copper, developed in the rest of the world. There is a diamonds, manganese, rutile and uranium. growing awareness among African governments Furthermore, geological studies indicate that the that reform measures are needed to open up the region has a much greater mining potential than is sector to attract private investors. But, presently being realized. But, over the past twenty government officials are faced with the questions years, new exploration and mining development of how to start, what regulatory and institutional has lagged behind progress in many other parts of framework is needed, how to protect against the world. Africa has failed to mobilize the possible negative environmental and social necessary risk capital and investment funds needed impacts, and how to ensure they receive adequate for sound and orderly mining development. compensation for the resources which are extracted and exported? This report examines the reasons for This report is addressed to the demise of Africa's mining performance, and Governent officials, donors, academics, the proposes a strategy for accelerating mining sector development community at large and the investors growth so that the sector can make a greater themselves. It proposes a mining sector contribution to economic activity in the region. development strategy which is aimed at The report draws heavily on the experience of establishing an enabling environment that World Bank mining work in Africa as well as ecognishing and inmest of other regions. The report includes an analysis of recognizes the legitimate needs and interests of mining legislation and taxation arrangements in both governments and investors and encourages five countries which have been relatively best practices for environmental protection. In successful in attracting new private sector mining p larar, it outlines regulatory and fiscal investment. It also makes use of the results of a a survey of the decision making processes and objectives of investors and the revenue objectives criteria of over forty mining companies regarding of government and proposes institutional exploration and investment in developing arrangements to provide effective implementation. countries. At various stages, key insights and It also provides proposals for regularizing and findings from the report have been reviewed and strengthening artisanal mining. If successful, the discussed on a selective basis with industry strategy should lead to a doubling or even tripling discusse ponia setinves basis, in dustr of the present level of exploration and mining experts, potental vestors, mi nterested government development expenditures by the end of the 1990s, officials andthaadmwhich should raise the growth rate of mining from The bulk of mining production is 1 to 2 percent per year at present to 5 to 10 exported from Africa to international markets. percent per year over the next decade. Ismail Serageldin Director Technical Department Africa Region CONTENTS Executive Summary x 1 Current Situation of African Mining 1 Importance of African Mining 1 The Past Performance and Future Outlook for Africa's Mining Sector 4 Industry Structure and the Role of State Mining Enterprise 6 The Policy Choice 9 2 The Mineral Potential of Sub-Saharan Africa 11 Importance of Exploration 11 Regional Geology 12 Comparison of Similar Geological Terranes 13 Required Exploration Financing 14 3 Attracting the Investor 16 Investor Perceptions 16 Implications for Development 18 Lessons from Other Countries 20 4 The Regulatory Framework 21 Mining Codes 21 Mineral Rights and Licences 23 Model Agreements 25 5 Economic and Fiscal Policy 27 Economic Policy 27 Tax Policy 28 The Tax Package 31 vii 6 Institutional Reform 35 The Five Core Institutions 35 Reform of State Mining Companies 39 Artisanal Mining 42 7 Infrastructure and Environment 46 Infrastructure 46 Environment, Health and Safety 47 8 Agenda for Africa 52 Introduction 52 Actions by Governments 53 Actions by the Bank and the Other Donors 54 Annexes Annex 1 - Africa - Ownership and Management of Mfining Producdon in 1989 56 Annex 2 - Africa Country Assessments: Potential and Exploration Requirements 59 Annex 3 - Investnent Environments for Mining in Selected Countries 69 Bibliography 75 Bank Publications by the Industry and Energy Division, Africa Technical Department 77 External Publications of Industry and Energy Division Work 78 viii WEIGHTS AND MEASURES AND ACRONYMS 1 Metric ton (mt) = 2,205 lbs APT - Additional Profits Tax CAR - Central African Republic CBG - Compagnie des Bauxites de Guin6e CDM - Consolidated Diamond Mines Limited CODELCO - Corporacion Nacional del Cobre de Chile coW - Contract of Work GECAMINES - Generales des Carrieres et des Mines du Zaire EDC - Export Development Corporation EEC - European Economic Community EFIC - Export Finance Insurance Corporadon ICSID - International Center for the Settlement of Investment Disputes ICC - International Chamber of Commerce MAR - Mining Annual Review MDA - Mining Development Agreement MIGA - Multilateral Investment Guarantee Agency OBK - Office des Bauxites de Kindia OPIC - Overseas Private Investment Corporation SSA - Sub Saharan Africa SGMC - State Gold Mining Company Limited SNIM - Socete Nationale Industrielle et Minere UNDP - United Nations Development Program USBM - United States Bureau of Mines WBMS - World Bureau of Metal Statistics ZCCM - Zambia Consolidated Copper Mines ix EXECUTIVE SUMMARY Introduction This report examines the reasons for Africa falling behind in the world mining industry Miningl' can provide important benefits in and attempts to define what African governments, terms of exports, foreign exchange earnings and donor countries, international development tax receipts to support economic recovery and institutions, in particular the World Bank, and growth in Africaz'. mining companies need to do to encourage new Mining now provides about one-third of exploration and investment in mining, so that the non-oil exports and one-fifth of total exports for sector can contribute more to the economies of the region as a whole. Commercial-scale mining African countries. has developed in nineteen3-' African countries, The main finding of the report is that the where it averaged forty seven percent of exports, recovery of the mining sector in Africa will thirty percent of fiscal receipts and ten percent of require a shift in government objectives towards GDP in 1989. a primary objective of maximizing tax revenues While mining has an important from mining over the long term, rather than contribution to make, over the past thirty years pursuing other economic or political objectives the growth of African mining production has such as control of resources or enhancement of lagged behind that of other regions. Significant employment. This objective will be best achieved mining growth has taken place in only a handful by a new policy emphasis whereby governments of African countries. Mining development has focus on industry regulation and promotion and been constrained by insufficient mineral private companies take the lead in operating, exploration and investment. Although Africa managing and owning rmineral enterprises. That accounts for twenty one percent of world land is not to say that only investors should benefit mass and its mineral resources are known to be from mining. But in the new policy environment, large, the continent today attracts only about five governments should obtain a fair share of the percent of the exploratdon and capital economic rent of the sector through fiscal expenditures of the world mining industry. This arrangements that are stable, competitive and fair, under-performance of Africa's mining sector and rather than through ownership and operation. consequent loss of economic opportunity prompted this study. Situation of African Mining Mining is a global industry. The paucity of exploration and capital expenditures in Africa Upon independence, most governments is not caused by a worldwide absence of demand seeking to stress their sovereignty over mineral for minerals or lack of investment funds. Mining resources imposed rules and regulations which is not a declining industry. Demand projections frequently precluded profitable investment by the indicate that future consumption growth rates of private sector. In many cases governments most major metals and minerals will continue to nationalized or took controlling interests in mining be positive and will equal or exceed the growth enterprises and then, as operators, proceeded to rates of the past two decades. Mining investments manage them for control and maximum short-term are being made successfully elsewhere in the rent collection rather than for long-term growth. world. So far, Africa has failed to mobilize the Mining revenues were largely diverted to support necessary risk capital and development funds to increased consumption, and in some cases were match that progress. skimmed for personal gain, instead of being used x for reinvestment for the expansion of mining or of In countries such as Botswana, Gabon, other sectors of the economy. Ghana, Guinea and Niger, new mining The large state-controlled enterprises development has been successful mainly due to which dominate mining today in several African the formation of joint-ventures between the countries have generally declined in performance. private sector and government. These They are subject to government intervention for joint-ventures are managed by the private partner purposes often unrelated to efficient performance who generally operates under an investment and their operations tend to be less productive agreement which provides the private investor than those of private companies. Insufficient with explicit guarantees against unreasonable reinvestment in maintenance and modernization government interference. Mining development has resulted in aging operations which are no has also been successful in Namibia, Sierra longer competitive or able to respond flexibly to Leone, and Zimbabwe where major mining changes in market conditions. companies are fully owned and operated by The public sector orientation of mining private investors. policies also supported a dramatic increase in Countries in Africa as well as in other uncontrolled informal mining in many African regions with active and expanding mining sectors countries. A significant level of precious metals show many differences in the policies which are and gemstone mining in Africa is currently successful in attracting mining investrnent. There performed by unregistered artisans who export are, however, important common factors: stable most of their production illegally. African and transparent reguladons which clearly spell out governments do not receive any tax revenues and the rights and obligation of the investor and the the environmental costs of illegal artisanal mining government; a competitive and well-structured can be considerable. fiscal regime which provides an adequate return to While many African governments investors and a fair share to the government; concentrated on operating state companies, the assured access to foreign exchange at market rates mining sector support institutions, including the for dividend repatriadon as well as operational Ministry of Mines, the Geological Survey and the needs; and effective support and monitoring of institutions responsible for mine safety and private mining investment by well-organized environmental regulations, became increasingly government institutions. less effective because of declining expertise and Given Africa's substantial mineral operating resources. Because of this, many resources, successful implementation of macro- African governments are now unable to effectively economic adjustment programs and effective interface and negotiate with private investors and private sector oriented mining policies, African thus cannot take advantage of the opportunities countries can attract a substantially increased which would arise from a renewed interest by share of world mining investment. This is the international mining companies in African mining. necessary condition for revitalizing mining in Africa and returning to strong sustained growth. What Could be Achieved However, the pipeline of viable projects ready for development is small, due to the long-term neglect In contrast to countries with excessive of exploration. The few projects in an advanced state control of their mining industries, a small stage of preparation are largely in those African number of African countries where private countries which performed well in the past. management and ownership predominate has been The majority of African countries with successful in effectively utilizing the mineral mining potential, however, needs a substantial potential. In most cases, international mining increase in exploration expenditures before major companies have provided the management and new mining projects can be initiated. A doubling technical capabilities and mobilized the necessary of exploration expenditures in Africa from the financing for projects to be identified and present estimated US$125 million per year to implemented. US$250 million per year would be an achievable xi target in the next few years. A more challenging Agenda for Mining Development in the 1990s exploration target would be US$500 million per This report holds that African mining can year, which could realistically be achieved by the overcome its current difficultes and return to end of the 1990s. Such an amount would be close vigorous growth. To achieve this objective, to the current exploration levels in Canada and interatonal mining companies have to be Australia. motivated to substantially increase their This report identifies sixteen African investrnent in Africa for both expansion of countries that should be given immediate priority existing operaions and for exploration and for exploration investment by private mining development of new mines. During the more investors. Given the mineral potential and the immediate future, international mining companies capa bility to absorb investments, Namibia, Zaire, can also take a major role in the restructuring and and Zimbabwe would each merit exploration rehabilitation of mining operations which are expenditures of over US$20 million per year; currently state-owned. Angola, Botswana, Ethiopia, Ghana, While international mining companies Mozambique, Sudan and Zambia each US$10-20 would be the main sources of investment and million per year; and Burkina Faso, Gabon, operating expertise for new mining development Guinea, Kenya, Madagascar and Tanzania each in Africa, bilateral and multilateral donors, US$5-10 million per year. Smaller amounts are including the World Bank group, can encourage warranted in priority zones or areas of seven governments to develop well defined mining other countries namely: Burundi, CAR, Cote policies. Specific assistance by donors should d'Ivoire, Mali, Nigeria and Rwanda. focus on helping African governments: to update An increase of exploration expenditures in mining and investment legislation and tax Africa in the next few years to US$250 million regulations; to strengthen institutions responsible per year combined with the implementation of a for supervising the mining sector; to train staff in small number of exisdng viable projects should be government institutions for improving their an early objective. In the second half of the capabilities to administer the mining code and 1990s, African mining production could steadily negotiate agreements with investors; to privatize increase by 2 to 4 percent per year or more. The parastatal mining companies; and to establish data suggested exploration expenditures of US$500 bases and promotion programs to attract potential million annually could result in five to ten new investors. Donors could also support mineral projects-with total capital cost of about governments in the design and implementation of US$1,000 million-each year from the late 1990s technical assistance programs for artisanal miners. onwards. As international mining companies will Together with needed annual replacement take the lead in investment financing within investment of another US$1,000 million the total private-sector led mining development, investment long-term exploration and investment financing by donors would concentrate mainly on requirements would approach US$2,500 million mining projects which require a government per year, about fourteen percent of the current financial contribution in order to attract private world total. Such an investment volume should financing. Donor lending for investment may be raise the annual growth of African mining most supportive in the financing of government production to 5-10 percent per year in the next participation or infrastructure in new joint-venture decade. Investment expenditures of US$2,500 mines with majority private partners. Overall, the million per year in Africa are well within the main objective of donor intervention in African capabilities of the international mining companies mining-whether through technical assistance or and, provided government institutions are being investment financing-should be to facilitate strengthened, can also be absorbed without major private investment and help reduce the country- problems by the African countries. and project-related risks for the private investor. xii While donor organizations can support in * The incentives for mining investors reviving African mining, the main responsibility should be clearly determined in for achieving the needed changes rests with the investment legislation. Taxation of African governments. Only the African mining companies should be governments can create a policy environment consistent with the taxation of other which will attract private investment to mining. sectors in the economy, but should If governments continue to follow a "business-as- take the specific nature of mining as usual" policy, increased investment will not a resource-based industry into materialize and mining will continue to stagnate. account. Mining taxes should be Effective measures by African govermnents, earnings-related rather than output- or however, would overcome the past: such input-related to avoid distorting measures would cover reforming economic and investment and operational decisions. sector policies, strengthening sector institutions Mining taxation needs to take account and improving exploration and investment of tax levels in other mining countries promotion. to maintain or establish The study analyses in detail the specific competitiveness of the national actions which African governments need to take. industry. The study suggests the following agenda of government action for the 1990s: * Mining legislation should reduce risk and uncertainty for potential investors * Economic adjustment programs and ensure easy access to exploration should continue to evolve. In African permits and mining concessions. countries with important mining Permits and concessions should be sectors the macroeconomic effects of transferrable with a minimum of mining must be fully taken into government interference. Investment account. Exchange rate policies agreements, where required, should should be market based and should be provide additional assurances to aimed at economic stability. Trade protect the investor from unwarranted regimes should not be restrictive. government interference, and provide additional safeguards for the e Governments should clearly spell out government to ensure that investors their mining development strategies. will live up to their obligations. The private sector should take the lead. Private investors should own * Mining institutions-Ministry of and operate mines. The government Mines, Geological Survey, should promote private investment, environmental protection and mine establish policies and regulations, safety institutions-in most African supervise implementation of countries should be reorganized and established policies, and monitor the strengthened to better perform their private companies. promotional, regulatory and monitoring functions. Government * Existing state mining companies institutions should discontinue should be privatized at the earliest operational and marketing functions. opportunity to improve productivity of the operations and to give a clear * Environmental, health and safety signal to investors with respect to the aspects of mining in Africa have been government's intention to follow a neglected in the past. To ensure private-sector-based strategy. sustainable mining development, xiii appropriate regulations and standards Legalization and improved need to be established together with organization of artisanal mining effective monitoring and enforcement would generate income in rural areas capabilities. and provide revenue to the government. Incentive-based marketing systems would reduce * Artisanal mining requires special illegal exportation of minerals by attention by African governments. unlicensed traders. 1/ In this report mining includes all non-fuel minerals, gemstones and uranium but excludes coal, oil and gas. 2/ Africa is used as an abbreviation for Sub-Saharan Africa. Sub-Saharan Africa is defined exclusive of the Republic of South Africa unless otherwise noted. 3/ Angola, Botswana, Burkina Faso, Central African Republic (CAR), Gabon, Ghana, Guinea, Liberia, Mali, Mauritania, Namibia, Niger, Swaziland, Senegal, Sierra Leone, Togo, Zaire, Zambia and Zimbabwe. xiv CURRENT SITUATION OF AFRICAN MINING Importance of African Mining excludes The Republic of South Africa) holds a greater than 10 percent market share in six minerals-bauxite, copper, cobalt, manganese, Mining in the Sub-Saharan Africa (SSA) rutile and uranium-and a 37 percent share of region is important to the world, now accounting world diamond production as illustrated in Table for about 8 percent of world mine production. 1.1. It also holds more modest shares, between For the purpose of this report, mining includes 2 to 10 percent, of nine other minerals and non-fuel minerals, gemstones and uranium; it metals, namely asbestos, chromite, lead, lithium, excludes coal, oil and gas. The region (which iron ore, nickel, tin, phosphate rock and zinc. Table 1.1 Africa - Major Mineral Producers and Share of World Mine Supply 1989 Volume of Selected Minerals Copper Bauxite Rutile Diamonds Manganese Ore Cobalt Uranium TERMS 000 MT 000 MT MT 000 Cts. 000 MT MT 000 MT Angola ___ 1,272 Botswana 22 15,251 CAR 447 Gabon 2,600 900 Ghana 382 290 280 Guinea 17,547 230 Namibia 38 932 3,629 Niger - - _ 2,962 Sierra Leone 1,562 128 600 Swaziland 55 Zaire 430 17,652 8,314 Zambia 445 4,490 Zimbabwe 16 Total SSA 951 19,491 128 36,729 2,880 12,804 7,491 World Supply 9082 107,963 450 98,500 22,100 19,867 35,586 SSAShare 11% 18% 28% 37% 13% 64% 21% Source World Bank estimates derived from various sources including Government data, World Bureau of Metal Statistics (WBMS), U.S. Bureau of Mines (USBM) Annual Yearbooks and Mining Annual Review (MAR). The total value of African exports of non-fuel important in Guinea, Zambia, and Zaire. Five minerals, gemstones and uranium is estimated at minerals accounted for 81 percent of the value of US$9,000 million in 1989, of which about African recorded mineral exports: copper US$8,200 million is recorded mining exports and (US$2,700 million), diamonds (US$2,600 approximately US$800 million unrecorded million), gold (US$800 million), bauxite (US$400 artisanal production which is particularly million),and uranium (US$500 million),Table 1.2. Table 1.2 Africa - Value of Mineral Exports Summnary 1989 (Millions of US$) Diamonds Lead/ Manga- Phosphate Copper Bauxite Ore Gold and Gems Zinc nese Ore Nickel Tin Cobalt Uranium Rock Misc. Tota Angola 230 230 Botswana 60 1,300 140 1,500 Burkina Faso 30 30 CAR 40 40 Gabon 175 50 225 Ghana 5 150 15 15 185 Guinea 400 45 55 130 630 Liberia = 200 200 Mahi 25 25 Mauritania 180 180 Namibia 125 10 320 60 10 250 25 800 Niger 230 230 Senegal 80 80 Sierra Leone 25 10 55 90 Swaziland I _ 20 _ _ 10 30 Togo 115 115 Zaire 1,245 30 250 90 15 170 1,800 Zambia 1,230 40 70 1,340 Zimbabwe 30 10 175 _ 110 85 410 Others 15 10 15 20 60 Total Formal 2,690 430 390 4S0 2,250 190 190 250 40 240 530 195 325 8,200 ArtisanaV __ Informal 300 500 800 Total SSA 2,690 430 390 780 2,750 190 190 250 40 240 530 195 325 9,000 a/ Over 95 percent of SSA's mineral production is estimated to be exported and available statistics do not readily permit a separation of the value of production and the value of exports. Note: Excludes aluminum exports of about US$300 million from Ghana and Cameroon Source: World Bank estimates derived from WBMS, USBM Annual Yearbooks, MAR and World Bank country reports and data files. 2 Although mineral production is widespread, The benefits of commercial-scale mining mining of particular minerals is concentrated in a are notable for nineteen African countries. limited number of countries. Zambia and Zaire Mining accounts for over seventy percent of account for 69 percent of world cobalt and 12 exports in Botswana, Guinea, Namibia, Zaire and percent of world copper mine production; Guinea Zambia, and provides important benefits in fifteen is the world's second largest bauxite producer; other African countries. Mining provided 47 Sierra Leone the world's second largest rutile percent of exports, 30 percent of fiscal receipts, producer; Zimbabwe the third largest producer of and 10 percent of GDP for these nineteen asbestos; and Gabon the third largest manganese countries in 1989, Table 1.3. For Sub-Saharan producer. Three African countries, Gabon, Africa as a whole, mining provides about one- Namibia and Niger, account for 24 percent of third of non-oil exports and one-fifth of total world uranium production. exports. Table 1.3 Africa - Economic Contribution of Mining for Selected Countries in 1989 Formal Mining Exports Mining Value MineralTaxes Mining as % of Total Addedas % as % of Exports Export GDP Total Taxes (US$ Million) % Zaire 1,798 83 16 35 Botswana 1,506 83 51 58 Zambia 1,337 95 13 16 Namibia 799 76 29 36 Guinea 627 82 25 72 Zimbabwe 411 26 6 n.a. Niger 232 75 6 16 Angola 230 8 2 n.a. Gabon 225 16 5 n.a. Liberia 200 58 n.a. n.a. Ghana 186 23 2 n.a. Mauritania 181 41 10 n.a. Togo 115 22 8 n.a. Sierra Leone 89 80 6 5 Senegal 76 10 1 n.a. CAR 40 25 3 n.a. Burldna Faso 33 15 1 n.a. Swaziland 30 10 1 n.a. Mali 25 9 1 1 Total 8,140 47 10 30(a) (a) estimate Source: Bank staff estimates derived from World Bank country reports and data files. 3 Table 1.3 demonstrates that governments In Botswana, high quality diamond can obtain very significant transfers from the deposits were discovered in the 1960s and 1970s mining sector not just for countries with state- and subsequently developed and mined in a joint- owned mining industries, but also from countries venture between the Government and De Beers, with private-controlled mining sectors. In 1989 with the private partner having the operational the three countries where mineral taxes made the, control. In Guinea, high quality bauxite deposits largest contribution to the overall tax base were found and developed in the 1960s and early (namely: Botswana, Guinea and Namibia) all had 1970s by a consortium of international aluminum privately controlled mining industries. companies. The mining company, Companie Furthermore, the tax transfers for these three Bauxite de Guinee is also a joint-venture between countries were very significant in absolute terms the Government and the consortium with the amounting to US$1,050 million in 1989. private partners having operational control. In These three countries, Botswana, Guinea Namibia, the two major mining operations are the and Namibia are prime examples of countries CDM diamond operation and Rossing Uranium which have encouraged mining development by owned and operated by De Beers and Rio Tinto foreign mining companies and which have Zinc respectively. benefited considerably from doing so. While the minerals being mined and the legal arrangements The Past Performance and Future Outlook for differ from country to country, major mining Africa's Mining Sector operations have been established in each country under conditions which provide stability and While mining in Africa is important on a profitability for the mining companies and world scale, Africa's share in world mineral significant taxation receipts and foreign exchange production except for bauxite, uranium and rutile earnings for the countries. has fallen since 1960, as illustrated in Figure 1.1. Figure 1.1 Africa's Share of World Production for Selected Minerals and Metals Sham (%) 100 2 0 .. .. .................................... ...... 0 Industrial Gem Cobalt Copper Chromite Monga- Tin Asbestos Bauxite Uranium Rutli Diamonds Dimonds 1 w 1 Note: World - excluding centrally planned economies. Source: World Bank staff esimates derived from various sources including WBMS, USBM Anmal Yearbooks and MAR. 4 A comparison of the value of production should return to or exceed the average growth and exports for ten minerals and metals-bauxite, rates for the past two decades which have been in alumina, aluminum, copper, iron ore, lead, zinc, the range of 1 to 2 percent per year. International nickel, tin and gold-shows that Africa has lagged development of viable, new mining operations is far behind Latin America and Asia as illustrated not constrained by a lack of demand or shortage in Figure 1.2. World consumption of most metals of financing. Supply projections (based on known and minerals slowed and stagnated during the projects and expansions) indicate that the 1990s 1980s in response to world economic difficulties should be a period of sustained growth for the and structural changes in the industdalized mining industries of Latin America and Asia. But countries followng the two world oil crises. Africa is expected to continue to lose ground However, metal and mineral consumption unless major changes occur, Figure 1.2. The recovered at the end of the 1980s resulting in a outlook for Africa is not constrained by expected strong minerals market boom in 1990. world demand growth for minerals and metals, World Bank projections indicate that but by the ability of African producers to compete demand for most metals and minerals in the global market place. Figure 1.2 Comparison of Mineral Production in Africa, Asia and Latin American-Caribbean for Eight Selected Minerals and Metals 1960-2000 loss use x 16(s) z AFRICA z ASIA LAC 14 12- 10 _ . 1960 1970 1980 1987 2000 Note: Actual and projected gross value for productdon of aluminum, copper, iron ore, zinc, nickel, lead, tin and gold. Source: Derived from data in Price Prospects for Major Primary Commodities, World Bankc (various issues) and World Bureau of Metal Statistics (various issues). 5 Industry Structure and the Role of State value of production and exports increased from Mining Enterprises US$2,500 million to US$3,400 nillion in the same period (an increase of only about 36 The bulk of Africa's mining growth in the percent). It must be emphasized that the past thirty years has taken place in privately- definition of control used here does not refer to operated mines, including several which are joint- whether or not the state was majority owner. ventures between governments and private Rather it refers to whether the state took a passive investors. From 1960 to 1989, the value of role and permitted a private sector company to production and exports from prvately-operated manage the mines or whether the state took mines (mostly diamonds, bauxite, and uranium) control and managed the operations through a increased by about nearly 350 percent from state-owned parastatal mining company. US$1,400 million in 1960 to US$4,800 million in A country-by-country analysis of Sub- 1989 (both in 1989 terms), Table 1.4. Saharan African mining shows that the industry is highly concentrated. Three enterprises with Table 1.4 Africa - Value of Mineral Exports in exports above US$1 billion per year account for 1960 and 1989 Produced by Different Types of about half the total formal mining exports: Enterprises Debswana (Botswana), Gecamines (Zaire) and (US$ Million - 1989 teims) ZCCM (Zambia). (Fuller details are given in Annex 1). In addition there are tirteen Minine Exoorts enterprises with anmual average exports of 1960 1989 US$100-1,000 million. These sixteen enterprises account for nearly 80 percent of Sub-Saharan Africa's mineral exports as shown in Table 1.5. A. Companies under government control1' Unlike the mining industries in countries with very large mining industries, (such as USA, Caonper 1900 2,43450 Canada, Australia and South Africa) where much Gold 50 145 production comes from small and medium sized Bauxite/Alumina - 80 companies with turnover of US$50-500 million, Uranium - - there are only a handful of such companies in Othern 30 700 Africa. This dearth of small and medium sized Sub Total 2,500 3,400 companies is referred to as the "missing middle." About 55 percent of African mineral B. Companies under private control production comes from enterprises which are Copper 160 465 Table 1.5. Structure of African Mining Diamonds 300 2,055 Industry in 1989 Gold IS0 290 Bauxite/Alumina 120 480 Uranium 30 530 Enterprise Others 610 980 Annual Total Value Cumulative Turnover Number of of Exports Percentage Sub Total 1,400 4,800 (US$ Mill.) Enterprises (US$ Mill.) of Exports Grand Total 3.900 8.200 > 1,000 3 4,000 49 / Includes companies nationalized in the 1960s and 1970s. 250- 1,000 3 895 60 100- 250 10 1,550 79 Source: World Bank staff estimates 50- 100 8 540 87 10- 50 32(e) 580 94 By comparison, Africa's declining market share < 10 iO(e) 635 100 for several minerals has in large part reflected the Total 160(e) 8,200 100 lackluster performance of state controlled mines (predominantly copper production) where the Source: World Bank staff estimates 6 operated and managed by the private sector. This The balance (about 45 percent) of African consists of 20 percent from privately owned mineral production is controlled by parastatal mining companies and 35 percent from joint- mining companies where the government company ventures between governments and the private is in control of operations. Two parastatal sector, where the private sector is the operating companies (Gecamines in Zaire and ZCCM in partner. There were seventeen such enterprises Zambia) account for about one third of SSA with annual sales exceeding US$50 million in mining production. There are five other 1989, as shown in Table 1.6. These enterprises parastatals with annual exports exceeding US$50 accounted for 45 percent of SSA mineral exports million in 1989. In total these seven state in 1989. Most of the 100 percent privately-owned enterprises accounted for 40 percent of SSA and operated mines are in Namibia, Sierra Leone mineral exports in 1989. Smaller state-controlled and Zimbabwe. Private-state joint-ventures which mining companies are found in countries including are operated and managed by the private sector Burkina Faso, Ethiopia, Ghana, Madagascar, partner, and where the state has a generally Sierra Leone, Sudan, Tanzania, and Zimbabwe. passive role are in Angola, Botswana, Gabon, Ghana, Guinea, Liberia, Mali, Niger, Swaziland Table 1.7 Africa - Role and Structure of State- and Zaire. Managed Mining in 1989() Table 1.6 Africa - Role and Structure of Privtel-Maage Miingin 1989(" Turnover 1989 Privately-Managed Mining in 1989()Country Company Products (US$ Mill.) Turnover Zaire Gccamines Copper,cobalt Country Company Product (USS NMu.) various 1,360 Zambia ZCCM Copper, cobalt various 1,340 Botswana Debswana Diamonds 1,300 Zaire SODIMIZA Copper 145 Guinea CBG Bauxite 325 . . Namibia CDM Diamonds 320 MauriTai a PhosphateS 150 Nanibia Rossing Uranium 2350 Guinea OBK Bauxite 75 Angola ENDIAMA Diamonds 230 Senegal CSPT Phosphate 55 Botswana BCL Copper/Nickel/Cobalt 200 Gabon COMILOG Manganese 175 TOTAL 3,270 Niger COMINAK Uranium 150 Guinea Friguia Bauxite/Alumina 130 Liberia Bong Iron Ore 120&') Gihana Ashanti Gold 110 (a) As noted in the text, these include joint-ventures where Zaire MIBA Diamonds 90 the manager and the operator is the government-owned Liberia LAMCO Iron Ore 80c) parastatal company. Only companies with turnover in Niger SOMAlR Uranium 80 excess of US$50 million in 1989 are listed. Guinea AREDOR Diamonds 55 Sierra Leone Sierra Rutile Rutile Source: World Bank staff estimates. Gabon COMUF Uranium 50 Many of these state mining companies TOTAL 3,730 have seen a sharp decline in production since 1975; notably the copper of Gecamines and ZCCM; the gold of SGMC in Ghana; the (a) As noted in the text, these include joint-ventures with daodpod of the sa mining partial government ownership where the operator and comn indGhana, Tn i san erraene manager is the private partner. Only companies with companies in Ghana, Tanzania and Sierra Leone; turnover in excess of US$50 million in 1989 are listed. and the chromite in Madagascar. Nevertheless, (b) This company has since closed. there are examples of state companies where (c) This company has since closed. output has grown since 1975. For example, the SNIM iron ore and phosphate companies in Togo and Senegal, and the OBK bauxite company in 7 Guinea. Most of this increase results from lean and operating modem, competitive facilities investments in the 1970s. compared with ten years ago. In contrast, most Changes in the global economy over the state-controlled companies are entering the 1990s past decade have increased the divergence with little change except that their facilities are 10 between the performances of private and state- years older. The reason for this is in the controlled mining companies in most African responses of the two groups of companies to the countries. Most privately-controlled mining changes and challenges in the world economy companies are entering the 1990's organizationally over the past 10 to 15 years, Figure 1.3. Figure 1.3 Metal Mining in a Changing World 1960s and 1970s Early 1980s following Late 1980s Early 1990s second oil crisis EXTERNALCONDMTIONS MACRO-ECONOMIC High levels of economic Sluggish levels of economic Return to Slow economic ENVIRONMENT growth. Availability of growth. Debt crisis levels of recovery petrodollars 'Troubled Eighties' economic growth AITITUDE Benign; 'North-South Disturbed/Alarmed Demanding Pragmatic TOWARDS Dialogue' contributions DEVELOPING WORLD AVAILABILITY High growth Abundant availability Capacity Declining OF METALS of metals shortages METAL MARKETS Prediction of shortages Excess capacity depressed Mature, Sluggish growth 'Club of Rome' 'Buyer's Markets' healthy growth; uncertain supply/ 'Sellers demand balance rmarket' --MININGCOMPANIES FINANCIAL PERFORMANCE- - - PRIVATE-OWNED Abundant cash generating Loss-making cash-drain Return to cash Moderate cash capacity; harvcsting followed by achievement generating generating cash-cows of break-even position position position STATE-OWNED Abundant cash generating Moderate cash generating Loss making to Vulnerable for next capacity; harvesting capacity to loss-making moderate cash downturn, having lost cash-cows generating competitive position capacity COMPANIES STRATEGY FOR OPERATIONS- PRIVATE-OWNED Rapid expansion of Cost cutting followed by aggressive Modest expansion in capacity restructuring; disposal of assets, capacity based on introduction of new technology to competitive position achieve competitive position STATE-OWNED Plans to expand Wait for return to normal Rehabilitation Radical restructuring Limited efforts to programs. required through priva- restructure tization. 8 Whereas the 1960s and 1970s were The Policy Choice characterized by high levels of economic growth and metal consumption, only briefly interrupted Mining is a global industry. Almost all by the first oil crisis in 1974, this scenario Africa's mineral production is exported and sold changed drastically following the second oil crisis at prices set in the international marketplace. To in 1979. Confronted with operating losses, high survive and prosper, African producers must real interest rates, and escalating energy costs, the compete with producers in other regions such as private companies were forced to address the Latin America and Asia and with producers in the crisis head on. They embarked on an aggressive industrialized countries. cost-competitiveness drive which challenged every Over the last thirty years mining sector aspect of the conduct of their businesses. This growth in Africa has been constrained by the drive was directed at company reorganization, decision of most newly-independent countries to reducing overhead and personnel costs, and adopt inward-looking, import-substitution involved closure and disposal of non-performing economic policies and state ownership and control assets and the widespread introduction of modern, of productive facilities. These policies followed cost-effective technology. the worldwide economic fashion of the time but The response of state-controlled their damaging results only really became companies was much more modest. They apparent in the decade after the second oil shock addressed the situation initially with a "wait for a of 1979. Developing countries, with less innate return to normal attitude". When this did not wealth to rely upon, were forced to borrow occur, they initiated rehabilitadon programs in an heavily and squeeze their mining industries to effort to modernize their facilities and reduce meet pressing needs in other sectors of their costs with some limited company restructuring. economies. This situation persists today. In However, these efforts were hampered by their contrast, mining companies in industrialized governments need for revenues and foreign countries operated in open economies and had to exchange as a result of widening budget deficits adapt or die. and worsening debts. Since their shareholders- African governments desiring to develop owners were not in a position to provide funding their mining sectors are faced with a policy for the rehabilitation programs (indeed, most were choice. They can pursue mineral development by demanding larger financial contributions by the state control of mining activity where the state is companies), and did not have ready access to manager and operator of the mining company. commercial financial markets, the companies Alternatively, they can permit and encourage turned to, and obtained, limited financing from mineral development where the state emphasizes bilateral and multi-lateral development agencies. its role as regulator and promoter and leaves With the upswing in metal prices in the operations and management to private sector late 1980s, the privately-controlled companies enterprises. The record is clear-mineral growth were well placed to reap the benefits of their in Africa has been predominately achieved by the competitiveness drive. However, the state- private sector. Few developing countries in controlled companies continued to rely on largely Africa are able to mobilize, within the public outdated facilities as their rehabilitation and sector, the large amounts of managerial, technical restructuring efforts had been only partially and financial resources necessary for commercial- completed and moderately successful. Where scale mining development. state-controlled companies tried to analyze the The main message of this report is that way business was conducted, their efforts did not mineral development requires governments to result in fundamental or permanent improvements. focus on the regulation and promotion of the This was principally because efforts were targeted industry and that private companies take the lead at a limited number of specific management in operating, managing and owning mineral activities instead of being undertaken as part of an enterprises. But, with the possible exception of overall business plan. Zimbabwe, there are few countries where the 9 domestic private sector is strong enough to take growth in the mining sector. Correspondingly, the lead. The future development of the mining serious investors need to recognize the valid sector in Africa will largely depend on attracting concerns of host governments and provide strong new high risk capital from foreign mining training components and local capabilities-building companies-large, medium, and small-who have initiatives (such as using local businesses where the technical and managerial capabilides to find they can provide supplies and services on a new deposits and develop new mining operations. competitive and reliable basis). Africa must compete with other countries In countries where mining is now well to attract such investors. International capital established and predominantly a state mining goes to the most attractive opportunities. Mining activity, reform is needed. However, most state investments are typically capital intensive companies as a result of their multiple objectives, investments involving time horizons of ten to cannot behave like private companies. Trying to twenty years or more. As discussed in Chapters reform them from within is an extremely difficult 3 and 4, investors require competitive terms and if not impossible task. A better solution is total conditions, and iron clad assurances that the or partial privatization. Private mining investors investment environment will be stable and that the will be required for this, and a discussion of how 'rules of the game' will not change. privadzation might proceed is given in Chapter 6 But it is not only investors who should on Institutional Reform. benefit from mining. Governments must also The approach proposed in this report obtain a fair share of the economic rent of the should not be interpreted as turning the clock back sector. This can best be achieved through fiscal to the era when host governments were dependent arrangements that are stable and fair to both on the patronage of powerful, foreign companies. parties. Governments can increase their share of WYhat is here proposed is an enlightened the rent by making the investment environment partnership between governments and investors less risky and thereby lowering the risk premium who share common objecdves of seeing mineral and returns required by investors and lenders. resources identified and developed in an orderly, This can be accomplished by establishing clear tffiit environentally sound manner to mining development strategies and sound the benefit of both parties. institudonal structures and capabilities and by Such a partnership is feasible and emphasizing earnings-related taxes rather than achievable. But it will only be realized if the royalties (or input or output related taxes) as legievate But itewill of be rerrunent outlined in Chapter 5 on Economic and Fiscal legitimate needs and interests of both government Policy, and investors are mutually recognized. This is lt is essential that all dealings be the hallmark of many successful mining transparent on the part of both the governments operations in Africa today. When replicated and the investors. Serious investors will successfully, companies can establish profitable, withdraw in the face of corruption or a significant sound, stable mining ventures, and governments "hassle factor". In such cases, even if deals are can gain important economic benefits including made, they are likely to be highly speculative and significant tax transfers and foreign exchange probably will lead to little real investment or earnings. 10 THE MINERAL POTENTIAL OF SUB-SAHARAN AFRICA Importance of Exploration million per year in 1989 terms. Sub-Saharan Africa with 21 percent of the world's land mass The previous chapter has demonstrated accounted for only about 4 percent of this, barely that mining can have important benefits for a fifth of that in Canada or Australia and well countries well endowed with mineral resources below that of the Republic of South Africa (such as Botswana, Zaire, Nanibia and Guinea). Table 2.1. It has also shown that overall Africa has been losing market share to other regions. This Table 2.1 Estimated Average Annual World chapter examines the African mineral resource Mineral Exploration Expenditure 1980-89a' base and the need for additional exploration if (US$ million 1989 terns) mineral development is to accelerate in Africa. The perceived geological potential of a Australia 560 country or region is the fundamental factor which Canada 600 leads to minerals exploration and investment. U.S.A. 360 Given favorable geology, exploration and Republic of South Africa 180 subsequent mine development will be determined Sub-Saharan Africa 100 and controlled by govermnent policies and, in Others 700 most cases, by the quality of infrastructure. If Total 2,500 government policies are weak and interventionist, there will be little or no exploration and mnine development, except by state agencies. a/ Excludes USSR and Eastern Europe Exploration is the most critical phase and Source: Industry and World Bank estimates exploration knowledge worldwide lies principally with the private sector. Exploration technology is Statistics show that major mining countries, changing rapidly: considerable advances have regions, and companies invest or attract been made even in the past decade. Most private investment of up to 10 percent of mineral mining companies have had the technical and production value in explorationz'. In contrast, financial resources to stay abreast of such many Sub-Saharan African countries attracted (or advances. Most parastatals, facing financial permitted) investment of about 1 percent of the constraints and difficult economic circumstances, value of mineral production. This massive have been preoccupied with production and have under-investment in exploration must be reversed not established or maintained good exploration as soon as possible; exploration investment is the capabilities. Today, parastatal mining enterprises only way depleting reserves can be replaced and data lack the technology and financing to new discoveries made. undertake effective exploration activities. As a The relationship between exploration consequence, mine development in much of investment and production value will change over Sub-Saharan Africa is stagnating and the time for individual countries. An immature geological potental is severely under-utilized. mining economy needs to invest, or attract During the 1980s, world mineral investnent, of up to 20 percent or more of exploration expenditure averaged about US$2,500 production value. Passing to a stage of fast 11 growth, production will rise rapidly in comparison This corresponds to about 14 percent of world to exploration and as the ratio between production mining investment expenditures compared with value and exploration expenditure decreases. A about 5 percent today. Such expenditures are rapidly growing mining economy will need to well within the capabilities of international mining attract exploration investment in the range of 5 to companies, and should be within the absorptive 10 percent of production value. When a country capacities of African countries, provided attains mining maturity and generates much larger initiatives are taken to strengthen mining sector revenues, the ratio between production and institutional capabilities as outlined in Chapter 6. exploration will continue to decrease, flattening out at 2 to 5 percent. Most African countries fall Regional Geology within the "young- immature" phase and should have a high ratio of investment in exploration to The geology of Sub-Saharan Africa is production value if significant growth is to take dominated by cratons and inter-cratonic mobile place. belts. Cratons are Precambrian crystalline blocks Various studies are available which examine composed of granite, gneiss and greenstones, the relationship between exploration expenditures, which are surrounded by major orogenic discoveries of mineral deposits and subsequent provinces known as mobile belts. For most mineral production. Taking into account the metallic and gem minerals, this basic geological results of these studies, as well as information framework provides a strong control over from mining companies and other sources, it is mineralization. Most of the cratons and mobile considered that an increase in annual exploration belts are characterized by so-called greenstones, expenditures for Africa to US$250-500 million which are volcano-sedimentary sequences of per year could lead to a pipeline of 5 to 10 new metamorphosed supra-crustal rocks of volcanic viable mineral projects each year. Development and sedimentary origin. These greenstones are of these discoveries would require US$500- 1,000 amongst the most favorable rocks for many of the million per year giving total expenditures of known and yet to be discovered gold and US$750-1,500 million per year, including base-metal deposits in Sub-Saharan Africa. exploration, from the mid-1990s onwards. This Examples of structurally-associated is over and above the funds required to sustain mineralization are the principal gold belts of present capacity and make necessary Ghana (Ashanti) and Ethiopia (Adola). Good improvements. Such a level of expenditure and examples of well-known and productive development should permit Africa to achieve greenstone-associated gold mineralization are growth for mineral exports broadly in the range of central Zimbabwe (Midlands) and the Barberton 5 to 10 percent per year from the late 1990s Belt along the Swaziland and South Africa border. onwards. Prime examples of under-developed greenstone Given the economic conditions of most belts are those in Burkina Faso (Boromo, countries in Africa, such investment cannot be Aribinda, Dori-Assakan, and so on), northwest financed by the state-controlled mining companies Tanzania, and northern Zaire (Kilo, Moto, or other domestic sources. The only realistic Nagayu, Isiro and elsewhere). source of such very large sums of capital is the Cratonic cover rocks, or depositional basins, international mining industry which currently are also important hosts for known and potential spends about US$15,000 million annually on mineralization. Examples include the mining investment. Of this, just over half is for Witwatersrand and Tarkwan banket reef gold replacement capital and the balance for new deposits of South Africa and Ghana respectively; investments. The industry currently spends and the younger, unique, copper-cobalt deposits of another US$3,000 million on exploration each the Copperbelt of Zambia and Zaire. year. Volcanic and igneous activity has been an Thus, to meet required growth targets, Africa important factor. The older cratonic-related needs to attract as much as US$2,500 million intrusives in Sub-Saharan Africa are dominated by annually in exploration and capital expenditure for the South African Bushveld Complex and the both replacement investnent and new projects. Great Dyke of Zimbabwe-the present and 12 potential future producers of a large percentage of distributed in East and Central Africa. From the the world's chromium and platinum supplies. The overall framework of Africa and the considerable Bushveld Complex is the world's largest known detailed knowledge of the geology and associated repository of platinum group metals (PGM) and mineralization potential of most countries, there is vanadium. The younger volcanics and intrusives little doubt that major economic deposits remain are dominated, mineralogically, by the to be discovered. One or two, such as the Tenke carbonatites which are potential future producers and Fungerume copper deposits in Zaire and the of rare-earth metals and phosphates (for example Adola gold belt in Ethiopia, are already known Angola, Uganda, Tanzania) and in special and awaiting development. circumstances, of copper (for example Palabora in South Africa), gold and nickel. Comparison of Similar Geological Terranes Additionally, crustal movements have led to the formation of large sedimentary deposits. One Africa suffers from a large shortfall between of these, the Karoo sequence, holds virtually all geological potential and mineral development. the known coal deposits of the region; those of This is directly related to insufficient exploration Madagascar, Malawi, South Africa, Tanzania and work. Most exploration is based on similarities Zimbabwe. Continental fragmentation has also of geological settings. Over the last decade in given rise to the emplacement of kimberlite particular, the recognition of fundamental intrusives, the original source of the extensive similarities between geological terranes and diamond deposits of Angola, Botswana, Guinea, mineralization models has had a major effect on South Africa, Tanzania, and Zaire. deposit discoveries. The most recent structural episode on the For example, there are similarities between African continent was the formation of the the Gweru greenstone belt of Zimbabwe, the African Rift which extends for over 2,000 miles Abitibi-Timmins-Kirkland Lake belt of Ontario, from the Red Sea to Malawi. Along this massive Canada, and the Ngayu and Kilo-Moto greenstone complex fault, (and also because of associated belts of Northern (Haute) Zaire. Cross-structures volcanic events), are found many of Africa's which play a major role in the location of the known and undeveloped non-metallic mineral Canadian deposits (Destor-Porcupine, Pipestone deposits, such as kaolin clays, bentonites, and Larder Lake) have not been fully recognized pozzolanas and fluorite. The Rift also contains in Zimbabwe or Zaire, although work on large salt lakes, particularly in the north structural control and the Lily fault zone in (Ethiopia, Kenya, Tanzania), from which a Zimbabwe is on-going and the importance of the variety of industrial minerals (such as common Mwembeshi Shear Zone is known. This lack of salt, soda-ash and potash) can be extracted. fundamental knowledge, notably in Zaire, is a Mineral deposits created by erosional direct result of the lack of exploration. concentration or chernical decomposition include The figures in Table 2.2 demonstrate the bauxite in Guinea; rutile and other heavy minerals relative lack of investment in two of the higher in Madagascar, Mozambique and Sierra Leone; potential mining areas of Africa compared with a gold alluvials in southern Ethiopia and northern small segment of the Abitibi-Timmins-Kirkland Zaire; and diamonds in Namibia. Lake belt in Canada. Moreover, both the value All classes of mineral deposits are present in and tonnage of the Timmins-Kirkland Lake belt Africa and many are unique: the coastal diamonds production is related to the last thirty years, of Namibia; the chromite, vanadium, and whereas estimated production from Haute Zaire is platinum of South Africa and Zimbabwe; and the for the greater part of a century. Total gold copper-cobalt deposits of Zaire and Zambia. At reserves of the Abitibi belt is estimated at 3,000 the continental level the high-value minerals such mt, which at present prices (US$370 per ounce) as gold and diamonds have the most extensive represents a potendal reserve value for gold alone distribution in the world. Other gemstones such of US$37,000 million. By comparison the known as emeralds, rubies and sapphires, relative gold reserves of the Gweru area of Zimbabwe and newcomers to the African scene, are also widely Haute Zaire are about 100 mt each. 13 If one considers the surface area of potential Required Exploration Financing geology, Table 2.2 selects just the western part of From the regional geology and from the Abitibi Belt which has about one third the comparisons of sinilar geological terranes, the aerial extent of the three selected areas in Haute geological potential of each country in Zaire. The total potential belt in Haute Zaire is Sub-Saharan Africa has been assessed (Annex 2). upwards of 100,000 km2. The concession held by Estimates have also been made of the level of the Zairian state company, Okimo, alone has an exploration which is considered jusdified. The area of 42,000 kIn2, more than twice that of the assessments indicate that at minimum, a doubling Abitibi-Timmins-Klrkland Lake area, and is only of the present level of investment is warranted. officially producing 0.5 metric tons per year gold. Almost certainly, a quadrupling would be well By comparison, Ecuador, where gold mining is in justified. These estimates do not take into its infancy, produces 10 metric tons per year gold account detailed property assessment and reserve from an area of 1,000 km2 within which no major development work of either new properties or mine has yet been developed. extensions of known mines. Table 2.2 Comparison of Greenstone Belt Mineralization CANADA Abidbi-Timmins- ZIMBABWE ZAIRE Kirkland Lake Gweru Ngayu/Kilo-Moto Surface area (Km2prime geology) 18,000 12,000 50,000(°) Number of present and past mines 120 400 8(b) Value: past-present production (Cu/Zn/Au) (US$ million)(') 50,000 9,000 4,000(e Number of advanced new mining projects 8 10 1 Value (US$ million)(6)/ present production per year gold only 525 40 20(l Estimated exploration per year (US$ million)' 180 5 0.5 (a) Relates only to selected known areas (b) Number of worked areas. There are numerous alluvial workings. (c) 1990 prices. (d) Only gold produced. (e) Gold at US$370 per ounce. (f) 6 official plus 14 unofficial (estimate). (g) 1988 Source:World Bank staff estimates. 14 Sub-Saharan Africa is not a homogeneous Table 2.3 Priority Countries for Exploration region and the countries within it exhibit different Investment levels and combinations of mining activity and (US$ million per year over a five year period) experience, geological potential, infrastructure availability, and administrative capacity. These assssmntsarebased on a subjective evaluation Category A Category B Category C Category D assessments are bae nasbetv vlain US$S> 20 USS 10-20 USS5- 10 US$2-5 of these factors. If Africa is to see an million million million million acceleration of its mineral development, the level per year per year per year per year of exploration needs to be doubled to US$250 million per year (compared with about US$125 Namibia Angola Burkina Fa Burundi million per year in 1989). This would result in a Zaire Botswana Gabon CAR five year expenditure of US$1,250 million. It Zimbabwe Ethiopia Guinea Cote d'lvoire must be emphasized that this is a target level to be Ghana Kenya Mali achieved by providing an enabling environment to Mozambique Madagascar Nigeria attract private companies, not by increasing Sudan Tanzania Rwanda government exploration expenditures. Zambia The proposed expenditure level although well current underdevelopment and stagnation of the below the level of investment needed to close the mining industry in many of the region's countries exploration gap with the rest of the world, is can be directly linked to the lack of high-risk considered achievable if the right regulatory and exploration investment. However, this proposed econornic adjustments are made. The optimum exploration agenda is closely linked with level of exploration investment is closer to establishment of a clear mining development US$500 million per year. This is achievable policy, a reduced role for state mining companies, early in the next century if adjustment actions are and the creation of attractive conditions for taken within the next three to five years. If private investors. As long as state companies immediate corrective action is not taken soon, the continue to control mining centers and large tracts exploration financing gap will be even larger. of prospective land, new exploration investment The country assessments show that Namibia, will be severely limited. Zaire and Zimbabwe warrant a five year The current major sources of exploration exploration (investment) program of more than finaing in Africa are governents, multi-lateral US$100 million each; seven countries US$50-100 agencies (such as UNDP and EEC), bilateral million each; and six countries US$25-50 million agencies (such as France, UK, Germany and each, Table 2.3 and Map (at end of publication). Sweden), and local small-scale miners. The These assessments although based on geological government sector in most African countries is potential, are subjective in that they also take into poorly-equipped both technically and financially to account the current political situation, carry out effective exploration, and prospectors infrastructure and level of mining sector and small-workers have limited capabilities. Only development, including its administration. As an in a handful of instances (for example Burldna example, Angola, from only its geological Faso, Burundi, Ethiopia and Mali) has potential would merit inclusion in "Category A' multi-national and bilateral assistance been in Table 2.3. effective in finding important new reserves or In addition some countries with priority zones orebodies. have been selected for the combination of To achieve a significant uptur in exploration, geological evidence and known or indicated the region will need to encourage private mineralization, but where exploration has been investment from major international mining insufficient to develop the potential (listed in companies, a growing group of technically Category D in Table 2.3). competent "juniors", venture capitalists, and The geological assessments show that the joint-ventures between these groups. All those mineral potential of Sub-Saharan Africa is not a prepared to enter the mining scene in Sub-Saharan limiting factor to mining development. The Africa and undertake productive work programs diversity of the resource base is well proved. The should be actively encouraged. 15 ATTRACTING THE INVESTOR Investor Perceptions thirty mining companies with the highest turnover in 1989 account for about US$1,200 million in The previous two chapters have outlined the annual exploration expenditures. These are high potential importance of mining in Africa and risk equity funds for basic grass roots exploration confirmed the geological potential of the and identification; investigation and proving up of continent. The conclusions are that if Africa is to new ore bodies. (They do not include funds for close the exploration gap with the rest of the feasibility work). State mining enterprises in world, exploration expenditure needs to increase Africa typically spend less than one tenth of this by two to fourfold or more and that the only amount on exploration. major source of such large amounts of risk capital Apart from the major international mining is the international mining companies. companies, there is a growing group of "junior" State-controlled mining companies and local mining companies and venture capitalists. Joint- private investors simply do not have the expertise ventures between these different types of investors and quantities of capital required. International can also be considered. Such companies companies are also needed as potential investors proliferate in USA, Canada, Australia and South in the generally under-performing state-controlled Africa but are largely absent in Africa. The mining companies. Attracting private capital on development of this "missing middle" is a critical this scale and overcoming the negative perceptions aspect of expanding the mining sector in Africa. of Africa requires a major effort by African Medium-sized and small private venture governments. groups are generally less well capitalized but are Mining is a highly competitive global industry willing to take higher risks and to find and and companies must be competitive from an develop smaller deposits. Many junior mining international perspective if they are to survive and companies have excellent technical capabilities prosper. Most large mining companies and many and have become a serious force in international smaller companies make global exploration and mining. investment decisions. The 30 mining companies To better understand the concerns and with the highest turnover in 1989 had a total prerequisites of potential investors in African turnover of about US$60,000 million. These mining, an enterprise survey was sent to eighty include Australian, Canadian, South African, international mining companies asking what European and American mining companies. All influences their investment decisions in developing these companies have widespread global interests countries. Replies were received from forty six covering a range of minerals-have certain companies (not all complete) and data from forty regional and product concentrations. were analyzed. The companies represent a The major mining companies look for specific spectrum of the industry from junior companies targets, almost without exception ore bodies with with modest exploration budgets of US$1-2 substantial potential lives. Such companies invest million per year to the largest multi-nationals with in basic grass-roots exploration. They have the budgets of US$50-100 million per year. The necessary motivation, experience, knowledge and respondents included nineteen North American access to substantial capital resources. The top companies, seven Australian, twelve European, 16 and one each from South Africa and Japan. In majority participation, either government or 1988, they had combined sales of US$39,000 private. However, many see minority local million, capital expenditures of US$5,200 million, participation and mandatory training of and exploration expenditures of US$930 million. nationals as positive factors. Mandatory The ten companies with the largest exploration provision of social services, restrictions on budgets accounted for US$22,000 million in sales negotiating wages, and limitations on and US$558 million of exploration expenditures. expatriate personnel, are minor disincentives. As back up to the discussion on exploration expenditures as a percentage of sales in Chapter * Political and Economic Risks 2, the ten largest companies with exploration budgets of US$30-100 million per year spent 2 to There is more concern about corruption and 5 percent of sales and the fourteen smallest with political risk than macro-economic budgets of US$1-10 million per year, 3 to 9 difficulties, since mining projects are percent of sales. Larger more mature companies export-oriented and more readily isolated normally spend a smaller proportion of their from the national economy. revenues on exploration (although a larger absolute figure) than young, small companies. * Risk Premiums The responses to the questionnaire represent the perception of the respondents according to As expected, higher risk premiums are their knowledge and experience and when required of investment projects in developing aggregated provide important information on the countries. Average return on equity required criteria for investing in Africa. or targeted is 25 to 30 percent with a payback of 2 to 4 years as opposed to 20 percent and * Mineral Potential and Infrastructure a payback of 5 to 6 years in industrialized countries. The primary criteria influencing activides are mineral potential and infrastructure. * Information Gaps Two-thirds are willing to be among the first foreign companies to explore or develop A majority (72 percent) of respondents said projects if there are good prospects. that information is less readily available for Three-quarters operate broad exploration countries in Africa than for countries in the strategies and will consider mineral Asia-Pacific region or Latin America. developments in any country. Information was least adequate regarding basic geological data and legislative, * Mining Rights and Fiscal Terms economic, and fiscal aspects, and most adequate on political environment, Given good geological prospects, a guarantee infrastructure, and general country of mining rights before starting exploradon is background. an essential pre-condition. Thereafter, a well established mining code, contractual stability, Within this broad consensus certain a guaranteed fiscal regime, profit repatriation, characterizations can be made tied to company and access to foreign exchange, are critical size and nationality. The large companies with factors. Accelerated depreciadon and revenues of US$1,000-3,000 million per year are amortization and realistic exchange rates are the most opposed to government and local important but less essential. participation in projects. They would prefer to operate under an established mining code, rather * Ownership and Control than having to negotiate special provisions. The medium-sized firms which in the sample Respondents are generally not prepared to are mostly American or Canadian with revenues work in countries with mandatory local of US$100-1,000 million are the most varied. 17 They are prepared to taclde a wide range of these factors if they want to attract private mining project sizes and will accept a smaller risk capital. Valuable deposits may remain premium than either the large or small companies. undeveloped and potentially rich areas unexplored The small companies will consider a more because the local policy framework is poor. diverse set of factors when judging the potential Mining companies hesitate to invest in of a mining project. They look for stability exploration and mine development in most through fixed income tax and royalty regimes and developing countries because the perceived risks involvement with governments and multi-lateral are much higher than in more advanced organizations such as the World Bank. economies. Mining companies are prepared to Among the nationality groups, the Europeans accept the commercial and technical risks are the most sensitive to economic risk, paying associated with exploration and mineral particular attention to stable exchange rates, development. It is the "political" risks that guaranteed tax regimes and currency concern them-the risks that countries may convertibility. They are more prepared to suddenly change the "rules of the game" negotiate one-off contracts and feel less threatened especially in mining rights, taxation arrangements than other nationalities by government and local and access to foreign exchange. The risks facing participation in their projects. investors may be put into three broad categories: Little information could be gathered on Japanese and South African firms who could The abiliy to do business eventually become important players in Africa. The onset of political change in South Africa will These include the following risks related to have far reaching consequences for the region. the government establishing and honoring South African mining companies have rules for doing business: considerable mining strength and experience, and will probably become a major new source of * obtaining exploration rights exploration and development financing in other * converting exploration rights into mining African countries which have significant mineral rights potential. Several South African mining houses * obtaining the right to import necessary initiated reconnaissance work in 1990 and 1991 goods and services for possible exploration and investment in various * having the right to export countries including Angola, Zaire, Zambia, * losing mining rights or legal title through Zimbabwe, Botswana, Namibia and Mozambique. undue termination or expropriation Japanese firms are important consumers of mrineral raw materials. Their support for new They also include factors largely beyond projects, through marketing contracts and project direct government control such as local unrest finance, can be a key element in the investment or civil war which may interrupt or disrupt decision. business. Implications for development The ability to control costs and be competitive The survey shows that potential investors These include the risks that the government reach consensus on the critical issues but differ on may: the degree of importance of certain factors. Perceived mineral endowment, infrastructure, * unilaterally change an agreed tax regime by political stability, investment policies, and adding new taxes or increasing tax rates institutional framework, are all key determinants * impose price controls on inputs or outputs of exploration and investment decisions. There is or both general agreement that sound, stable policies * insist on the company undertaking marginal could significantly reduce investor risk even in the investments including smelting or refining face of political changes and corruption. Host which are not fully justified governments need to understand and consider * require excessive employment 18 * require infrastructure or community-social The lack of basic geological data and maps is investments which were not originally a constraint to doing business in many African agreed. countries. This was especially so for small and They also include the risks that costs may be medium enterprises who do not have the large increased by macro mismanagement (such as geological capabilities and in-house knowledge of distorted exchange rates or runaway inflation) the large international companies. or by pressure for payoffs from officials to Firms require first-hand information and need grant licenses and so on. to have their data gathering efforts facilitated rather than complicated. Although interested The ability to have access to foreign exchange international mining companies are generally These include risks that the company will not aware of the information available, it is important be able to get adequate access to foreign that investment opportunities be presented to a exchange (at market rates) which is needed to broader spectrum of medium and junior obtain necessary imports, service debt, companies. Countries should give high priority to repatriate capital and pay dividends to foreign the basic collection and compilation of geological investors. and geophysical data. Much basic geological information is The investors considered country risk to be available. Much exploration was undertaken much lower in countries where there is a well before and in the early years of independence. demonstrated track record of the mining industry The trouble is that the findings have not been well and the foreign mining investor. They believe documented or collated and are therefore not that such countries better appreciate the concerns readily available to interested potential investors. of investors and are more concerned to respond to For many countries, material is available at them. Correspondingly investors perceive country different research institutes and locations in risk to be greatest where there is little or no Europe and within the developing country itself. experience of commercial mining operations. But there is no comprehensive index or system for Countries wishing to attract high-risk private gaining access to such information. exploraton and mineral development funds can The quality of the information is variable. reduce risk and increase predictability by: Since independence, considerable compilation * Establishing sound mining and investment efforts have been made by governments, often codes with clear rules and guarantees with international and bi-lateral assistance, and the regarding exploration and mining rights, resulting maps and publications provide useful majority ownership by the private investor, information. However, these assistance programs taxation, foreign exchange, escrow accounts, were frequently shaped to the needs of the and profit and capital repatriation. It is contributor rather than the receiver and the essential that these rules be set out before resulting information is published at a variety of exploration takes place. scales and in vastly different formats. In some instances, information was not retained in the host * Assuring companies that they will have the country and is only available today from the right to mine following successful assistance group. Major repositories of geological exploration, and that they will be permitted to and geophysical information outside the region transfer or trade exploration or mining can be found with BRGM in France, the United licenses subject to explicit criteria. Kingdom's British Geological Survey, Belgium's * Enacting fiscal regimes comparable to those Musee Royal de l'Afrique in Tervuren, and the in other mining countries permitting a United Kingdom's Institute of African reasonable return on the investment. Geosciences at Leeds University. There is an Without satisfactory tax and foreign exchange urgent need to assemble such material at a single, arrangements no investment will be readily accessible location and reinterpret it using forthcoming. modern technology. 19 Lessons from Other Countries * A legal framework which adequately defines the investor's rights and obligations. This It is instructive to see how developing includes legal safeguards which set forth countries in other parts of the world attract important details like operational control, mining investment. Important examples are marketing arrangements, dispute resolution, Chile, Indonesia, and Papua New Guinea. Within and so on. Africa, Botswana and Ghana are moderately Secuniy of tenure to give the investor successful. These five developing countries assurance of being able to enjoy the fruits of demonstrate, in their different ways, the success. characteristics of an environment conducive to investment. These characteristics include an * A flscal package which shares out equitably attitude which favors creation of wealth rather the rent of profitable production among the than controlling its production, a coherent body of various parties concerned. laws and contractual regulations, and effective state institutions to support the mining sector. * Guarantees of access to foreign exchange at These countries have been able to attract market rates for repayment of debts, capital foreign mining investment at a rate at least and profit repatriation, and purchase of commensurate with their perceived geological essential inputs. promise, and on terms and conditions generally favorable to the countries. Two outstanding * Institutions which are well equipped, able to successes are Chile and Papua New Guinea, respond to private investors in a professional which have attracted about US$2,000 million and and timely manner and which prevent or US$1,000 million in new mining investments minimize corruption. since 1985, with another US$1,000 million or more in the pipeline for each. Chile has The five countries present a variety of mobilized substantial investment in mining approaches. The most successful, Chile, follows projects despite a record of nationalization. a strongly private-sector economic policy. Indonesia has attracted about US$1,000 million in Mining comes under the general foreign the past five years, but future prospects are less investment law with no special provisions and certain following the introduction of harsher mining rights are as inalienable as property rights. conditions in the latest draft agreements. In Indonesia and Papua New Guinea, all aspects Botswana has attracted significant new of mining investment and operation are tightly investment in the development of its diamond regulated by the government through detailed industry and is now one of the few SSA countries agreements, namely a Contract of Work (CoW) in where many international mining companies are Indonesia and a Mining Development Agreement exploring. Botswana's investment prospects are (MDA) in Papua New Guinea. Governments modest-US$200-400 million in the next few have discretion but it is limited. The Indonesian years. Ghana has also managed to attract a CoW specifies minimum exploration expenditures modest but growing level of exploration and but leaves some flexibility regarding the eventual mining investment which has led to significant size of the project. In Papua New Guinea, a progress in gold production. feasibility report is submitted and the project Details of the situation in each of the five defined in considerable detail before the MDA is countries are given in Annex 2. Key issues which signed and the Mining License issued. The two determine success are: African countries in the survey, Botswana and Ghana, both leave much discretion to the relevant * Sound macro-economic and trade policies government authorities but a long track record in with few restrictions or controls on mineral Botswana's case and a lengthening one in Ghana's exports or needed imports of plant, seem to show success in reducing uncertainties in equipment, services and supplies. the mining codes. 20 4 THE REGULATORY FRAMEWORK Mining Codes gradually became important in Africa. While these were important defects, in practice specific The previous chapter identified the importance project agreements have been negotiated where of a satisfactory legal and regulatory framework there has been a promising prospect and political if new mineral investment is to occur. This willingness on both sides, irrespective of the state chapter outlines some key characteristics of a - of the law. mining code which will meet the requirements of Although the mining codes of a few African most investors while safeguarding the national countries were revised during the 1960s and interest. A country's mining code is the 1970s, most are still not conducive to private combination of statute law, regulations and investment. The majority have mining codes agreements which governs the allocation, tenure which rarely provide the type of rights and and operation of mining rights. Separate obligations needed to facilitate investments in legislation usually covers foreign investment, modem circumstances. Potential investors and taxation, foreign exchange, labor, environmental existing enterprises are often restricted by a range and other regulatory matters. of laws (usually designed originally without The structure of the code will depend on the reference to the mining sector), governing such legal system in which it is embedded. There is a matters as foreign currency, accounting standards, clear difference in legal tradition between dividend payments, labor practices, foreign francophone and anglophone Africa. The former investment, import or export licenses, business uses a codified system; the latter both statute and registration and licensing. As a result, what common law. It is feasible to design a suitable investment in exploration and development does modem mining code under the anglophone legal take place often requires exceedingly complex tradition as illustrated by those of Botswana contract negotiations. (1976), Tanzania (1979), Malawi (1981), Modem mining codes intended to provide a Mozambique (1986). There is one example so far framework for large-scale private investment rest under the francophone tradition, namely on two guiding principles: the investor has the Madagascar (1990). right to explore for and mine minerals in return In many developing countries, the original for specific commitments which can be assessed colonial mining laws defined an "open" system in and monitored; and the investor should have which anyone who had reached the age of secure and long-term title to mining rights. The majority, and was of sound mind, could acquire code should: a statutory right to prospect and mine. This legislation was drawn up with the small-scale gold * Apply equally to all investors, public and rush type operation then prevalent in mind and private, domestic and foreign. And both the envisaged a negligible economic or technical role code and associated tax system should for government. The legislation was deficient in encourage efficient and orderly exploration that it provided insufficient rights and obligations and development. for both governments and investors, including inadequate security of tenure for investors willing * Clearly specify the ownership of mineral to undertake the larger mining operations which resources (for example national or provincial 21 ownership) and vest a single authority with comprehensive mining code. However in the power to grant exploration and mining countries with little mining background and poor rights. administrative capabilities, individual Investment Agreements will probably be more suitable, at * Contain explicit criteria for the allocation of least initially. rights, the transition from exploration to A mining code has an enabling, as well as a mining rights, and allow exploration and restricting, purpose. If all provisions are written mining rights to be transferable and saleable. along the lines "the Minister shall grant..." rather than "the Minister may grant..." then all the * Ensure that land under license is either circumstances in which the particular grant is actively explored and worked or relinquished. appropriate have to be envisaged in advance. Minimum work requirements or surface There are areas, environmental protection is a rentals should be clearly specified. good example, where rapidly changing international standards make it difficult to * Prescribe procedures for settlement of implement detailed legislation without frequent disputes either in the courts or by arbitration. and impractical resort to the legislature for In the past, considerable difficulty has arisen amendments. For this reason, general legislation over arrangements for the resolution of with subsidiary specific regulations approved by disputes but the emergence of satisfactory decree that circumscribe ministerial discretion in systems of international arbitration (lCSID reasonable and risk-reducing ways is preferable. UNCITRAL or ICC) has largely removed this Depending on the circumstances of individual difficulty. countries, reform of mining codes can probably be best achieved by gradual adjustment rather than Much of the mining legislation enacted in an immediate shift to another fully-elaborated African countries since independence envisages framework. Pending enactment of new mining that "small-scale mining" will be reserved for codes, investment agreements should be citizens or local companies while "large-scale negotiated. The process will only be meaningful cining" will be the province of state mining if the investment agreement provides adequate minporationg" or w ll ae porovgnninc g of stanin assurances to investors regarding stable and fair corporations or large foreign mining compamies. trsadcnios. Thsmy.ml .. . ~~~~~~~~~terms and conditions. This may imply a These policies tend to rule out the medium-scale significant and immediate policy shift for many enterprises of the kInd that junior companies countries. This process allows the development might develop. There is no good reason to create of a standard agreement, parts of which may differential access to mineral rights for different subsequently be incorporated in general classes of mining investor. A state mining legislation. Alternatively, the standard agreement enterprise should compete on the same terms as a may later be promulgated as subsidiary privately-owned company, foreign on the same legislation. This is the broad direction followed, terms as natonal, large companies under the same with local variations, in Papua New Guinea and broad rules as small ones. With the possible Ghana. Botswana and Mozambique are reviewing exception of special provisions for artisanal their general frameworks after some years of miners, new policy frameworks should eliminate experience in negotiating investment agreements. distinctions between small and large-scale mining As the adjustment process is initiated, it will so as to encourage all potential interested parties. frequently become evident that reform of the In setfing up a modern framework a choice mining code alone is insufficient. There is must be made between detailed legislation with a usually other legislation, especially concerning minimum of ministerial discretion and specific investment conditions, which impinges upon project agreements backed by general legislation. mining companies: regulations regarding foreign Clarity in legislation and a minimum of exchange, dividend control, business registradon, ministerial discretion is the preferred option in a labor and employment conditions. Coordination mature mining country where there is no difficulty with the economic and administrative reforms in integrating non-mining legislation with a effecting the non-mining sector will be needed. 22 There may also be cases of overlapping overlapping claims easy to detect. The size of the legislation. In Mozambique for example, it is claim block should remain the decision of the legally possible for tax arrangements applicable to explorer. To prevent monopolization of territory a mining project to be varied from standard it may be necessary to limit the number of taxation under any or all of the Mining Law, the licenses that can be granted to any one company Foreign Investment Law, and the Income Tax or group of related companies. Law. Adequate co-ordination through the Council It is important to make sure that the of Ministers has so far prevented conflicting regulations cause the mineral rights holder to grants of special arrangements but the risk actively explore or develop the land or return it so remains. that it is accessible to others. This can be accomplished by some "use or lose" provision, Mineral Rights and Licenses for example by setfing time periods for exploration work followed by mandatory Aside from the USA, and a few excepdons relinquishment of a certain percentage of land or elsewhere for specific minerals, most countries by having significant work requirements or land assume public ownership over minerals. Virtually taxes that encourage the investor to release land all African states have used the approach which not being actively explored. can be called "Permanent Sovereignty" over their There are two basic licenses: an Exploration mineral resources, in line with various United License which gives the exclusive right to explore Nations resolutions in the early 1960s. This does for and prove mineral deposits, and the Mining not prevent the allocation of secure title to mining License which gives the exclusive right to extract rights to private parties, nor does it imply that minerals. Typically an exploration license might rights cannot be tradable. However, it does be for a three year period with one or two establish that the state can charge for access to the possible renewals for the same period (generally resource and has a legitimate interest in the for a reduced area) whereas a mining license will manner of its exploitation. be for twenty to thirty years with a similar Security and continuity of tenure of mineral renewal period. Some modem legislation (for rights is essential if there is to be sufficient example in Botswana and Tanzania) provides for incentive to undertake high-risk exploration with non-exclusive Reconnaissance Licenses which substantial work commitments and then marshal permit access to a prospective area but provide no the large sums necessary for mine development. clearly defined rights to proceed to detailed The investor needs to be assured of the right to exploration. This may be useful to investors the minerals and of the right to proceed from making an initial inspection but is of little exploration to mining, provided pre-defined significance within the overall scheme and may criteria are met. The mining license must be of add another layer of bureaucratic activity. sufficient duration and security to make the Although most mining codes have adopted exploration and development commitment this two license procedure, it is also possible to worthwhile. have a single license system, where the It is most important that the power to grant concession holder has the right to explore and to mineral rights should reside with one authority develop and operate a mine. Under such a and not be subject to overlapping or concurrent scheme, the concession owner would have to jurisdicdons. In several African countries, lack of prove to the satisfaction of the government that clear rules for allocation of mineral rights has construction or production was happening after a hindered the orderly development of private sector certain period of time. Failure to comply would mining. The main problems are corruption in the result in rapid escalation of license fees, allocation process, absence of clear license area effectively forcing the license holder to relinquish delineation and limitation, and disputes over the concession or start production. Such a claims. procedure requires arrangements to ensure Claim difficuldes can be overcome by having adequate environmental protection measures. all claim boundaries on north-south and east-west In return for the exploration license the lines. This is simple and makes potentially investor should be subject to minimum work 23 commitments or a surface rental (or possibly a greater, few investors will be prepared to incur combination of both). There is a choice to be significant exploration expenditures without made here. Conscientiously conducted work assurance that they can proceed to mine if they commitments provide more information for both prove a deposit. Reconciliation of the interests of company and government, and companies companies and governments over the award of generally prefer to spend scarce resources on mining licenses can be built around (a) the exploration rather than pay large license fees. provision that only the Exploration License holder Expenditure commitments also provide the may be granted a Mining License, and (b) strongest incentive for finding and proving specifying the criteria under which an investor is deposits. Emphasis should be on a reasonable entitled to a Mining License. minimum expenditure commitment rather than A prototype reconciliation exists in the detailed government intervention in the design of Botswana Mines and Minerals Act of 1976 which work programs. These are difficult to monitor provides that the holder of an exploration license and many African governments do not have the who has established the existence of a commercial trained staff to do this effectively. Surface rentals deposit has, in principle, a statutory right to a are simple to administer, leave less scope for mining license. The investor must submit "a corruption, and may be useful in countries where proposed program of mining operations" and the monitoring capabilities are limited. Minister is entitled to impose certain conditions; In addition to work commitments or surface but if the program meets the criteria set out in the rentals, it is essential that there also be land mining code, the license must be granted. relinquishment requirements. After an initial Elsewhere, in Tanzania and Malawi for phase of exploration (perhaps three or four years), example, the investor has recourse to the courts if 50 percent of the initial license area should be the Minister's interpretation of the criteria appears surrendered and effort on the remainder unreasonable. Other mineral investment increased. A higher minimum expenditure agreements provide for arbitration (usually commitment per block would be appropriate in international), and some for adjudication by a sole renewal phases, together with a rise in the surface expert agreed between the parties. In all cases it rental. However, the license holder should be is essential that the discretion of the Minister permitted to declare a "Discovery Area" at any responsible be severely limited and a mechanism time, indicating that a potentially economic exist whereby his decision may be challenged. deposit has been identified and that a program of The mining company should be able to assign feasibility studies will be undertaken, so removing its exploration and rnining rights to another the relinquishment requirement applying to that investor. The rights must be tradable. This is area. particularly important for the growing group of The mining code must specify work "junior" mining companies who having made a requirements or surface rentals (or both) for an discovery may not always have the capital for exploration license and the conditions under which development. For the project to proceed, they a Mining License will be granted. The mining must be able to sell part of their interest. license needs to be secure and exclusive for at Tradability reduces risk to the investor and is least the envisaged life of the mine. Provided conducive to efficient use of mineral resources. commitment of the investor is assured and fiscal On both counts it increases revenue potential for arrangements are satisfactory, initial license governments. periods of at least twenty years should be granted, In cases where governments negodate with the possibility of renewals. The Mine agreements withn mining investors, the provisions Development Plan becomes the commitment in which take the most time and prove the most return for which a mining license is granted, but difficult to resolve relate to the retention of there has to be effective assurance of the mining leases, and the suspension or termination company's freedom of operation within it and for of operations. variations in the light of changed circumstances. Special problems are created when a license Until confidence in the application of holder wishes to defer or suspend operations. ministerial discretion in African countries is much Governments have traditionally argued that, in 24 return for exclusive rights, a program of work Model Agreements should be carried out according to a defined In most developing countries, the rights and timetable, varied only at the government's obligations agreed between the host government discretion. Companies argue that after completion and investor are set out in an Investment of feasibility studies they should have the right to Agreement. The main function of such retain a prospect without immediately developing agreements is to formalize the details of it, if market conditions are unattractive. Clauses arrangements between state and company, fill any can be included in investment agreements which blanks or ambiguities in the applicable backing allow periods of retention while objective legislation, and provide safeguards for both the economic returns cannot be met, and provided investor and the government which may not be continuing optimization work is done. Such adequately set forth in the law. initial periods are sometimes followed by further Such investment agreements can considerably periods in which the prospector retains first right reduce country-related risk for the investor while of refusal if another party wishes to develop the protecting the interests of the host governent. deposit. Simnilar provisions can be incorporated An investment agreement is often an indispensable for suspension of operations. condition for foreign investors for major projects Termination provisions assume great in developing countries where the risk of importance when financing mining projects. unilateral changes by the government to the Since the minerals belong to the state and mining investment rules is considered unduly high by rights are only granted for a defined period, there investors because of political circumstances, lack is a danger that the investor will have no asset by of track record and economic difficulties. way of mining rights to pledge as security for The model agreement can also be used by finance. The government should only have the government to ensure fair and appropriate conduct right to terminate a license on clearly specified by investors. Some investors (generally a small criteria. The treatment of assets on termination minority) may attempt to reduce their tax must be spelt out, and in the event of a default by obligations in the host country through the company, adequate time allowed for remedy. underpricing mineral products sold to affiliate In most circumstances such provisions will also be companies, over leveraging the projects financial in the government's interest. structure, making excessive payments to parent or It is particularly important that mining affiliated companies (for supplies, services and companies have the right to market their product overhead charges) and making shareholder loans freely, unencumbered by obligations to sell to with above-market interest rates. The investment state marketing corporations or central banks, or agreement can be used to ensure arms-length to make contracts in an administratively-dictated pricing, a satisfactory debt structure for the way. Attempts to intervene or impose strictures project and a reasonable limit for the level of tax on the manner of marketing activities will be a deductible payments to associated companies. disincentive to potential investors. Governments Depending on the adequacy of environmental, should seek only to be assured that a fair market health and safety regulations, the agreement can price is being received, under arms-length also be used to ensure the preparation and arrangements. implementation of adequate social impact and Companies should be obliged to keep environmental mitigation plans (including government fully informed regularly regarding reclamation measures) and satisfactory health and matters where the government has a reasonable safety operating standards. The agreement can interest and which are needed to monitor the include training and localization initiatives to investors performance of obligations. Such increase the transfer of benefits to the host information would typically include production country and, especially, to the local community levels, employment, marketing arrangements, where the mine is developed. sales and financial performance, environmental There are three basic categories of investment performance and so on. agreements: those which substitute for statutory 25 law, those which supplement it, and those which * Obligations of the Titleholder: work or implement it. The most common, and experience expenditure obligations, infrastructure suggests the most desirable, are those which provision, employment, training, health, supplement general legislation. Agreements can safety, reporting and accounting requirements bridge the jurisdiction gap between different and most importantly environmental ministries and state agencies and if the law is obligations. silent, ambiguous, or inappropriate from the invesor'spintofiewovitalatter,canhve *State Participation (if applicable): whether investor's point of view on vital matters, can have optional or mandatory, timing, structure and sufficient legal standing to take precedence over level, financing terms of participation, and the earlier statutes. allocation of managerial responsibility and The investment agreement can be an effective operational control. instrument for providing investors and lenders with assurances and guarantees that reduce the Fiscal Provisions: license and area fees, risk of sudden and unpredictable changes being made by the government after the investment royalties, and any exemptions of or liabilities made b the overmnnt afer theinvesinentto taxes and levies. Regular income taxes and takes place. It is also a suitable vehicle to address totasnd levis.oRegulareicom ta e suspension. adtriaonsue. Th withholding provisions stipulated in the retention, provideran ation country's tax legislation would normally not agreement can provide assurances that taxation - be included in Model Agreements. However, arrangements will be stable over the life of the the agreement may provide assurances that mine or for a certain minimum period of mine life taxation provisions will be stable over the life (possibly twenty years). However, it should not of the mine. be used for negotiating the basic fiscal terms being applied to minerals projects. These should * Financial Considerations: foreign exchange be established separately by the government. arrangements, provisions for debt repayment, Chapter 5 discusses fiscal issues and outlines key dividend and capital repatriation, escrow elements of a possible tax package. accounts, minimum debt equity ratios and Many countries make use of a Model criteria to regulate inter-company transfers Agreement as a basis for negotiations. Such a such as charges for management services, and document when read in conjunction with the so on. statutory legislation enables investors to familiarize themselves with the legal, regulatory * LegalSafeguards: arrangementsforsettlement and fiscal environment in the country, form a of disputes, force-majeure provisions, clear picture of the way their "deal" would be guarantees against improper termination or structured, and review the guarantees and confiscation, including the use of internadonal safeguards which would underpin it. Among the arbitration through agencies such as more important issues in such documents are: International Center for the Setflement of Investment Disputes (ICSID) * Clarification of Mineral Rights: The The draft model agreement represents only agreement should not duplicate the mineral the government's first position with respect to a rights in the mining law but may provide prospective investor. Some provisions are left clarifications or assurances regarding specific blank, for example work obligations, and the issues such as size of exploradon and government may well want to indicate flexibility production licenses, duration of rights over with regard to non-critical provisions. successive periods, extensions and required Negotiating on a familiar model rather than area relinquishments. It should clarify the company drafts is the most efficient use of scarce right to proceed from exploration to mining, qualified government staff. No matter how many to sell or transfer rights without undue clauses are ultimately altered in negodations, administrative discretion, retention, agreements reached from a model will all be suspension and termination issues, and similar which makes them easier to administer processing, marketing and export rights. and monitor than diverse one-off contracts. 26 5 ECONOMIC AND FISCAL POLICY Economic Policy economii policies are considered ineffective. Most major mining projects tend to be capital intensive Sound economic and fiscal policy are also and their performance is highly important prerequisites for mineral development. dependent upon a satisfactory trade and foreign This chapter addresses the need for sound macro- exchange regime. economic and trade policy, a market-based foreign Mining companies, especially in developing exchange regime, and taxation arrangements that countries, need access to foreign markets to are competitive and fair to both the government import necessary plant, equipment and and the investors. For most developing countries, consumables and to export their products. the major benefits to be derived from mineral Investors become very cautious when dealing with development are tax revenues and foreign a highly protected trade regime whose excessive exchange receipts. Because of this, successful restrictions or licensing requirements could put at integration of mining policy with overall risk their ability to export their products and economic policy is important. However, mineral obtain needed imports. A sound trade revenues do not represent a cure-all for a nation's environment will include the unrestricted right to economic ills. export, and firm assurances to import necessary Sound macro-economic and trade policies, plant, equipment and supplies. and good governance in general, have a strong Companies also need access to foreign influence in shaping the performance of the exchange funds to pay for imports, service debts mining sector. Inflation, exchange rate policies, and, in the case of foreign investors, repatriate government expenditure, and the balance of capital and dividends. While investors can partly payment affect the mining industry just as they do protect themselves from such risks through the the rest of the economy. Even though linkage to use of offshore accounts, they are very vulnerable local industries is limited because mining products to high local inflation which can erode their are exported and many of the inputs imported, the competitiveness and profitability urdess offsetting sector cannot be isolated. For example, local exchange rate adjustments are made. A market- labor costs may account for 20 to 30 percent of based exchange rate is thus essential. A sound operating costs. If high domestic inflation is not foreign exchange regime will include a market accompanied by devaluation of the local currency, based exchange rate and assured access to foreign labor and other local costs will rise on an exchange (at market rates). international scale and financial performance will At the sectoral level, economic policy should be squeezed. concentrate on enabling mining to maximize tax Many developing countries face severe revenues over the long term (that is a 10 to 20 economic difficulties. Investors will probably be year period). It is usually preferable for the prepared to consider project possibilities where government to use mineral revenues to achieve its countries are making firm efforts to improve their other economic and social aims rather than to economic management. However, they will a force the mining industry to pursue these almost certainly hold back from countries where secondary objectives itself. Concentration on 27 maximizing tax revenues means the government rather than royalties because of wide fluctuations has an interest in least-cost production. Mines in their profitability. should not be forced into downstream processing Payment of royaldes does not reflect the that would not be undertaken on normal prevailing market conditions and thus acts as a commercial criteria. Encouragement of disincentive to investment, whereas earnings- in-country downstream processing can actually based taxes do not distort investment and cause income loss to the host country if domestic production decisions. A mineral tax regime is processing is more costly than the overseas outlined later in this chapter that attempts to alternative. encourage exploration, mine development and The same applies to local purchasing of efficient operation. The proposed tax regime thus supplies. Supplies should be purchased from the places strong emphasis on earnings-related taxes least-cost source, local or imported, provided the rather than royalties as the main instruments of quality is equal. Mining license holders should mineral tax collection. certainly be encouraged to give preference to Since the proposed tax regime is based on domestic suppliers who are competitive with their profits and rents, government revenues will be overseas counterparts. Tendering procedures liable to significant fluctuations as mineral prices should be open and understood and local vary. This can cause problems if the mineral businesses able to obtain assistance in maldng industry provides a large component of public tenders. revenues. Fluctuations in mineral revenues Mining companies should not be obliged to should be dealt with by appropriate use or be offered incentives to use employment- macro-economic policy measures, not by special increasing techniques. Most of the large taxes. Adoption of suitable macro-economic state-owned mining complexes in Africa were policies would normally be superior to a tax constructed when labor-intensive methods were system that generates lower but more stable prevalent. As these industries decline, or as revenues. There may be exceptions but there can re-investment takes place, the numbers employed be no assurance that lower, more stable revenues will decline sharply. New mines will use will improve economic performance. Inefficient predominantly capital-intensive methods and are tax arrangements, however, will reduce mineral unlikely to be such large employers. Instead of output and shorten mine lives. distorting decisions on choice of production A major contribution to economic stability methods, employment objectives will usually be will be made if public sector demand is kept best served by allowing existing and new mines to stable. This will require accumulation of savings use optimal techniques and for government to use in good years to be run down in bad. The mineral revenues for employment creation monetary effect can be neutralized by elsewhere in the economy. These considerations accumulation of savings in central bank deposits do not exclude requirements for companies to or acquisition of foreign financial assets. To do provide extensive training for host country this effectively it is necessary to estimate the workers. They have a strong financial incentive sustainable rate of public expenditure growth in to do so in view of the usually high cost of real terms in the light of conservative forecasts of expatriate employees. medium-term mineral prices. Medium-term Maximizing government revenue over the trends (on, for example, a seven or ten year long-term requires policies that promote moving average) are more stable and forecasts are investment in new mines and efficiently tax widely available from international agencies or existing mines. This calls for a tax system that private firms. emphasizes profit-related taxes. Mining is a highly cyclical industry, well known for its price Tax Policy cycles of "boom and bust." The cyclical nature of international minerals prices has a direct impact As a general principle, all sectors of the on the selection of taxation mechanisms. Mining economy should be subject to the same tax rules companies strongly prefer earnings-based taxes for investments to be made efficiently, that is, 28 investment decisions in different sectors of the Tax policy is also concerned with establishing economy should not be influenced by tax conditions so that investment takes place and rent incentives or burdens that apply to one sector but is created. The selection of tax instruments to be not another. The tax regime should be non- used, as well as the magnitude of the average and discriminatory, applying equally to foreign and marginal rates of tax burden, will affect the pace, local companies, and to private and state-owned intensity, and efficiency of mineral development. enterprises. This influences the magnitude of resource rent While the principle of investment neutrality and the share which the resource-owning country across sectors is of fundamental importance to the can obtain. A resource-owning state should economic rationality of a tax system, the basic pursue policies that maximize investment and characteristics of the mining industry must also be output over the long term (10-20 year period) considered. Minerals are considered to have while providing the government with a fair share "rent," defined as the value of the product less all of the rent created. The level of taxation should direct and indirect costs of production, including be as high as possible while still fostering efficient the minimum return to capital required to make an operation and providing an adequate incentive for investor commit funds in the first place. (This exploration and investment. definition allows for the possibility that some Just as rent can be created, it can also be mines will never generate any rent, while some dissipated by technical and managerial errors in mines could generate a great deal). Mining is a mine development, by an obligation to use a very long-term high risk activity which in the sub-economic transport route, and by taxation that African context will largely depend on encourages "high-grading" and thus permanent investments by international mining companies loss of otherwise economic reserves. Rent can be rather than the domestic private sector. diverted to partes other than mining companies Tax policy determines how a given amount of and governents by excessive wage demands, rent is to be divided between governments and fraud or corruption, or excessive compensation investors. Taxation of this intrinsic value is claims b "traditional" landowners. frequently attempted through royalties or free y government equity in the project. A few The total rent in a cmneral deposit will vary countries levy additional profits taxes, once a according to its technical characteristics (such as project has reached a specified rate of return, with locaton, infrastructure). The fluctuation of the intention to capture a significant share of mineral prices will also affect the distribution of mineral rents. rener time. T he di stsband When setting royalty rates, taking free equity rents over time. The uncertainty of costs and or using additional profits taxes, a balance must prices means rent actually generated may be be struck between the views of governments and higher or lower than initally expected. companies. At one extreme is the view that all Someimes it will be non-existent. the extra value should accrue to the state as owner The magnitude of the rent also depends on the of the minerals, that is the government should investors risk premiums. Since the rate of return receive all income over and above a pre-defined is a component in the calculation of available rent, rate of return to the investor. the lower the rate of return required by the On the other extreme, it is argued that investor, the higher the realizable rent. minerals have little or no value until they have Governments can reduce investor risk in a been found and then delineated with a high degree variety of ways. Investors face many risks of confidence. It is primarily through prospecting relating to their ability to do business, to control and exploration that mineral deposits are costs and be competitive, and to obtain access to identified and through mining and processing that foreign exchange. Governments can reduce much their full value is realized. Companies hold that risks by establishing clear mining development whoever is responsible for finding minerals and policies, sound institutional structures and giving them value, should receive most of the capabilities, and explicit rules and regulations added value as part of the just reward for the risk regarding the granting of licenses and the conduct involved. of business. 29 Assurance of the stability of contract terms The economic deterioration experienced in will lower the risk perceived by investors that many developing countries, notably in Africa, has terms may subsequently be altered if a project left a legacy of onerous and distorted indirect turns out to be especially profitable. If taxes and foreign exchange controls which, if governments permit access to deposits on imposed in full, would remove the incentive to generous terms, only to impose onerous variations invest altogether. Accordingly, special privileges in taxes when high returns are generated, or exemptions regarding taxes and foreign investors will anticipate such changes and increase exchange regulations have become common. their risk premiums accordingly. Resource rent Such arrangements are probably necessary in the available to be taxed will be reduced and some transition to a reformed economic system but are potentially economic deposits will not be not jusdfied by the nature of mining investment developed. when economic conditions are less distorted. Governments can reduce investor risk by If import duties are reasonable and emphasizing earnings-based taxes rather than non-discriminatory and currency convertibility royalties or input- and output-related taxes such as applies to all activities, the need of governments export taxes, import duties and fuel taxes. Tax to grant special conditions should be resisted on collection mechanisms linked to inputs or outputs grounds of macro-economic management. raise costs increasing the investors risks of Botswana and Papua New Guinea, for example, absolute losses on a project. If taxation is likely have adopted this approach without perceptibly in loss-making conditions, investors risk deterring mineral investment. However, where premiums will increase. By structuring the tax indirect taxes are onerous, the mining sector, like system to reduce the risk of taxation or royalties all export sectors, should receive drawbacks or contributing to operating losses, governments rebates so that it can compete on a comparable should secure more investment and higher taxation basis with producers abroad. over the life of the mine. Although the magnitude of rent is subject to Since many projects typically have long lead uncertainty, in theory it is feasible to design tax times and are capital-intensive, investors are systems which accurately tax the true economic concerned to recover their capital as quickly as rent and maximize the share of revenues to the possible. Given that investors typically have state while leaving the incentive to invest intact. much higher discount rates than governments, The resource-owning government should aim to provision for accelerated depreciation can be tax resource rent as it is realized rather than advantageous for governments as a measure to taxing it based on a forecast of revenues which reduce investors risks of failing to recover their subsequently may turn out to be wrong. If taxes investment. In contrast, tax holidays are to be would vary with market conditions in this way, avoided since they can encourage high grading tax arrangements would likely be stable since the and other undesirable practices, such as delays in government as resource-owner will be unable to needed expenditure in order to maximize income alter them unilaterally without jeopardizing fresh during the period of the tax holiday. investment. The maximum tax rate must be compatible A satisfactory mineral tax regime will with the efficiency of resource use, provide an reconcile the objectives of governments with those adequate incentive to invest, and must be at least of mining investors. Governments should aim to comparable with that in other countries. minimize their own financial risks and outlays, Common-sense suggests that a country's mining encourage the maximum flow of new. mining tax regime cannot move too far out of line with investment consistent with the economy's capacity those prevailing in countries with close substitute for growth, obtain a fair share of the rent deposits, or investment will be diverted. generated and thereby secure a flow of foreign Countries wishing to attract investment from exchange earnings and state revenues. Investors international mining companies must recognize need to recover their exploration and development that such capital will be attracted to the projects outlays with a satisfactory rate of return, offering the highest returns. repatriate dividends, and meet all debt and other 30 overseas obligations. They need to know in The Tax Package advance the financial terms on which they may develop a mine and be confident that those terms A satisfactory tax regime is essential. It will not be changed. needs to be designed to capture a fair share of the The following general principles attempt to rent for the country, as compensation to the reconcile these objectives. economy for the use of a material asset (the mineral deposit) while providing a reward to the * Profit, dividend, and cash-flow taxes are investor commensurate with the risks involved. more attractive to investors and will cause If taxation terms are not sufficiently attractive to less distortion to investment and operating the investor, exploration and investment will not decisions than input or output-related taxes take place. If they are too generous, there will be such as customs duties and royalties. The great internal pressures in the host country to taxes chosen should be capable of effective modify them. imposition and administration and carry- What is an appropriate tax burden in the forward of tax losses should be permitted. African context? Investors will typically assess countries according to the degree of country- * Mineral taxes should be consistent with related risk and the mineral prospectivity. The domestic tax arrangements. However, if most attractive countries will be those with Africa is to attract investments from excellent geological prospects and relatively low international mining companies, the tax country risk. The least attractive countries will regime must be comparable with tax terms be those with high country risk and poor offered by other countries seeking mineral geological prospects. investment. Most African countries will fall into the category of medium to high country * Mineral taxes should be fixed and stable over risk-especially compared to USA, Canada and the long term. Australia. Accordingly they will have to provide highly competitive tax packages and incentives to T The tax regime should be non-discriminatory, attract new high risk exploration and investment applying equally to foreign and local funds from international companies. investors, and to private and state-owned It is also necessary to ensure that the structure enterprises. There should be no of the tax system, as distinct from the tax burden, discrimination between the right of foreign is suitably designed for the conditions of investors and the right of local investors to Sub-Saharan Africa. The tax package outlined in receive dividends. the rest of this Chapter is representative of the tax conditions needed to attract investors to African * Double taxation and the sacrifice of tax countries. It allows rapid recovery of initial revenue to foreign tax authorities should be investor outlays and under most conditions will minimized. Thus tax incentives should be tax a mine only at normal business rates plus a given only to the extent that the benefit is not royalty at a reasonable level. To promote transferred to the investor's home country tax contract stability, tax measures that permit authorities. governments to share additionally in projects with especially high returns may have a limited use. * Arrangements for accelerated depreciation The tax arrangements proposed are contingent should be considered for the rapid recovery of upon investors having the right to hold mineral exploration and development expenditures. sales proceeds in offshore escrow accounts and to dispose of them freely. Any restriction on foreign * If state participation on concessional terms is currency availability and transferability sought, it should be taken into account in immediately increases investor risk and makes design of the tax package. Such free equity untenable a tax package based on the assumption reduces the return available to the investor. of unrestricted use of sales proceeds. 31 Administradve costs, political difficulties over effect of depreciation provisions in postponing or individual projects, and the investor's perception advancing normal corporate taxes, and whether or of risk will be reduced by having established not other taxes on mineral are also being applied. terms, preferably contained in general legislation, applicable to all mining projects. This is the Corporate Income Tax and Dividend Withholding approach adopted by most of the countries with Tax successful mineral policies. Because of the differing perceived risks in The basic principle is that Income Tax should individual prospects, it may be desirable to leave be the same as elsewhere in the host country. some elements of the overall economic package However, to be competitive, the combined rate of negotiable. Examples of this might be the terms Income Tax and (if applicable) Dividend of state participation or the extent of government Withholding Tax should not be significantly provision of infrastructure. Over time, as country higher than in other mining countries, where risk is reduced, or promising ore bodies are effective taxation of corporate profits is typically discovered, a country may consider increasing the in the range of 35 to 45 percent. Carry-forward tax burden for new mining operations, although of tax losses should also be permitted. leaving existing mining agreements unchanged. A question arises of how to assess tax where an operating company explores for and develops Royalties a second mine. With assessment on a company basis, exploration and development costs of a Mineral legislation in most countries makes second mine could be offset against income from provision for a royalty or production payment to the first. However, assessment on a project basis be levied on the value of minerals extracted. will prevent this offset. A balance has to be However, when royalties are fixed at levels which struck between the incentive to exploration and do not properly take into account the cost of development (and the discrimination in favor of mining, they will act as a deterrent to investors existing operators which company assessment and may result in sub-optimal investment and affords) and the political and economic problems operating decisions. that might be created by an extended period of A royalty in the range of one to two percent revenue loss. Since there is a need to provide a of ex-mine value should not result in significant strong incentive to exploration in Africa, company distortions. Larger royalties, however, may raise assessment is probably appropriate for exploration the cut-off grade for the mine (that is, the expenditures. But development expenditure minimum ore grade which is viable for mining), should only be deductible against the income of with the result that the life of the mine is greatly the project for which it is incurred, otherwise the reduced. International mining companies have state will be subsidizing mine development. frequently maintained that excessively high royalties are a serious detriment to the investment Depreciation and Amortization decision. But governments have normally felt-and most companies have recognized-the Large mining projects typically take longer to political need for imposing modest royalties which complete and longer to earn revenue than other tend to provide early fiscal revenue and some investments. They also usually have very large payment whenever mines are producing. capital requirements and thus carry debt Given the importance attached to the level of obligations. Some form of tax relief in early royalty payments by both governments and years which makes debt repayment easier and international mining companies, careful studies speeds recovery of the investment considerably may be needed to determine the appropriate reduces risk and increases the incentive to invest. royalty. Such a royalty-which does not unduly Accelerated depreciation allowances alter the deter investors but which also satisfies the fiscal timing of tax payments rather than the amount. needs of the government-depends on the The postponement of tax receipts may be expected cost of mining, the indirect taxes outweighed by increased future benefits if the applicable to the early stages of operations, the allowances result in greater investment and higher 32 tax payments than would have otherwise occurred. rates or in a manner that prevents them being A most important consideration for an investor, is credited against home country taxation. to have all relevant expenditure taken into account in calculating the capital base for depreciation. Additional Profits Tax Exploration expenditures should be amortizable at 100 percent in the first year and A number of countries have introduced an subsequent exploration expenditures within the "Additional Profits Tax" (APT) as part of their mining license area expensed in the year in which mineral taxation regime. The APT is typicaly a they occur. Capital assets and intangible cash-flow tax designed to increase the marginal development expenditure should be depreciated rate of tax on projects with very high rates of over ten years or the estimated life of mine, return. It is a mechanism for capturing economic whichever is the less. There should be an option rent for the government and is considered an to take accelerated depreciation for calculation of efficient tax because it is only due on realized corporate income taxes during the first four or profits and does not take effect unless the five years of production, subject to a maximum enterprise has reached a pre-determined rate of limit of 20 to 25 percent of the initial capital return. investment in any one year (to give a maximum But many mining companies consider an APT total of 100 percent over the four or five year as a major disincentive to investment. They must period). undertake many exploration projects to find a promising ore-body. They look to the high Import Duties profits of a successful mining project to compensate the losses of unsuccessfil exploration The economies of many Sub-Saharan African efforts. High profits in good years are also countries remain severely distorted through considered the necessary insurance in a risky overvalued exchange rates, inward-looking trade business which all too often can see several loss- policies, and high tariff barriers. In such cases making years in a row. An APT with the special temporary measures may be needed to threshold rate of return set too low or the counter-balance the effects of severe distortions. additional tax rate set too high may remove this Export industries such as mining should be able to insurance and it is impracticable to envision a compete on a comparable basis with producers system whereby government would repay "excess abroad. profits" taxed in good years when the rate of There are two good reasons to reduce or return falls below the projected or required level exempt mining, as well as other export sectors, in bad years. from import duties and related taxes on capital Since Sub-Saharan Africa is perceived by equipment and supplies, as long as distortions are international mining companies as a difficult and present. First, such duties and taxes greatly high-risk area to work in, countries of the region increase investor risk since they raise total outlays wishing to attract new mining investment need to on exploration and development, and exemption assess whether they can afford to introduce an for mining is unlikely to unbalance the rest of the APT because of its deterrent effect on most economy. Second, just as high levels of subsidies potential investors. An APT should only be result in countries exporting subsidies, high levels considered by countries with a well established of indirect taxes on export industries result in a mining sector track record, good proven mineral country "exporting taxes" which reduce potential or established quality projects. competitiveness. A functioning duty draw-back scheme for all export sectors would make special State Participation exemptions of mining unnecessary. Other taxes on domestic business such as Free or concessional equity is an alternative capital gains, withholding taxes on certain mechanism for capturing economic rent. payments for services, stamp duties, should be Governments frequently wish to be equity partners reduced or exempted where levied at excessive in mining projects, both as a means of 33 participating in the mineral wealth of their being transferred by other mechanisms such as country, and because they need assurance that the shareholder loans and parent company enterprise is being run with the interests of the management charges. nation in mind. Governments believe that they Even where enterprises are highly profitable, can gain additional revenue through dividend dividend payments may be modest if funds are payments, and even if they are not the managing needed for capital expenditures, debt repayments partner, board representation helps to allay or incremented working capital. In difficult political suspicions that the mine is being operated times, shareholders may be called upon to provide purely for the benefit of the private investor. cash to the enterprise or to guarantee new loans. Some investors consider that some type of A well desigped tax system is a rent collection minority state participation provides additional mechanism superior to government equity. If the assurance against political risk. purpose is board representation to increase The financial objectives of governments do transparency, this can be obtained without the not require state participation. But minority state need for the government to have a financial stake participation, or even 51 percent majority, is still in the anterprise. official poiynmaycunIf it is necessary or desirable to include state official policy in many countries. However, participation this can be achieved by the state experience suggests that ownership is not an purchasing its interest, or by receiving effective mechanism for capturing economic rent. concessional participation in return for changes in Guinea has followed a policy in recent years of other elements of the tax regime. A free issue of taking up to 50 percent free equity in new equity to government is financially the equivalent projects, but has seen no dividends. Such a to a higher rate of income tax and therefore the policy can result in investors under-capitalizing share of cash flow that can be taken by other and over-leveraging the enterprises, and in rent kinds of taxes should be reduced. 34 6 INSTITUTIONAL REFORM The Five Core Institutions economy, the mining ministries have limited capabilities and insufficient political standing to Present Status effectively supervise them. In countries with a significant private mining sector, the mining The previous two chapters outlined aspects of ministries tend to take a back-seat to more the regulatory framework and economic and fiscal influential ministries such as finance or planning. policy which could provide the environment to As a result, government departments, statutory support new exploration activities and mining bodies, state-owned enterprises, and local investment. However, policy reform will governments have frequently become obstacles to probably be ineffective unless it is supported by effective policy reform and new commercial institutions competent to implement the legislation endeavor. honestly and consistently. To administer new policies some governments Serious investors look to do business with a appointed special committees or created government in an orderly and punctual way. If quasi-governmental institutions such as the contracts are to be negotiated and investment Minerals Commission in Ghana. Such approaches mobilized, institutions will need to respond have merit under current circumstances, but the professionally. Long delays or sudden changes in core problem of rebuilding good administrative the "rules of the game" will send investors capacity remains. The institutions which regulate elsewhere. This chapter proposes an institutional and administer the mining sector need to be framework for the sector, addresses the reform of rehabilitated and strengthened if the policy state mining enterprises and outlines institutions to changes proposed in this report are to be regularize artisanal mining. successful. In most African countries this will The efficacy of the government institutions require a change in institutional emphasis from which regulate the mining sector in Sub-Saharan the role of government as mining company owner Africa is varied but generally weak. There are and operator to government as mining sector few examples of adequately staffed or effectively regulator, promotor, and administrator. run mining sector administrations. State What is required is a small number of dominance and control of mineral production has adequately equipped and funded institutions with resulted in a lack of attention to the administrative narrowly defined roles, professional staff, and institutions. The Ministry of Mines, Geological clearly defined decision-making authorities. In Survey, and other mining agencies in most countries where mining is (or could become) an countries have suffered reductions in funding and important economic sector, an effective can no longer perform their functions effectively. institutional framework would comprise five main Buildings and facilities are poor and budgets building blocks: a Ministry of Mines, a insufficient to maintain and operate equipment and Department of Mines, a Geological Survey, a vehicles. Staff are often grossly underpaid which Mineral Promotion Agency, and an discourages work and provides fertile ground for Environmental Office. In such countries the corruption. priority is reconstruction of the Ministry of Mines In countries such as Zambia and Zaire where and Geological Survey to carry out the core the state mining companies are dominant in the regulatory and promotional tasks. In countries 35 with little mining tradition, temporary temptation to accumulate skills not directly related administrative devices will have an important part to mineral sector needs within the Ministry of to play until permanent institutional arrangements Mines. Since the public sector suffers severe skill are established. shortages in many African countries, such The tasks outlined for these five institutions duplication should be avoided especially in should be narrowly focused and should exclude countries with small or minimal mining industries. many activities currently undertaken or attempted. A key function for the Ministry of Mines in Most notably these institutions should have no many countries will be to organize and coordinate direct involvement in production and commercial the review and negotiation of exploration and/or activities. mining project development agreements. In such cases, the Ministry of Mines must have a clear The MinZstry of Mines mandate for leading the negodations and there must be explicit criteria governing which The Ministry of Mines should be responsible agreements may be approved by the minister and for broad policy direction, coordination with other which require cabinet, parliamentary or ministries, organizing and leading negotiations of presidential approval. Negotiations will be mining agreements, and supervising mining sector conducted most effectively where the concerned agencies. The Ministry of Mines should be the officials have the necessary framework and scope channel through which investors deal with the to negotiate an agreement and are not constrained government regarding detailed technical, legal, by lack of authority or information. and economic matters when preparing projects Negotiations would normally be led by the and negotiating agreements. The scope for Ministry of Mines and include, among others, investors to negotiate special provisions through representatives of the Ministries of Justice, other government agencies should be strictly Finance and where appropriate, the Office of the limited as this creates uncertainty and provides President. Botswana's Minerals Policy opportunides for corruption. Committee operates along these lines for both Sound administration and reguladon of the policy advice and negotiations. Other African mining sector requires considerable inter-agency countries have adopted different procedures. In collaboration. The Ministry of Mines needs to Tanzania and Mozambique, for example, principal establish effective coordination with other responsibility lies with the Minister of Mines, ministries, especially Finance for fiscal and who is autonomous under the mining law, but in financial arrangements, Justice regarding legal and practice, major agreements are taken for approval regulatory matters regarding environmental to the cabinet. protection issues. The physical aspects of projects Complications can arise where agreements will require close coordination with the ministries must be finally approved by ministers who have responsible for land, housing, water, transport, not been party to their negotiation. This is and local government, and the Ministry of Mines particularly so regarding financial matters. In will need to establish close liaison with major Botswana, the Finance Ministry is directly public utilities such as power, telecommunications involved at all stages but in Tanzania and and railways. Mozambique, the Ministry of Mines presents the Effective inter-agency coordination on this rest of government with a package already scale depends on the availability of key skills in negotiated between itself and the company. There other ministries. For example, the Ministry of is a danger of the Ministry of Mines being Finance must be able to provide finance and tax perceived as the agent of the companies rather inputs to negotiations and the Ministry of Justice than as an independent administrator of must have lawyers with experience of commercial government policy. law and contract negotiation. These skills are not The best way to overcome this problem is to required solely for the mineral sector but the ensure that the core negotiating team includes mineral sector would be in trouble if they were representatives of other key ministries and to absent. Where support from other ministries and develop standard contract terms especially agencies is not forthcoming, there is a strong regarding fiscal terms. Negotiatons should 36 become more streamlined if key ministries outside Prospecting and exploration should be left to the the Ministry of Mines are directly involved at all private sector which the Survey can best assist by stages. undertaking basic geological mapping and data Another key task of the Ministry of Mines in assembly to identify prospective areas or mineral many African countries will be to support the prospects for more detailed work. A core staff partial or total privatization of state mining sufficient for routine investigation work only companies. should be maintained and additional staff should be contracted as required. The Department of Mines Production of a database with existing data and the digitization of all reliable information is The Department of Mines should normally be essential. Rigorous re-evaluation using modem a sub-unit within the Ministry of Mines. Core technology will then be possible. A wealth of duties would be licensing and administration of knowledge has been generated on the mineral exploration and mining rights, monitoring potential of Africa, but there has been an almost compliance with work or expenditure complete lack of the financial resources and requirements, and health and safety. Other duties technical capacity to effectively assemble and use might include project coordination assistance to this information. Computer technology now companies and compilation of production stadstics readily permits the processing and evaluation of and general industry information. different data sets, geology with geophysics, Successful implementation of these duties will geology and geophysics with chemical data and so require development with the Geological Survey on. Basic fieldwork should be complementary to of a database of mining licenses. The database this. It is of little use to continue data gathering should include their status, location, fees and dues if the results are never assembled in a usable paid, work requirements, timetables for reports, format. Geological surveys should develop sound and relinquishment dates. There should also be training programs with adequate budgets and, for procedures for integrating information submitted all new technical assistance projects, host by companies with the Geological Survey's governments and donors should ensure that separate database of geological information. information is produced in both hard-copy and The Department of Mines would be digitized format. responsible for overseeing artisanal mining activity and providing appropriate technical Mineral Promotion Agency assistance. This will be a substantial role in countries with significant artisanal mining sectors. The Mineral Promotion Agency should be a small independent government agency which acts The Geological Survey as a key point of contact for prospective investors, especially those with litfle knowledge of the The Geological Survey should be a separate, country concerned. It would have no decision independent government agency under the general maldng authority and is not envisaged as a supervision of the Ministry of Mines. Its main "one-stop shop" under which companies would role should be mineral reconnaissance, geological seek all necessary approvals and make all required mapping, publication and dissemination of maps, reports. It should be purely an introductory and and compilation of a modern and accessible facilitating agency. geological and exploration database. It should be In a country with a strong mining tradition responsive to the needs of investors for geological and a good legal and administrative framework, a data and maps. Mineral Promotion Agency may either not be The Survey should not undertake any detailed necessary or could be a small office within the exploration or feasibility work with the possible Ministry of Mines. However, in countries with exception of support to artisanal miners. Nor good geological potential and little mining should governments finance or undertake detailed experience, such an agency should be able to mineral exploration and evaluation programs. attract new investment and to do this an 37 independent office will probably prove more officials, often representing all interested effective. government offices and ministries, to prepare documentation and negotiate agreements. In The Mineral Promotion Agency should do many cases, technical assistance and support from everything possible to smooth the path of the institutions such as the Commonwealth private investor. This would include providing Secretariat, the United Nations Department of good maps and attractive documentation on Economic and Social Development and The prospects (in conjunction with the Geological World Bank can be made available. Survey), and providing a clear account of the At the same time, a major effort is required regulatory and economic framework in the to enhance mining-related administrative skills for country. The agency should provide guidance on all the relevant institutions. The lack of skills and general legislation and taxation terms, procedures exposure to the negotiation and operation of for obtaining exploration and mining licenses, mining business in the rest of the world makes availability of ground, potendal prospects and so many government representatives difficult on. Agency personnel should arrange as required, working partners for interested investors. For the introductions to ministries, state agencies, foreseeable future, a significant proportion of contractors and suppliers. government budget to mining-related institutions should be allocated to manpower training. Environmental Office Skill development has tended to concentrate on technical education in geology, mining The Environmental Office is the agency engineering, and related disciplines. University designated to monitor the environmental and other tertiary-level facilities in these subjects performance of the mining sector. Its main tasks exist in some African countries, and foreign aid is will include setting environmental standards, extensively used for scholarships in these fields monitoring exploration and mining operations, abroad. But skill formation for regulatory enforcing compliance with established standards, functions has been much less effective. Most and reviewing environmental assessments for new African countries have difficulty fielding mining projects. lawyers, contract negotiators, financial analysts, To avoid conflict of interest it should mineral tax specialists, and public administrators preferably report to a central Environmental experienced in mining law. Protection Agency (EPA) responsible for national Technically qualified nationals will be environmental policy rather than the Ministry of required by a growing private sector, and the Mines. Sectoral and/or regional offices of the growth of private sector mining will stimulate EPA, supported by environmental specialists demand for technical courses. Many private located in the Ministry of Mines, would supervise mining companies already run substantial training compliance with regulations. However, as an programs both for their own benefit in developing interim measure in countries with strong mining countries and for the country at large. Where this industries which currently lack a central does not yet occur, private companies should be environmental office or ministry, the encouraged to contribute to national skill Environmental Office could be a unit of the formation by contractual obligations for training Department of Mines. programs, minimum training expenditure provisions, special tax allowances for training Institutional Capabilities and Skill Development expenditures, and secondment of personnel between companies and government. Chambers While one or two African countries are of Mines and similar organizations can guide the starting to establish the institutional capability to development of education in minerals and can deal with private investors, the majority of assist with funding. countries do not have such capabilities and are at The tendency of the private sector to attract a clear disadvantage in dealing with international skilled personnel from the public sector is mining companies. In such cases, governments frequently lamented. But there are great potential need to organize small teams of competent benefits in such mobility and governments should 38 expect and encourage transfer of manpower from potential. There is an increasing recognition that public institutions to the private sector to generate state-controlled enterprises are less successful than the in-country capability. The public sector their privately-controlled counterparts, principally should concentrate on developing and retaining because a state-controlled company is by its those skills essential to public administration of nature part of the government. This means it is mining policy, leaving the private sector to subject, directly or indirectly, to all the political manage production. This requires that essential and economic pressures facing the government of civil servants at all levels be paid adequately. the day. This is true to different degrees of Scholarships should not be conditioned on public state-controlled companies worldwide. service. Some key differences between privately- owned and state-owned mining enterprises are presented in the company profiles in Figure 6.1. Whereas the generation of profits is the principal objective of the privately-controlled company, the An immediate task facing governments will be state-controlled company is expected to fulfill to organize and supervise privatization of state multiple objectives of which generation of profits mining companies. Private investors are needed is only one. Objectives such as providing as majority partners in existing state-controlled employment and foreign exchange often conflict mining companies if these are to reach their with this. Figure 6.1. Company Profiles ELEMENT/FACTOR PRIVATELY-OWNED STATE-OWNED Ownership Group of private/institutional Government investors, shareholders Owner's objective To have a pool of capital managed for To reap the maximum benefit from the the benefit of the shareholders. non-renewable natural resource, considered Enhancing the shareholders value a national patrimony Company's objective One prime objective: maximize profits Multiple (sometimes conflicting) objectives: * pursuit of profits * generation of employment * regional development * generation of revenues, foreign exchange Company supervision Independent board of directors; directors Board of Directors. Majority of Board members part appointed on the basis of merit of government structure. Independence issue. Often political appointments Company cash-flow Dictated by the needs of the business. Not only dictated by the needs of the business, board distribution Ultimate decision/approval by has limited autonomy. Board of Directors Chief executive Selected, hired and fired based In principle same, however often political interference officer and on performance management Organizational Often decentralized, resulting in Often centralized resulting in lack of flexibility,limited structure flexibility, delegation of authority. delegation of authority, and limited autonomy of management To a large degree, autonomy of management autonomy management Management focus Medium to long term: * management of Short to medium term: * management of a wide range core activities, metal mining and of core and associated activities such as health, processing. * complementary services/ education, townsites. inputs are procured or contracted 39 There are also important differences with companies are commonly part of a larger, respect to supervision and cash-flow distribution. outward-looking organization which values and Both types of companies are supervised by a maintains contacts with the outside world, board of directors but in a state-controlled whereas state-controlled companies tend to be company, board members are often appointed on embedded in the government's administrative grounds of political merit and these members are structure. This results in a domestic focus with subject to political pressures. Cash flow limited attention being paid to international distribution may be, and often is, decided by developments. other needs in the economy. In private In sum, different organizational structures, companies, the board members are generally g apitdfor their commercial talents and the management autonomy, and focus, give appointed for their commercial talentsandthe privately-controlled companies an edge in needs of the business generally dictate how much responding to changes. It is not surprising that is distributed to shareholders and how much is they are more cost-efficient and productive than retained for capital expenditure. Another difference is that privately-controlled their state-controlled counterparts. companies are free to hire and fire on If state mining companies are to operate performance, whereas state-controlled companies efficiently, reforms are needed to enable them to frequently have maintenance of employment as operate more like private sector enterprises. Two one of their objectives and need political authority broad approaches exist. One is reform from the to layoff excess employees. The relationship inside, that is commercialization. This typically between a privately-controlled company and its involves setting clear commercial goals, host country is also typically well-defined. In - introducing firm budget constraints, and providing many cases, privately-controlled companies are increased accountability and autonomy for sheltered from unwarranted government managers with clear rewards and sanctions limited intervention by an investment agreement which to performance. This approach requires a high contains specific provisions for that purpose. degree of government commitment and discipline Furthermore as indicated in Figure 6.2, private to be effective. Figure 6.2. Company - Direct Environment - Interface ELEMENT/FACTOR PRIVATELY-OWNED INTERFACE Provision of * Infrastructure Clear, well defined agreements Not well defined. i Health care Who does what Company often ends up doing e Education and paying Relation with other Government Arms length, contractual or Often blurred relationships. institutions such per agreement. Formal Informal Central Bank, other parastatals Access to proceeds Company will insist on access Often limited access Access to capital Access to public debt and No or limited access to capital markets equity markets markets Access to new International orientation, often Domestic orientation not part of technology part of a larger international a larger international group. group. Emphasis on technology Limited access to new technology transfer 40 The alternative is total or partial privatization and no amount of financial engineering is likely to with the strategic and operational control of the overcome this overnight. company placed in the hands of a technically and Experience of management contracts as an financially qualified private sector partner (or intermediate way of pushing commercialization partners) who have a major stake in the successful shows only limnited success. The contractor has performance of the company. This approach not enough at stake to operate freely and remains typically involves a more complex process than dependent on the owner. commercialization and may require the Given the political and social realities of involvement of external specialists. Both options most African countries today, the reform of require achievement of the same fundamental mining parastatals will require a partial or objectives. complete privatization so that management and operational control of the company is given over * Decisions must be made on commercial not to a private stockholder or stockholders. political criteria. Privatization does not require the management of the company to prepare and implement a plan * The companies must be subject to the same which would almost certainly contain elements regulatory and tax codes as private against its own interests. Indeed, privatization enterprise. They should not be subject to may never be realized if the process is placed in excessive taxes. the hands of officials of the parastatal company concerned. Instead, it requires the government, * Senior management appointments should be as owner of the company, to make policy based on merit and experience. decisions within its normal political realm. Although preparation of a detailed plan will * Special treatment such as subsidies or require the assistance of consultants with privileged access to mining rights should be experience in both mining and privatization, avoided. establishment of the legal, financial, and investment conditions remains the sole prerogative The prospects for increased of the government. Prerequisites for successful commercialization and arms-length operations of privatization include clear agreements on the parastatal mining companies in Africa are poor. overall regulatory and fiscal framework for the There are a few examples of public mining mining sector, specific understandings regarding companies elsewhere in the world, for example, employment reductions, financial liabilities and Codelco in Chile, which have become successful the treatment of pre-existing environmental at running commercial operations. However, in problems. Chile there are fundamental differences in the role For the very large state mining and power of the state. These have included the conglomerates, a staged approach could be setfing up of an independent legislature, central adopted. Initially, all non-mining-related bank, and regulatory bodies, and the development businesses would be privatized including to the of stake holders prepared and capable of extent possible, support activities. For example, defending the new arrangements. These health and social services now provided by mining conditions are rarely found in Africa. companies would be transferred to government. Attempts at commercialization of public Care must be taken, to ensure that an adequate entities in Africa have been distinctly level of service will be maintained. discouraging. Most African countries are Any new mining investments would only be characterized by serious macro-economic, undertaken under joint-venture agreements where financial and social problems; limited, often the private partner is majority owner and ineffective, and corrupt administrations already manager. Finally, core mining activities would struggling to implement reform programs; and a be privatized by soliciting bids from interested fragmented society with a longstanding political investors followed by direct negotiations between focus on wealth distribudon instead of wealth the investors and the government. The role of the generation. Too many conflicting interests must interested private investor is to negotiate the be resolved for commercialization to be a success, conditions for a successfil venture and provide the managerial and technical skills and capital 41 required to make it happen. Outside consultants situation will persist until miners can see some can assist both sides to reach an equitable prospect of gain through integradion into the arrangement. formal mining sector. World Bank experience of privatization and Many artisanal miners are individuals or divestment activities in other sectors has taught families who typically have no mining rights, no some lessons which should be equally applicable mine plans, and sell their product to whoever in the mining sector. A strong regulatory turns up to buy it. They may well operate capacity and sound regulatory framework for the seasonally being involved in agriculture for much sector are essential pre-conditions for of the year. Others are organized groups who privatization. The primary objective should be sometimes operate with mining rights and have efficiency improvements rather than maximizing more advanced methodology, which may even an up-front sales price or a broad distribution of involve limited mechanization. Most mining is ownership. Above all, the process should be near surface but there are examples of transparent. underground operations with depths of 50 m or In establishing the procedures for more. Production from both groups is often privatizations, governments should not place smuggled to obtain higher prices and avoid taxes. arbitrary restrictions on potential purchasers. Activities are predominately associated with Large new investments before privatization of the high-value, low-volume products such as gold, company should be avoided since, in practice, diamonds, emeralds and other precious stones, they are rarely recovered in the sales price. high-grade chromite, and cassiterite. Artisanal Consideration must be given to how production in Tanzania is estimated at 1.5 to 5 environmental problems due to the parastatal metric tons per year gold and in Guinea, 7 to 10 operations will be treated. The social costs of metric tons per year gold and around 100,000 employment reductions should be eased through carats diamonds. Artisanal miners in Zaire and adequate severance payments, re-training Zambia produce significant quantities of gold, initiatives and incentive programs to encourage diamonds and emeralds. The estimated value of new, sustainable forms of employment. The artisanal production in Africa in 1989 was about market should set the divestment price, and sales US$1,000 million of which US$200 million is should be for cash rather than future payments included in formal exports and US$800 million a which may fail to materialize. year is informal production (see Table 6.1 Privatization should have significant medium overleaf). and longer-term benefits for the economy. Positive aspects of artisanal mining include However, it may cause difficulties where the increases in rural employment and incomes, and government needs to maximize revenue from the perhaps minor fiscal benefits to the government, parastatal mining enterprise for macro-economic all of which stimulate the local economy. Almost adjustment efforts and to ensure meeting IMF or one million minirs and their families in Africa are donor conditions. A successful outcome in such dependent on artisanal mining for part or all of cases although difficult should still be possible. their livelihood. Artisanal mining may also be Artisanal Mining viewed as a first step in exploration and frequently provides basic geological information Responsibility for ardisanal mining would to industrial mining concerns. rest with the Department of Mines. This sector of Negative aspects are environmental the mining industry has undergone considerable degradation, poor health and safety conditions, growth in many African countries in response to inefficient mining practices which result in low accelerating economic decline, overvalued official recoveries, and loss of foreign exchange from the exchange rates which encourage smuggling, and formal sector. In some cases artisanal mining can the inability of governments to exert effective also disrupt rural life and local agriculture. In control. This has brought problems of law and many countries, artisanal miners operate illegally order, safety, environmental degradation, and the with respect to a multiplicity of national laws and loss of potential government revenue. Many regulations, but in most cases this is primarily a attempts have been made to regulate the sector legal concern and does not cause significant social and stem the flow of smuggled wealth but the harm. 42 Table 6.1. Africa: Estimated Importance of Artisanal Mning. Estimated Production Estimated Production Estimated Country Main Mineral(s) Volume Value Employment MT (Gold) ._____________ or 000 Cts(Diamnonds) Millions of US$ Thousands Angola Diamonds 1,000 - 1,500 200 - 300 30 Botswana Diamonds Burundi Gold, Tin . 10 Burkina Faso Gold 3-4 45 60 Cameroon Gold CAR Diamonds 0.5 5 10 Cote d'Ivoire Gold l Ethiopia Gold . 10 Gabon Gold Ghana Diamonds 450 13 5 - 10 Gold 1 7 10 - 20 Guinea Diamonds 100 20 30 Gold 7 - 10 80 20 - 30 Kenya Miscellaneous l Lesotho Diamonds Liberia Diamonds Mauritania Gypsum l Madagascar Gold 2 - 3 5 - 10 Malawi Gemstones Mali Gold 2 - 3 25 100 Namibia Tin, Semi-precious 1 stones Niger Gold 1 12 15 Rwanda Tin 5 - 10 Senegal Gold 2 25 3 Sierra Leone Diamonds 500 200 75 - 100 Gold 1 12 25 - 40 Tanzania Gold 1.5 - 5 35 20 - 30 Uganda Gold , Zaire Diamonds >12,000 > 200 300 Gold 4 45 150 Zambia Gemstones > 200 15 - 30 Zimbabwe Gold, Chromite 30 Total c. 1,000 c. 1,000 Source: Mining Sector Reviews, Notstaller, BUGECO, employment includes seasonal workers. 43 Typical artisanal gold mines in Tanzania are commercial mines. In many countries they are a good example. These are up to 35 m deep and simply illegal. In most cases the illegality is a workings are laid out with little or no knowledge rational response to poorly formulated legislation, of rock stability. Operators and government inadequate enforcement, and economic distortions. officials estimate a 5 percent per annum fatality The challenge is to successfully modify these rate and an injury rate substantially higher. After factors and provide incentives so that artisanal the ore is brought to the surface, hand crushing mining will be encouraged, become regularized, causes acute respiratory problems and distillation grow and produce more revenue for both miners of amalgam leads to mercury poisoning. and government. The problems are not limited to the mnining The two key issues are the legal right to site. Informal villages spring up which have little mine and satisfactory marketing arrangements. or no basic sanitary services and which often Often mining codes provide special arrangements bring law and order problems. The shift from for the issuance of concessions to artisanal miners farming to speculative digging has reduced food but some of the regulations re-institute the production which threatens famines in some areas. problems they seek to eliminate. As an example, The greater availability of money has created the new regulatory framework in Madagascar pockets of inflation, putting pressure on the price requires that artisanal miners complete complex of necessary goods and further impoverishing applicadon procedures supported by sophisticated those who do not participate in mining. land surveys. This type of procedure is difficult, In many places severe environmental side discouraging, and in practice can be expected to effects require urgent attention. Where large lead to non-compliance. numbers of artisans are working, it is common There should be simple procedures for practice to clear the bush by burning to establish artisanal miners to obtain a mining concession or both the mine site and the villages, thus concessions in return for a nominal annual surface destroying the flora and driving out wildlife. rental in the same way as any other mining Sterile waste is piled on what little topsoil exists entrepreneur. The concession should also be and streams become silted and polluted with freely tradable so that the artisanal miner can later mercury and other heavy metals. sell that right to a commercial mining company if Govermnent revenues are lost because the opportunity arises. exisdng marketing arrangements permit sales only This is the most effective way to formalize to the government or its designated agents. many diggings. Once depth, falling grades or Usually purchases by official agents have been metallurgical difficulties start limiting production, made at below world market price and paid for in the small-scale miner will move on. If however non-convertible local currency after significant he can sell his rights to a mining company he may delay. Often a government purchasing agent is prefer to continue as an employee. In successful not even geographically close to the mining area. cases, the mine is developed more rationally on a Miners therefore deal with illicit buyers who larger scale which results in greater production, discount the price paid by up to 50 percent but increased revenues, and taxes for the government. who pay promptly in an acceptable mix of Regulations for environment, health and currency. safety in the sector should be realistic. It is not The infringement of legally granted mining feasible, at least initially, to insist upon the same concessions is a frequent problem with high standards of operation that could reasonably high-grading by artisanal miners reducing the be applied to larger operations. However, the overall grade of mineral subsequently available to government should attempt to create an the industrial operator. In addition, the need to administradve presence in the mining areas to police the concession increases operadng control the worst aspects of artisanal activity, expenses, reducing earnings and taxes. especially those regarding environment, and health Ardsanal mining in Africa is a fact of life and safety and provide some basic services, and and the policies adopted must recognize this assist technically. This shoud gradually reality. In a few countries, artisanal mines are encourage more formal development. Technical permitted under the mining law but generally such assistance can identify orebody, upgrade mining miners have few rights and can be displaced by technologies, increase recoveries and improve 44 health, safety, and environmental standards. will probably be preferable to auction buyer's Governments could offer technical assistance to licenses, rely upon license revenue in lieu of tax, artisanal miners through the Department of and leave buyers free to negotiate their own Mines. purchases. If the government is concurrently The goverment should legalize private operating an open purchasing system based upon sector purchasing arrangements for mineral production at free market, international prices to ternational prices, the market will soon reach discourage smuggling. Due to the disparate equilibrium. If governments insist on maintaining nature of most small-scale mining operations, this government purchasing offices, they should not be is unlikely to be trusted, at least in the short term, given a monopoly but should compete in the and smuggling and revenue loss will continue. It market place with private buyers. 45 7 INFRASTRUCTURE AND ENVIRONMENT Infrastructure geologically promising areas. A vital component of reformed mining policies should be a clear The previous chapters have addressed the policy on the provision and operation of regulatory framework, taxation arrangements and infrastructure since most new mine developments institutional capabilities to support new mining are likely to have to bear the full cost of investment. But clear rules and sound policies are installing, operating and maintaining their required to address the adequate provision of infrastructure, no matter what the nominal infrastructure and to ensure sadisfactory ownership arrangements may be. environmental, health and safety standards. In individual country or project Over most of Africa, infrastructure is poor circumstances, however, this position may need and policy regarding its provision for mining modification. Investors consider their sovereign projects is neither well developed nor clearly risk exposure significantly reduced if governments stated. Inadequate infrastructure is a deterrent to have a stake in the success of the project and both exploradon and mine development as it infrastructure provided by government or financed raises the cost and risk of mineral projects. Some by official donors can add assurance to investment companies already disregard areas of high agreements. By providing all or part of the geological potential because infrastructure infrastructure, countries may also encourage deficiencies make exploration extremely costly investments in other sectors of the economy and and the chance of a viable project very remote. open new regions to development. Infrastructure is one of the main problems For prospective mining projects, a confronting existing mines, both state and private. government has three options in respect of Examples of acute infrastructure problems infrastructure provision: no provision, provision range from the daily frustrations of in return for an equity share equal to the value of telecommunication failures in almost all SSA the infrastructure, and provision in return for user countries to the interruption of transport routes for charges. Circumstances will dictate the choice the Zambian copper mines, notably unreliability but it is desirable that government policy be of the Tazara Railway and congestion at the port spelled out in these terms. Investors will then of Dar es Salaam. A lack of infrastructure is the know the criteria upon which infrastructure may single largest constraint to development of the be provided. The reduction in this uncertainty Miferso iron ore deposit in Senegal, and a major alone will improve the investment climate. issue for development of the Perkoa lead-zinc In some situations, governments may deposit in Burkina Faso. consider contributing to the financing of For enterprises already involved in infrastructure because their discount rate could be development and production, the problems are lower than the private investor's. For example, identifiable and solutions can be devised, even there may be projects which are economically though they are often expensive and difficult to attractive to the country which appear marginal to implement. For exploration activities, however, the investor because of country-related risk the problems of access to and communication perceptions. In such cases, government from prospective areas can be intractable. construction of infrastructure in return for equity Few African governments are financially or user fees may make an otherwise marginal able to provide the necessary infrastructure to mining project meet the investor's economic support new mines or to drive roads into criteria. Where a public contribution reduces risk 46 to the private investor it also reduces the required operating contracts so that mine operators have a rate of return and may increase the mineral rent right in defined circumstances to take over available to be taxed. operatorship of a railway or a port for example, There is a risk to the government that if the on condition that they continue to provide services mine fails, the infrastructure may become idle to third parties. Mineral investors should be with insufficient revenues to service the debt. In given the right to compete with national cases where the government provides monopolies in the supply of services if they find infrastructure which is dependent upon continued it economically justifiable to do so. mining activities to be viable, it will be necessary to have some type of guaranteed minimum Environment, Health and Safety payment, backed by a credible main shareholder, to ensure that the infrastructure costs will be Introduction recovered. Such a change should be strictly limited to cost-recovery and should not be a In comparison with global and national source of "hidden taxation" as has occurred in environmental issues such as deforestation, some industrialized countries. desertification, and climate change, the effects of The creation of infrastructure for one project mining are generally localized, identifiable and often reduces costs for further exploration and specific, and adequate technology is available to subsequent projects. Examples include deal with them. The necessary measures to construction of a road or railway into an area safeguard the enviromnent and the health and where development of more than one mineral safety of the population and the workforce can be deposit is likely, and the construction of a dam incorporated in legislation and regulations. for hydro-power generation where additional low- Potential mining industry environmental cost capacity can later be added. Such public consequences can be divided into activities which investment can ensure that a mineral development effect drainage systems, the ground, and the air. project goes ahead and provide a major incentive Each mine or processing plant will have its own to future mining and regional development. particular problems and specific solutions but the Another alternative is the construction and following examples illustrate the types of ownership of infrastructure by enterprises other problems that may be encountered. than the mining company or government. In Open pit mines require substantial areas to some countries, public utilities already operate at be cleared of vegetation for the pit and waste arms length from the government or have been dumps and topsoil needs to be stockpiled privatized which opens opportunities for the separately for use in subsequent restoration. supply of infrastructure by third parties. For Potential environmental hazards associated with example, independent power companies could open pit mining are largely limited to dust and supply electricity and independent consortia could control of drainage and storm water. build and operate railways or ports. If such Underground mines are less obtrusive and smaller arrangements are possible there is every reason areas of land will need to be cleared for waste for governments to encourage them and to dumps and shaft facilities. Surface subsidence interfere as little as possible in the contract terms may occur as mining progresses and this will negotiated. affect location of buildings, tailings dams, and To ensure efficient operation the other facilities. management and operation of infrastructure Processing operations are potentially more specifically constructed for or dedicated to a hazardous. In precious metals leaching mining project should be generally the mine operations, care must be taken to instal adequate operator's responsibility. Under present African impermeable liners beneath leach pads and conditions this is appropriate even where the solution ponds to prevent escape of toxic liquids. facility is to be linked to national networks such Careful provision must also be made for control as railways, roads, and telecommunications. of storm water. Tailings must be safely Where existing or improved public facilities are to impounded and the associated solutions, which be shared with mining projects, a guarantee of usually carry traces of heavy metals and reagents, efficient operation is more difficult to secure. may need additional treatment before being Performance criteria need to be written into discharged. Dust and the handling of toxic 47 chemicals are often health and safety factors to be Environmental regulation in OECD countries considered. Smelting operations produce sulphur with mineral industries, especially the USA, dioxide and heavy metal-bearing dusts which must Canada and Australia, has provided a sharp be scrubbed before being discharged to the stimulus to innovation in environmental protection atmosphere. technology. It frequently pays companies to Most African mining operations lag behind acquire new technology as this often reduces industrialized and more advanced developing environmental damage and production costs. Best countries in environmental, health and safety practice technology is what international mining conditions. This is especially so at state-run companies can be expected to bring to exploration mining operations in countries facing severe and development in developing countries. It is budgetary and debt service problems because lack likely that promotion of private mining in Africa of funds has limited replacement of old will improve environmental performance in technology. New plant and equipment usually addition to providing direct economic benefits. provides both improved efficiency and superior However, the fact that modem private environmental performance. Environmental mining investment is likely to improve the conditions are also poor in many ardsanal mining environmental situation is no reason to default on areas. regulation. Inevitably some companies will be Environmental conditions at most modern, tempted to evade agreements if these are not privately-controlled mines are better. This is adequately framed in law and there are no, or often because the operations have been built on weak, enforcement procedures. A comprehensive greenfield sites which made it simple to environmental management program is needed for incorporate protection measures at the planning the mining industry and other sectors of the stage. Major international mining companies have economy. While it is now impracdcal to bring adopted their own environmental protection environmental practices for all African mining standards which equal, and sometimes exceed, operations up to international standards, it should internationally recognized standards such as those be feasible to set priorities, implement an of the U.S. Environmental Protection Agency. appropriate plan and achieve positive changes in Many companies initially adopted this approach two to three years on a case-by-case basis. The because of pressure from shareholders and eventual aim should be to establish effective lenders, and a sense of corporate responsibility in environmental regulations and a supporting the face of ever stronger public criticism. These institutional structure. In some countries it may reasons are still valid but companies have be appropriate, as an interim measure, to have all discovered that attention to the environment mining regulatory activities including provides them with a range of tangible and environmental matters subject to the Ministry of intangible benefits. Mines. To avoid conflicts of interest, however, Improved physical environments are a separate national environmental office will be conducive to improved productivity in the mines preferable. and plants, and in the community at large. Concern for the environment also raises the Standards and Policies international standing of the company. It becomes more readily seen as a reliable joint-venture Appropriate environmental, health and safety partner by both governments and other standards need to be set and procedures companies. This gives it a competitive edge. established for monitoring compliance. Many There are potential gains to be made from what at industrial countries have adopted standards set by first sight appear environmental costs. For neighbors with similar environments or have example, recovery of arsenic and sulfuric acid adopted the U.S. Environmental Protection from roaster and smelter gases, and retreatment of Agency standards. Such standards will perhaps tailings before re-impoundment can provide need to be modified for local conditions. Health additional revenue. In such ways problems can be and safety standards can also be adopted from turned to advantage. In short, companies are industrialized countries. In most cases it should discovering that good environmental management be straightforward to arrive at appropriate can be good business. standards. 48 Once standards have been formulated, it will host governments, and the local populadon. Their be the duty of the appointed regulatory agency to cooperation and understanding is vital. monitor compliance. In formulating legislation A Baseline Environmental Study should be and negotiating agreements there is a choice to be carried out to provide a picture of the status of made between command and control policies and vegetation, rivers, streams, air quality, and market-based instruments. Most industrial wildlife before the new project commences. The countries tend to rely on command and control baseline study provides the reference against policies which involve setting emission or effluent which the impact of the mining operation will be standards and requiring that standard to be measured and provides a valuable safeguard for achieved. The precise pollution control the company. It ensures that the company cannot technology to be used is often specified. later be blamed for environmental damage Increasing attention is being given to the existing before mining took place. A baseline design and introduction of market-based policies study cannot be rushed as it should encompass at which can be either price-based or quantity-based. least one full annual seasonal cycle. In areas with Pollution taxes or deposit-refund systems are high levels of prospecting activity and good price-based (the "polluter pays" principle) while prospects for investment, the government may tradable pollution rights or marketable permits to wish to undertake baseline environmental studies emit or discharge are quantity-based. At present, itself. some prototype instruments are being tested and The next stage is preparation of an proved in some industrialized countries. In Environmental Impact Assessment accompanied current African conditions, command and control by an Environmental Action Plan to mitigate policies adapted for local conditions are probably any negative effects. The action plan, which most appropriate. There may be opportunity for should be based on the baseline study and impact price-based mechanisms, but initially these are assessment, should be an essential prerequisite for unlikely to extend much beyond general tax investment approval. There should be transparent incentives to undertake environmental protection procedures for the preparation of each of these measures. documents by investors. The action plan should allow for modification by the company and Procedures and Agreements regulatory authority subject to agreed criteria. This follows accepted environmental practice in Africa needs to address the environmental, the United States, Canada, Australia, and other health and safety shortcomings of current mining industrialized countries. Finally, there needs to operations and ensure that new mining projects be adequate and clearly specified reporting operate at acceptable standards. Pending requirements and monitoring procedures together comprehensive legislation, problems at existing with appropriate sanctions if agreed environmental mines should be identified and initiatives taken to standards are not met or environmental problems address them. At existing operations, the go uncorrected. Ministry of Mines should insdgate environmental In addition to environmental studies and audits and health and safety reviews to establish plans, there is an important need for social impact performance and identify the most critical areas analyses for mining projects and developments. for improvement. A realistic timetable for The local community generally bears the brunt of priority actions should then be agreed with the any negative effects of mining activities (increased company and subsequently be implemented with pollution, noise, congestion and so on) whereas specific sanctions applied if the timetable is not the benefits (especially in terms of tax payments adhered to. and foreign exchange generation) mostly accrue at Standards for new projects should be set in the national level. project agreements and environmental It is important that social impact analyses be considerations such as siting of facilities, undertaken to identify and assess the impact on protection of ecologically sensitive areas, and affected communities and that suitable human health and safety, should be included at the compensation and mitigation methods be designed earliest stage possible in project planning and and implemented. There needs to be established design. It is important to create awareness of procedures and mechanisms so that affected environmental protection issues among investors, people can be adequately represented especially in 49 cases where relocation is necessary, where increase costs and reduce taxable profits, established or alternative forms of employment governments and companies have a mutual are displaced by mining activities, or where tribal interest in satisfactory settlement arrangements. peoples are affected. Reclamation of exhausted mine sites raises Environmental science and knowledge is related issues. Reinstatement of mining land to its advancing at a great rate and standards acceptable original state is frequently impracticable and even now may not be in a few years time. For if technically feasible likely to be prohibitively investors the prospect of government altering expensive. environmental regulations after their investrnent is The costs of reclamation must be met either in place is just as alarming as realizing that the by charges on the company or be shared between economic assumptions on which the decision to company and government. There are four ways develop was taken have changed. Provision must to provide for reclamation costs. All require a be allowed for changes in circumstance without costed and approved reclamation plan, which is undue penalties to company or government. likely to be theoretical since it must initially be Changes to regulations or requirements initiated prepared before the mine is started. by government or company should be subject to agreed criteria and any dispute should be settled * Allow the company to make tax-deductible by some acceptable form of arbitration. Most provisions. This is a problem for developing countries now agree to dispute jurisdictions observing English tax law since settlement by international arbitration or expert deductions cannot normally be taken until determination. actual expenditures are made. The funds provided would remain exclusively under the Compensation and Reclamation control of the companies. In negotiating environmental provisions, the v A reclamation fund under independent or limits of risks in the case of catastrophe need to joint control could be built up by company be considered. The question is whether company tax-deductible contributions in proportion to liability for unforeseen environmental damage is the estimated depletion of the ore reserve. to be limited. Most companies wish to limit their The eventual target value of the fund would liability but governments will usually argue that it be reappraised regularly in the light of is not in the public interest to do so. Liability for mining activity and any other changed environmental catastrophe is currently testing the circumstances. ingenuity of negotiators worldwide. In some mining agreements and * Government and company could fund agreed environmental codes, governments retain powers reclamation expenditures in proportion to the to suspend operations they consider shares of cash flow they have derived from environmentally damaging. The existence of a the mine. unilateral power of this sort greatly increases perceived risk to the investor. However, since * As is allowed in the USA, a carry-back of both government and company would lose tax losses could be introduced to allow revenue through suspension, they have a mutual companies to recover reclamation interest in ensuring that such powers do not have expenditures against past tax payments. to be used. Most modern agreements require companies to take prompt measures to deal with emergencies and consider expenditure on such The difficulty with both the third and fourth emergencies as ordinary operadng costs. options is that they effectively require Procedures must be available for dealing governments to provide lump sum grants towards with environmental damage claims, reclamation. The current state of public finances Compensation claims can disrupt mining in Africa makes this unrealistic. Accordingly, the operations unless procedures and funds for independent reclamation fund appears the most setflement are in place. Although such claims promising approach. 50 Sumnary Yet there is a need for efficient monitoring and regulation of the industry and this will require a comprehensive regulatory framework. Until The majorimmediate problem s tackxing the this is in place, guidelines with standards and worst environmental aspects of existing mini procedures incorporated in investment agreements operatons. Much dereliotson is to be found must suffice. around mining operations in Africa but there is no Improving the institutional capabilities of reason to suppose that new mining investment file African countries to assess environmental impacts bringdmore. Onthe contrary, it is qiite feasible of existing mines and proposed projects will to provide good environmental standards on a require external technical assistance in a form that greenfield site, and private mining companies can emphasizes training. This is best achieved be expected to instali the most efficient through short-term, frequent consultancies rather technology, which in almost every case will be than resident technical assistance. Joint-ventures the most environmentally favorable. The major between national and foreign consultants and mining companies have learned that good long-term agreements between African agencies environmental management, despite apparent - and similar agencies in industrialized countries costs, provides tangible and intangible benefits. will be important in this initiative. 51 8 AGENDA FOR AFRICA Introduction 5-10 percent real annual growth in mineral exports from the late 1990s onwards. However, This report contends that rehabilitation of the such a growth rate would require total exploration existing mining industry and a resurgence of and capital expenditures of more than US$1,000 mining investment in Africa are achievable. The million annually from the mid-1990s onwards, necessary measures to achieve these ends have over and above capital expenditures required to been described. However this will require a sustain capacity and make necessary operational sustained effort by all parties. The three main and environmental improvements. In total, Africa parties involved are (1) the African governments, would need to attract US$2,500 million per year (2) the Bank and other donor agencies, and (3) the in exploration and development expenditures. international mining companies. Funds of this magnitude cannot be generated The 1980s was a period of difficulty and by governments or their state-controlled mining challenge for the world mining industry. Winners companies, given the budgetary and debt service and losers have emerged. The winners are needs of most African countries. State companies companies which made deep-rooted adjustments; are poorly equipped to compete aggressively in closing older capacity, diversifying production, today's mining industry and local investors have and improving the efficiency of their remaining insufficient capital. The only realistic source of facilities. These companies have emerged leaner such large sums is the international mining and stronger and are now profitable. The winners industry which currently spends about US$3,000 also include countries that encouraged private million per year on exploration and US$15,000 sector mineral development such as Botswana, million per year on mining investment. Thus, Chile, Indonesia, and Papua New Guinea, all of Africa needs to attract about 14 percent of world which have attracted large investments in recent exploration and development expenditure years. compared with about 5 percent today. The losers have been companies whose There is no worldwide shortage of mining efficiency improvements have been modest, which investment capital. But Africa is failing to attract include many African state-controlled mining an adequate share of available funds away from companies, and countries which failed to adjust to other countries. Mining capital is internationally changing industry circumstances. African mobile and will go to the countries with the best countries which persisted in emphasizing project prospects. To attract significant amounts state-dominated mineral development have of mining capital, African countries need to gathered little new investment in new capacity or implement private-sector strategies in the growth during the 1980s. management of their economies, and provide Geological studies confirm Africa's plentiful investment terms and conditions competitive with resources and untapped potential. Lack of those in other countries. Private entrepreneurs mineral endowment is not the restriction. A and investors should be allowed to find, finance, country-by-country review shows that Africa's and operate mines, and market the production mineral potential warrants two to four times the within a stable framework of policies and current exploration expenditure of US$125 million regulations established and monitored by the per year and that investment of US$250-500 government. million per year could result in a pipeline of five To present Africa as a potentially rewarding to ten medium to large mining projects by the late rather than a potendally hostile environment to 1990s. This would permit Africa to achieve a investors, a two-pronged approach is needed: 52 policy and institutional reforms to reduce both * Improved fiscal terms and other incentives real and perceived risks, and promotional efforts for mining comparable to those in other to draw the attention of investors to the geological countries. potential and opportunities. - This will include making available the necessary geological data * Legislation which ensures access to land and from which prospective areas can be identified. permits secure and tradable exploration and All efforts by African governments, the mining rights. Correspondingly, the Bank, and other donors will come to nought if the obligations of investors should be clearly international mining community does not play its spelled out. part. Fortunately, this seems unlikely. The geological potential of Africa is widely * Reorganized and strengthened mining recognized. There are instances of major institutions with regulatory, promotional, international companies backing away simply and facilitating roles. Institutions should end because there is not the will or decision-making their current involvement in the operational capacity in certain African countries to grant the and marketing aspects of parastatal mining necessary exploration licenses under acceptable companies. terms. The program set out in this report is * Total or partial privatization of state mining practicable and the time for reforms is ripe both operations. Early privatization of public politically and economically. An outline of key mining assets will be the most effective actions for African governments to take to attract signal to international mining companies that new exploration and investment is set out here. govermnents intend to follow a private-sector Given the necessary resources and cooperation strategy. from governments, other donor organizations, and companies, the Bank believes it can assist * Provision of private, incentive-based substantially both as financier and intermediary in marketing systems to reduce illegal regenerating the mining sectors of the countries of production and export of minerals by artisan Sub-Saharan Africa. miners. Actions by Governments * Introduction of adequate environmental, health and safety regulations. Environmental The responsibility for change in the first protection plans should be included in new instance is on African governments. Governments project agreements. have a choice. They can continue "business as usual" in which case mineral production, with few Rejuvenating Africa's mining sector will exceptions, can be expected to stagnate, or they require promotional initiatives to interest and can take the initiative to accelerate growth. The attract foreign mining companies. This will mean current good profitability of many mining ensuring that mining companies are kept informed companies provides an opportunity for the growth of changes that may be taking place. It should strategy. also include establishment of promotional offices The most important move is to create a to provide potential investors with information suitable environment for private investment. This and to facilitate their dealings with government requires: and national industry. Reformed Geological Surveys will need to establish databases on past * Continued adjustment of macro-economic exploration, geology and mineralization, and policies, especially market-based foreign make available geological and thematic maps. exchange and trade policies. Establishing an effective regulatory environment and institutional structure may take * A clearly articulated mining sector policy some years in most African countries. In the that emphasizes the role of the private sector meantime, governments can take immediate as owner and operator and of the initiatives by negotiating individual exploration government as regulator and promoter. and investment agreements. For this, 53 governments need to establish their general terms avoiding overlap between assistance from different and conditions and put together a core of qualified donors. officials capable of responding to investor But few countries have prepared such a enquiries and negotiating agreements. In statement or have the capabilities to do so. In this countries with little or no mining experience, the donors should be prepared to provide assistance as core group would probably require support from necessary. The mining sector policy statement expeienced expatriate consultants. should be closely related to and supported by the country's macro-economic and trade reform efforts. Actions by the Bank and Other Donors The overall drive of the Bank and donors efforts should be directed at reducing country The Bank and donor community also have a risk. The various policy and regulatory reform choice. They can stand back and wait to see efforts can assist in designing appropriate legal whether governments make the proposed changes, safeguards to reduce country risk for the investor or take the initiative. In either case, revitalization and protect the interests of the country. of mining in Africa will require a concentrated Institutional reform measures can assist with effort from the donor community, including the ensuring that the rules are implemented in a stable Bank. The Bank should be prepared to assist in and consistent manner. In addition, the Bank and the reform of mining, taxation, and investment donors (such as the European Investment Bank, codes, and the overall policy and institutional the EEC SYSMIN facility and the African framework. It should also be prepared to Development Bank) can reduce country risk by participate in mobilizing finance for new mines directly participating in the financing of projects and associated infrastructure on a selective basis, and by being parties to agreements between where governments have a minority participation investors and host countries. Agencies such as in joint ventures and where a qualified private ICSID can provide for arbitration procedures to partner takes the lead as operator and majority resolve disputes between investors and owner. governments. Finally, agencies such as MIRGA, A strong trusted presence is needed to act as OPIC, U.S. Exim Bank, EFIC in Australia and a facilitator in negotiations between governments EDC in Canada can provide specific political risk and companies. Many mining sector insurance and compensation if particular rules are administrative institutions in Africa have not been broken. exposed to the negotiation and operation of In addition to initiatives to reduce country mining business in the rest of the world. This risk, the Bank and the donor community should tends to make them ineffective representatives of support promotional efforts and provide a strong their governments and difficult working partners data base for potential investors. An important for interested investors. Investors need "someone task will be providing technical assistance to competent to talk to and work with" if they are to establish an adequate data base for potential be attracted away from other countries. The investors including the compilation and indexing presence of an independent voice could help of all available data and information regarding reconcile the needs of investors with government's geological and mineral potential, the preparation fears of being exploited. It is noteworthy that the and publication of topographical, geological, presence of the IFC as an equity partner in a mineral inventory and other thematic maps, the number of recent Africa mining projects has reprocessing of available basic geological data and proved reassuring to both sides. preparation of promotional brochures and The preparation of a clear policy statement presentations to investors. provides a structural process for the government In summary, the role of the Bank and the to grapple with and think through key issues donor community would include: regarding mining sector development. Such issues include, the role of the public sector and Policy and Regulatory Reform the private sector, the degree of tax burden and the selection of tax collection mechanisms. Such a policy statement would provide the country with * Maintaining sound macro-economic a framework for ensuring consistency and policies. 54 * Establishing clear mining policies with Exploration and Investment Promotion updated legislation and fair and competitive fiscal terms. * Helping geological surveys assemble and re-evaluate information using modem Institutional Strengthening techniques, and publishing geological and * Designing model investment agreements other maps. and assisting in negotiations with investors. * Supporting training efforts, introducing computer technology for geological * Assisting with analysis of environmental database preparation and informadon issues and design and implementation of systems. environmental standards and safeguards. * Providing technical assistance for the * Designing and supporting promotional privatization of parastatal mining activities including brochures and companies. presentational events. * Supporting development of strong * Participating in mobilizing the necessary capabilities to administer the mining code financing for mine and infrastructure and negotiate agreements. investments on a selective basis. 55 LA AFRICA-OWNERSHP AND MANAGEMENT OF MINING PRODUCTION N 1989 VALUE OF PRODUCTION (S Millions) MAIN GOVT.SHARE OF PRIVATE .v STATE COUNTRY MINERALS ENTERPRISE OWNERSHIP OPERATOR: PRIVATE PRIVATE STATE An_ola_ Diamonds __ENDIAMA 100% 230 Botswana _ Cobalt/Nickel/CoDoer . BCL _ 15%- 200 Diamonds Debswana 50% 1300 Burkina Faso Gold SOREMIB 100% 30 CAR Dia-mon-ds 0% 40 Ethiopia Gold EMRDC 100% 10 Gabon Uranium COMUF 25% so Maneanese COMILOG 30% 175 Ghana Bauxite Ghana Bauxite 55% 5 Gold Ashanti Goldfields 55% _110 Gold SGMC 100% 20 Gold several 10-30% 20 Diamonds GCD 100% s15 Maneanese GNMC 100% 15 Guinea Bauxite CBG 49% __325 Aluminum Friguia 49% 130 Bauxite OBK 100% 75 Diarnonds Aredor 50% 5 Gold .AUG 49% 15 _ Gold several 0 % 30 Kenya _Fluorspar Kenya Fluorsvar _ 50% _10i [ Liberia_ _ __ Iron Ore Bon_ Mining Co. 50% 120 | ~~~~~Iron Ore L*AMCO 62% 80 Madaeascar Chroniite Kraomita Malagasv 90% 10 Mali Gold Syama 20% 25 Mauritania Iron Ore/Gold/Corper SNIM 73% 80 Namibia Covper several 0% 125 . Diamonds CDM 0% 320 Gold Otiihase 0% 10 Lead/Zinc several 0% 60 Tin IMCOR Tin 0% 10 Uranium Rossing 0% 250 I Miscellaneous several 0% 25 1 SUB-TOTAL 870 2910 295 AFRICA-OWNERSHIP AND MANAGEMENT OF MINWG PRODUCTION IN 1989 VALUE OF PRODUCTION (US$ Millions) MAIN GOVT.SHARE OF OWNERSH _P: PRIVATE .IV STATE COUNTRY MINERALS ENTERPRISE OWNERSHP OPERATOR: PRIVATE PRIVATE_ STATE MNier Uranium SOMAIR 33% 80 Uranium COMINAK 31% 150 Niferia Tin several 0% 10 Rwanda Tin several 0% 5 Seneeal Phosphate CSPT 50% 55 Phosphate SSPT 50% 25 Sierra Leone Bauxite SIEROMCO 0% 25 Diamonds DIMINCO 51% 10_|| Rutile Sierra Rutile 0% 55 Sudan Gold Sudanese Minine 100% _ Swaziland Asbestos Havelock 40% 10 Diamonds Dokolwavo 50% 20 Tanzania Diamonds Williamson 50% 10 Gold STAMICO 100% Togo Phos&hate OTP 100%9 115 Zaire Cobalt/Cadmnium GECAMINES 100% 170 .. Conver GECAMINES 100% _1100 Coppe SODIMIZA 100% 145 | l ~~~~~Diamonds MIBA 80% 90 | ~~~~~Diamonds several 0% 160 | ~~~~~Zinc/Silver GECAMINES 100% 90 _ _ _Tin SOMINKI 28% 15 Gold SObICNKs 28% 15 . 4 Gold several 0% 15 |Zambia Co/CWlPb/Zn/Au/Ae ZCCM 60% 14 |Zimbabwe Asbestos svrl0% 60 | ~~~~~Chrornite seveml Q% 25 | ~~~~~Cobalt/Copper/Nickel several 0% 110| | C~~~~~oppe Mhanruma Mines 55% 30| Gold .Sabi Consol 100% 40| Gold several 0% 135 Iron Ore Buchwa 100% 10 - GRAND TOTAL 1470 3325 3405 u. Annex 1 ACRONYMS Acronyms Enterprise Country AUG Aurife de Guinee Guinea BCL BCL Limited Botswana COMILOG Compagnie des Mines d'Uranium de Franciville Gabon COMUF Compagnie Miniere de I'Ogoone Gabon CBG Compagnie des Bauxites de Guinee Guinea CDM Consolidated Diamond Mines Limited Namibia COMINAK Compagnie Miniere d'Akouta Niger ENDIAMA Emprisa Nacional de Diamantes de Angola Angola EMRDC Ethiopian Mineral Resources Development Corporation Ethiopia GCD Ghana Consolidated Diamond Limited Ghana GNMC Ghana National Manganese Corporation Ghana LAMCO Liberian American-Swedish Minerals Corporation Liberia OBK Office des Bauxites de Kindia Guinea MIBA Societe Minibre de Bakwanga Zaire SGMC State Gold Mining Corporation Ghana SOREMIB Socidte de Recherche et d'Exploitation Minibres de Burkina Faso Burkina Faso SNIM Societe Nationale Industrielle et Mini6re Mauritania SOMAIR Societe des Mines de L'Air Niger CSPT Compagnie Senegalese des Phosphates de Traiba Senegal DIMINCO National Diamond Mining Company Sierra Leone GECAMINES Generales des Carrieres et des Mines du Zaire Zaire OTP Office Togalaise des Phosphates Togo SOMINKI Societe Minibre et Industrielle de Kivu Zaire SIEROMCO Sierra Leone Ore and Mineral Company Sierra Leone SODIMIZA Societ6 de Developpment Industriel et Miniere du Zaire Zaire SSPT Societe Senegalese des Phosphates de Thies Senegal STAMICO State Mining Corporation Tanzania ZCCM Zambia Consolidation Copper Mines Limited Zambia 58 Annex 2 AFRICA COUNTRY ASSESSMENTS: POTENTIAL AND EXPLORATION REQUIREMENTS Introduction Category E: US$9 million or less over five years (that is, less than US$2 million The following assessments are country per annum). summaries of mineral potential and estimated minimum exploration requirements over the next Category A Countries five years. The following countries are not covered: Cape Verde, Comoros, Djibouti, Namibia Equatorial Guinea, Gambia, Lesotho, Mauritius, Sao Tome and Principe, and the Seychelles, Namibia occupies a favorable structural which have no significant mineral potential other position astride the Damaran Orogenic Belt which than limited industrial minerals because of their is sandwiched between the productive Namaqua size and geology. The exploration estimates are craton to the south and the Kasai-Congo craton to based only on the requirements for further the north. The geology provides Namibia with development of the geological data-base, the varied and considerable mineral potential, and further recognition of mineralized belts and their experienced private exploration has led to an characteristics, the interpretation of data, limited extremely high level of knowledge and mining evaluatory work on specific mineralized deposits development. Hundreds of mineral prospects are and the publication of maps and reports. The known and mining is the backbone of the estimates do not include requirements for detailed economy. The country is a medium level deposit evaluation work or development of producer of copper, lead, zinc, and silver, and a reserves (pre-feasibility or feasibility studies). lesser producer of gold, lithium, tin, tungsten, They are grouped in the following five categories: iron-pyrite, fluorite, rare-earths, and gemstones. The Tsumeb deposit is one of the world's greatest Category A: US$100 million or more polymetallic orebodies. Coal reserves in the over five years (that is, over US$20 mil- Karoo structures are upwards of 500 million lion per annum). tonnes but production is at present uneconomic. An extensive high-quality graphite resource has Category B: US$50-99 million over five just been outlined. Namibia's mining industry is years (that is over, US$10-20 million per currently dominated by uranium (Rossing), and annum). diamonds. Namibia produces about US$250 million worth of uranium. Diamond production Category C: US$2549 million over five is valued at over US$300 million, all from unique years (that is, over US$5-10 million per sand-dune, beach and offshore detrital deposits, annum). even though many primary kimberlites are known. The potential is favorable for discovery of Category D: US$10-25 million over five diamond-bearing kimberlites beneath the Kalahari years (that is, over US$2-5 million per sands. Continued exploration is fully justified and annum). is required to replace present reserves with new 59 Annex 2 deposits, extend the life of other operations, and Zimbabwe continue diversification. As in Ghana and Zimbabwe, which support a considerable mining Favorable granitic craton-greenstone economy and which have been subjected to a high terrane covers the eastern two-thirds of Zimbabwe level of exploration, continued exploration will as well as covering rocks in the west and bearing require more detail and will consequently become large coal deposits. The Limpopo mobile belt more expensive per unit of ground investigated. dominates in the south-east. The granitic craton is cut by the famous Great Dyke which extends Zaire north-south almost across the entire country. Except for the Great Dyke there are strong Zaire is the second largest country of the geological similarities between central Zimbabwe region, has a substantial mining economy (80 and northern Zaire. With varied geology and a percent of exports), is the third largest official degree of mining development and associated diamond producer in the world, and has a infrastructure more advanced than most countries substantial clandestine production of diamonds and of the region, it is not surprising that more than gold. Zaire has an extremely varied and fifty minerals are produced. Principal resources favorable geological potential with close to fifty are gold, coal, asbestos, copper, nickel, and percent of known world cobalt reserves and 10-20 chromite, which combined account for about percent of world diamond reserves but is eighty-five percent of mineral production by substantially underinvested and underdeveloped. value. The greenstone .based Midlands belt For example, two of the world's richest copper produces the bulk of the country's sixteen metric deposits, Tenke and Fungerume, lie idle. The tonnes per year gold (five times that of Zaire in gap between mine production and potential is one fifth the area). Geologically, this belt is very probably the largest in the world. A major similar to northern Zaire and the Abitibi belt of producer of copper, cobalt, zinc, and diamonds, Canada. Potential for new gold discoveries and Zaire also produces cadmium, silver, germanium, further developments in chromite, and platinum lead, tin, tungsten, colombo-tantalite and limited group metals are very good. There is limited rare-earth metals. Limited coal mining is used for emerald mining. Zimbabwe produces major local consumption in the east. The gap between amounts of asbestos, lithium and refractory production and potential is most marked with minerals such as graphite, andalusite, kyanite and respect to gold. Total production is close to three sillimanite. Investment by the foreign private metric tonnes per year but even known potential sector is on the increase but foreign exchange would dictate a level closer to thirty metric tonnes restricdons have been a deterrent. Condnued per year. Minor new foreign investments are exploration is more than justified and must be directed at two to three known gold deposits. considered a priority. Foreign private investment is limited to minority shareholding in the industrial diamond mining Category B Countries operations at Mbujimayi and the decreasing tin-tungsten operations. Mining will never live up Angola to its potential untl major administrative changes are made and state dominance ended or Angola has considerable underdeveloped considerably reduced, and mining has mineral potential and there has been an considerable potential to bring about change at exploration lapse of close to fifteen years due to every level of the economy. A dramatically the civil war. The north-eastern diamond fields increased and continuous exploration effort is are part of a major diamandiferous district which technically fully justified. extends northward into Zaire but the region 60 Annex 2 remains underexplored and underdeveloped. metals. A new mine was recently developed at Angola could become the largest producer of gem Lega Dembi in the south with planned output of quality diamonds in the world. Good potential three metric tonnes per year gold. This mine lies also exists for gold, base-metals, iron ore, within a belt of considerable potential but phosphate, carbonatite-associated rare-earth exploration and evaluation work has been limited metals, and other gemstones. A considerable and a massive infusion of capital and modem exploration effort is justified and demanded. exploration technology is required. The northern areas of Tigray and Eritrea must be considered Botswana virgin ground even though small zinc and copper deposits had been outlined before the outbreak of Geologically Botswana is characterizedby war. The rift system and associated shallow sea part of the South African craton and is cut by two and lacustrine sediments provide a good mobile belts; the Damaran in the north-west and geological environment for industrial minerals; the Limpopo structure to the south-east which potash, soda-ash, clays, and diatomite among carries the Selebi-Phikwe copper-nickel deposit. others. Ornamental stones are being exported on The covering Kalahari sands inhibit exploration a small scale but these and other low unit value over much of the country. Diamonds are the industrial minerals directed at the export market major mineral product and the possibility of suffer from lack of infrastructure. discovering new deposits is reasonable. There is some potential for other copper-nickel deposits, Ghana chrome, gold, and platinum group metals. On- going exploration is aligned towards similar A major intra-cratonic structural discoveries in the south of the country along the dislocation associated with volcano-sedimentary Limpopo extension. On the industrial minerals greenstone (Birrimian) terrane bears some of the side, the Sua Pan soda-ash project which has most spectacular gold mineralization in Africa. reserves for 1,000 years, is a recent major Until recently this traditional industry was in development. decline because of state-dominance, a deteriorating economy, and a lack of Ethiopia re-investment, exploration and reserve development. By adopting modem policies the Gold mining has been a traditional government has reversed this trend, private activity for more than 2,000 years but industrial investment has increased and total annual gold scale mining is in its infancy. Ethiopia is not production exceeds twenty metric tonnes per year dominated by cratons and intervening mobile belts from all sources, making Ghana the largest Afri- but lies within the so-called Pan-African can gold producer outside South Africa. Major Afro-Arabian domain. Known gold and base potential still lies with gold within the known metal mineralization is associated with old mineralized belt which is characterized by shear remobilized pre-Rift structures in the Proterozoic controlled gold quartz lodes, the Witwatersrand- crystalline basement where these "windows" are type conglomerate reefs (Tarkwaian). The north exposed through the younger volcanic terrane. and north-west of the country has been subjected Dominating the geology and topography is the to very limited exploration work. Ghana has been Red Sea-East Africa rift system with associated a traditional diamond producer but the readily volcanism which obscures most of the potential accessible deposits have been depleted and only metalliferous structures. These are mainly low-grade alluvial deposits remain. Production exposed in the north (Tigray and Eritrea), west has decreased tenfold over the last decade. (Wollega), and south (Sidamo). Despite this, Because of the relatively small areal extent of the there is considerable potendal for gold and base country and the considerable diamond activities in 61 Annex 2 the past, it is questionable whether a further land of both Egypt and Saudi Arabia. It is one of significant diamond resource base is present. the few countries in the region with chromite mineralization but production has dropped over Mozamnbique the last two decades from about 20,000 metric tonnes per year to less than 10,000 tonnes. Little Eastern Mozambique is an area of modem nineral exploration has been carried out geologic structural importance between the although there is good potential for gold and Kaapvaal craton of South Africa and Zimbabwe base-metals in greenstone-volcanic terrane, and the Tanzanian craton to the north. The particularly that associated with the cratonic and Limpopo mobile belt extends into the western part pericratonic areas in the west and south-west. of the country. As a result, Mozambique The possibility of diamond occurrences in the possesses considerable mineral variety, most of south-west was investigated by the UNDP with which is little known. The development priorities negative results. However an eastern extension of are gold, heavy minerals, coal, precious and the diamondiferous sediments of the central semi-precious gemstones, and some industrial African Republic and kimberlite recognition is minerals. There have been recent investments in still possible. A large exploration effort including gold and heavy minerals. In the Manica area data compilation and reassessment is well alone, over forty abandoned gold mines are justified. A major deterrent is lack of known and the future resource base is probably infrastructure and distance from ports. For many more than fifty tonnes. The Moatize coal basin in years to come, priority must be high unit value Tete province is relatively well known but products. railroad rehabilitation will be required to substantially increase production. Close to three Zambia billion tonnes of reserves are indicated at Minjora (Zambesi). Gemstones are being mined on a Zambia has a very favorable regional small scale and include garnet, tourmaline, beryl, geological setfing. The copper-cobalt deposits are emerald and topaz. The potential for developing unique, and with their extension into Zaire form this industry (and possibly diamonds) is the world-famous Copper Belt. Copper ore considered good. The potential for copper, reserves are still probably about two billion nickel, platinum group metals, and non-metallics tonnes. The Broken Hill (Kabwe) zinc-lead mine such as apatite, fluorite, and graphite is fairly has been in production for close to ninety years good. A considerable investment in further and reserves are becoming limited. Now exploration is required. state-dominated, the industry is in decline because of lack of reinvestment and general inefficiency Sudan but private investment is on a slight increase and there is good potential for gold, further base-metal Sudan is the largest country in Africa and deposits, nickel (Munali), and gemstones. More one of the least developed. Despite considerable than 200 gold occurrences are known and, once geological variety it supports no major mining the right investment climate has been created, industry. Structurally, the country straddles the further investment should yield dividends. The divide between one of the northernmost cratonic economics of developing known manganese areas of Africa (Chad) and the Afro-Arabian reserves and manganese derivatives are still not domain. Recendy two or three small gold mines viable although the development of coal, iron-ore have been developed in the Red Sea hills. These and phosphate reserves may be possible in the deposits have been worked intermittently on a medium to long-term. The estimated production small scale throughout history and are similar to of emeralds, aquamarines, amethysts, and other deposits along the fault-controlled coastal hinter- gemstones is over US$200 million per year but 62 Annex 2 only twenty five percent of this enters the formal Guinea economy. There is also good potential for fluorite and numerous other industrial minerals. Guinea produces close to twenty percent A strong and continued increase of major of the world's bauxite and reserves are almost exploration programs must be encouraged. unlimited. The country is also a high-quality (seventy five percent gem-dominated) diamond Category C Countries producer and there is considerable illicit gold mining which if controlled and organized could Burkina Faso produce considerable additional revenues to government. Investment in gold exploration is on Basic exploration financed by the UNDP, the increase and there is good potential in the the World Bank, the government and two major greenstone volcano-sedimentary belts for both international mining companies has led to the alluvial and hard-rock discoveries. There is very recognition of considerable gold and base-metal good geological potential to increase mining's potential associated with well-developed contribution to the economy. As in many areas of greenstone sequences. Artisanal miners in the West Africa (such as Burkina Faso, Liberia, and district produce more than three metric tonnes per Ghana), heavy laterite cover impedes exploration. year gold but mining is still in its infancy. The Exploration for minerals other than bauxite and Perkoa zinc deposit discovered in 1983 is now in iron ore is fully warranted with emphasis on new a pre-development stage but a large manganese diamond and gold discoveries. deposit at Tambao in the north cannot be developed because of low ore-quality and a lack Kenya of infrastructure. Continued exploration and data compilation is a high priority. Geologically, Kenya lies astride the north-east tip of the Tanzanian Cratons and Gon associated greenstone-ironstone formations north of the Tanzania border. This area has produced Manganese and uranium dominate the small quantities of gold and has the only mining sector. There is still over 50,000 mt commercial scale metal mine in the country, the contained uranium in reserves at the four principal now closed Macalder mine. Airborne geophysical mining areas and potential for discovery of new work in this and in the Kisii area led to the deposits. The Boka-Belinga-Mekambo iron ore discovery of substandal iron sulphide deposits but deposits could eventually be suitable for expected associations with base-metals and gold development if and when the Trans-Gabon were not proved. Known coastal lead-zinc railroad is extended and port facilities constructed. deposits aligned with the Afro-Arabian geological There is good potential for the discovery of gold, domain have been mined in the past. Like base metals, carbonatite-related rare earths, -Ethiopia, Kenya is dominated by the East African phosphate and possibly diamonds. Barite deposits rift system and its associated volcanism and are known and may supply local demand for lacustrine sediments. The principal mining drilling muds and talc could possibly find export products of fluorite and soda-ash are associated markets. The medium-term potential, however, with these events. Tin has been mined on a small appears to lie with manganese, uranium, iron ore, scale and recent work in the north has recognized and gold. The government has spent in excess of other tin potential and a possible extension of the US$50 million over the last ten years with Ethiopian (Adola) gold belt towards the Turkana bilateral assistance. region. Small amounts of clays are mined to 63 Annex 2 satisfy local industries and there is potential for forty years but reserve depletion has caused gem graphite and vermiculite. Kenya also supports a diamond output to decline from over 200,000 modest gemstone industry which produces a carats per year to less than 100,000 over the last unique green garnet (Tsavorite), rubies, sapphires decade. More recent developments have included and aquamarines. Kenya is the first country in other gemstones (garnet, ruby, sapphire, Africa to produce star-sapphires (more common in tanzanite) and a resurgent interest in gold, Burma and Sri Lanka) but further potential is particularly in the north-west. The Kabanga difficult to assess. Continued exploration and nickel deposit, also in the north-west has assessment work is justified with priorities being potential. There are iron ore deposits and small gold, base metals, and gemstones. coalfields in the south-west and base metals with silver have been mined in the past but geological Madagascar potential is limited. The best-known industrial mineral deposit is the high quality Pugu kaolin Madagascar contains numerous and varied clay. Phosphate is being mined on a small scale. mineral occurrences but on an industrial scale is Rare-earth metals associated with carbonatites only producing chromite, graphite, some (Wigu) occur but worldwide markets are easily non-metallics, and semi-precious gemstones. The satisfied from known low-cost sources in potential for increasing chromite reserves is good. California and Brazil. Priority should be given to Graphite reserves are large but may lose the high-unit value products: the Tanzanian international market if recent massive Namibian craton-related Nyanzian greenstones for gold, new discoveries are brought on stream. Artisanal gold diamond resources and other gemstones. Good mining is very active producing probably 2-3 geological and geophysical data exist and metric tonnes per year but less than twenty five recompilation, interpretation and selective percent enters the formal economy. exploration is justified. Copper-nickel occurrences are known and there remains potential for discovering economic Category D Countries deposits of this type. In the short-term the major development is likely to be the heavy mineral Burundi deposits along the east and south-east coasts where large deposits of ilmenite, monazite, and The government has made major efforts zircon have been evaluated and await to develop the mining industry over the last development. Ornamental stones, kaolin, mica, twenty years but has met with limited success. and talc are produced on a limited scale. The Burundi is situated between the Kasai-Congo island is famous for its wide variety of craton on the west and the Tanzania craton to the semi-precious stones; among them amethyst, east. The mixed geology of metasediments and agate, citrine, garnet and tourmaline. Numerous metavolcanics with a variety of intrusives is radioactive minerals are known and have been generally favorable for metallic mineralization. A produced. The reserve base is difficult to assess. large nickel-laterite was discovered in 1973 and A very diversified mining economy could be feasibility studies pursued local peat deposits as a developed once the sector is opened to private potential source of power for ferro-nickel industry. production but the economics of the project are still unfavorable. Tin, tungsten, tantalum, Tanzania rare-earth metals, gold, and phosphate have all been mined and some ardisanal gold and tin is still The mining economy of Tanzania has produced. Recently gold exploration has been been dominated by one diamond mine for the last given priority and there are lesser possibilities for 64 Annex 2 diamonds. Considerable geological mapping and and base-metal discoveries, and possibly exploration has been financed by the UNDP and diamonds. a wide range of bi-laterals organizations. Nigeria Central African Republic The country lies astride and to the east of Gold and diamonds are produced by about the major regional mobile belt between the Chad 20,000 artisanal miners. Official diamond and the West African cratons. Granitic intrusives production is estimated at US$40 million per year into the metamorphic basement are the source of and unofficial production at a similar level. long-exploited tin and associated metals. Tin There is good potential for both alluvial and production has suffered from declining reserves, hard-rock gold along the north-west extension of lack of investment, low prices, and high the north-west Tanzanian and northern Zaire production cost: production has halved in the last greenstone belts. The possibility of discovering decade. State dominance has precluded the original kimberlitc source of the diamonds development of other minerals such as lead-zinc should not be overlooked. for which reserves could be considerable. Deposits are structurally emplaced within marine COte d'Ivoire platform sediments. Coal and iron-ore resources exist but are of insufficient quantity and quality to Although much exploration has been feed the Ajaokuta steel complex. Gold potential done, the type and extent of this work has been has been largely ignored but is certainly present, inadequate in relation to geological potential and particularly along volcano-sedimentary greenstone has only identified small gold deposits. There is sequences in the west. Priorities should be gold a good possibility of discovering viable gold and and base metals: continued exploration is fully base metal deposits along the southern extension jusdified. of the favorable geology of south Burkina Faso and Mali. The discovery of viable diamond Rwanda deposits is also possible. The Mount Nimba iron ore deposits on the borders with Guinea and Landlocked in the heart of Africa, Liberia are well documented. Some small heap- Rwanda can only aspire to the production of high leach gold operations have recently been unit-value minerals such as gold. Traditional tin established. and associated metal production has declined dramatically, as in Burundi. Efforts are being Mali made to revive the industry through cooperatives but prices and costs are unfavorable. Major gold About US$55 million has been expended exploration and other efforts financed by the on exploration programs in Mali over the last UNDP have not led to economic discoveries decade. The UNDP, France (BRGM), the EEC, although potential is reasonable. Limited and Belgium have been recent major contributors. continued exploration and evaluation work is Carbonatite-held rare-earth metals are known in justified. the north but are unlikely to contribute to the economy in the foreseeable future. Extensive Category E Countries exploration for uranium provided negative results. A new gold mine was recently brought into Benin production in the south and some three metric tonnes per year are produced by the artisanal Most of the country is dominated by high- sector. There is good potential for further gold grade metamorphics of the Benin-Nigeria shield; 65 Annex 2 gneisses, schists, quartzites, and limited volcano- reasonable potential for gold. Iron ore occurs sedimentary formations. This geology is not very near the Gabon border and there is a major favorable for metallic mineralization. Placer gold high-grade potash deposit in the south. Flooding has been worked in the extreme north-west and of initial mnine infrastructure in 1977 has there is some potential for further placer and prevented further production. hard-rock occurrences. There have been efforts at producing phosphate rock for local usage Guinea Bissau without much success as the material is hard and difficult to treat. Continued limited exploration is The country has no mining industry to jusfffied. speak of and because of its size mining is unlikely to be significant. There is some potential for Cameroon gold, bauxite, heavy mineral sands, and industrial minerals for local use. Recently the UNDP Cameroon has favorable geology for the assisted in the design of the country's first mining discovery of gold and base metals but to date code and establishment of a National Mining exploration has not led to the discovery of Fundto be financed from taxes on future economically viable deposits. A potential bauxite production. These specialized funds have rarely deposit is isolated with no infrastructure. There been effective elsewhere. is also iron ore and rutile potential. Liberia Chad In relation to the size of the country Since Chad is landlocked in the heart of considerable prospecting and exploration has been the continent, mineral development would need to carried out, particularly for gold and diamonds. be based on high unit value products. The Iron-ore has dominated the mining economy and country is underlain by one of the three Saharan may continue to do so through the proposed cratons but younger sediments obscure much of Mount Nimba development with Guinea. A the basement in the center and south. Generally major mining group has recently obtained the geology of Chad is little known and there are exploration rights in the north-west where there virtually no mining activities. In the north, are good prospects for gold and a southern uranium, tin, gold and indications of base metals extension of the Guinea diamond fields. Much occur and bauxite is known in the south-west actual diamond production represents smuggled (Mondou). Because of debilitating politics and stones from surrounding countries. poor infrastructure, little mineral development can be anticipated though the potential must be Malawi considered reasonable from the technical point of view. The UNDP is almost alone in providing Malawi is both landlocked and is one of assistance. the smaller countries of the region. Apart from known sub-economic deposits of uranium and Congo rare-earths, there are few indications of metalliferous deposits and geologically, prospects Current production is limited to less than are poor. Mining is confined to industrial 10,000 metric tonnes per year copper, lead, and minerals and coal for local usage. More recently, zinc concentrates, and artisanal gold. Geological semi-precious stones have become significant. potential is reasonable particularly in the north Rubies and sapphires are mined at Ntchen, and and south but much of the country is landlocked aquamarine, amethyst, topaz, tourmaline and and lacks infrastructure. There appears to be emerald at Mzimba. The resource potential for 66 Annex 2 expansion of the gemstone industry in not known. Senegal Potential exists for industrial minerals such as strontianite, monazite, corundum and vermiculite. The Birrimian greenstone sequences There are numerous coal basins but seams tend to which carry many West African gold and base be highly faulted and discontinuous. In the metal deposits are extremely limited in Senegal. Ngana, Kaporo, North Rukuru and Livingstonia Despite considerable exploration, only one areas, geological reserves are estimated at more potential gold mine has been outlined and only than 500 million tonnes and measured reserves at about 200 kilograms per year is produced by Ngana are about fifteen million tonnes. The artisanal miners. Known iron ore and heavy economics of coal for export cannot be regarded mineral deposits may be developed in the future as promising but more effort needs to be placed if transportation issues can be resolved in an on expansion for energy and fuel purposes. economic manner, but for some years phosphate Unfortunately this is not likely to be taken up by mining will continue to dominate the sector. the private sector. Potential is limited but data compilation and re-evaluation should be carried out. Mauritania Sierra Leone the mining economy and reserve base of Mauritania is dominated by iron ore and with Mining in Sierra Leone has meant almost several billion tonnes of reserves iron ore will exclusively diamond mining until the last decade continue to dominate the economy for decades to when heavy mineral deposits were developed. come. Gypsum for local use is being produced on Sierra Leone diamonds are characterized by the a small scale and potential exists for phosphates, high percentage of gem quality stones and further rare-earth metals, and associated fluorite and good potential is strongly indicated. Considerable barite. Several areas of gold and copper exploration work has been done for gold over the mineralization are known but only one copper- favorable greenstone-ironstone sequences but to gold mine is in production despite considerable date there have been no major alluvial or previous exploration efforts. Although potential hard-rock discoveries. Numerous gold indications for other base metal and gold projects cannot be are however known and many have been worked rated as favorable exploration should condnue at on a small scale. Continued gold exploration a modest level. should pay dividends. There are few indications of base metal and platinum group mineralization. Niger Somalia The country's landlocked position and poor infrastructure may limit mining development Structurally the country forms part of the even though there is favorable geology for gold Afro-Arabian domain and is similar to eastern and base-metals in the southwest. This area Ethiopia in being dominated by sedimentary rocks currently produces about one tonne per year gold and superficial cover linked to the structural from small artisanal operations. Uranium in the development of the Red Sea-East Africa rift north has dominated the mining sector to date but system. The geological prediction is that Somalia future market requirements are in doubt. Coal is unlikely to become a major mining country. In deposits are under development for local energy the north and south, granitic intrusions and generation and there are possibilities for associated pegmatites cut the sedimentary horizons phosphate and, perhaps, diamonds. Canada, the and there are some showings of gold, piezo- EEC, UNDP and France (BRGM) have been electric quartz which was hand-mined in the past, recent exploration contributors. and secondary uranium oxide deposits. Beach 67 Annex 2 accumulations of heavy minerals appear to be ore's high cadmium content. Phosphate reserves sub-economic. Gold-bearing sand dunes have are sufficient for thirty years at the present been recorded and in the northeast small production level (3.5 million metric tonnes per occurrences of lead-zinc mineralization similar in year) and this activity will continue if cadmium structure and type to those of the coastal area of levels can be reduced and downstream processing Kenya and cross-structure areas of Yemen are to produce phosphoric acid and tri-sodium known. A large sepiolite deposit could be used phosphate established locally. A potentially for the manufacture of meerschaum products. A favorable mobile belt for gold and possibly base low-level of exploration and assessment work metal mineralization is recognized but exploration aimed at the industrial minerals sector is justified. has been limited. Limited iron-ore reserves may be developed and there is some potential for Swaziland chromite. On-going exploration to diversify mineral potential is fully justified. The UNDP Swaziland lies on the edge of the and France (BRGM) have been major recent Kaapvaal craton and although limited in size has contributors to exploration activities. varied geology which has been reasonably well Ugada explored and exploited. A major greenstone belt occurs in the north-west and as elsewhere in The Kilembe copper-cobalt mine Sub-Saharan Africa, Karoo rocks carry all coal dominated the sector until its closure in 1977. reserves. Asbestos, diamonds and coal are the Considerable reserves remain but economic major mineral products although diamond reserves viability is doubtful. The only other previous are depleting. Coal reserves are over one billion semi-mechanized metal mining operations were tonnes. Present gold production is negligible but for tin and tungsten which occur in scattered numerous gold mines have produced over the last deposits of limited tonnage. This type of deposit 100 years and there is good potential for further does not bode well for a revival. Small-scale gold discoveries. Gold is also present in many of the mining exists and there is reasonable potential for known iron-ore deposits. More priority should be the discovery of commercial-scale deposits. A accorded gold exploration and evaluation work. major salt project has so far failed and the economics of phosphate mining for the production Togo of fertilizers using iron sulphides from Kilembe seems doubtful because of marketing and high The mining sector of Togo has been transport and infrastructure costs. Continued dominated by phosphate but exports to Europe exploration, data compilation and evaluation work will become increasingly difficult because of the is, however, fully justified. 68 Annex 3 INVESTMENT ENVIRONMENTS FOR MINING IN SELECTED COUNTRIES BOTSWANA A Prospecting License gives an exclusive right to obtain a Mining Lease Overview provided all requirements have been met. The license is exclusive for specific minerals in The Minerals Act of Botswana gives a specific area but can be amended to include discretionary powers to the Minister but these other minerals. It is valid initially for three are circumscribed so that permissions may not years and is renewable twice for two-year unreasonably be withheld. This discretion does extensions. Maximum size of license area is however provide a great deal of flexibility which 1,000 km2 which must be reduced by at least has worked well so far. The general stability of half on each renewal unless otherwise the regime and a successful track record provide authorized. Heavy work and reporting an attractive investment environment. Liberal requirements are laid down and the licensee exchange controls permit repatriation of income must comply with minimum expenditures and capital and importation of necessary capital specified. Any shortfall is considered a debt to goods and consumables. the government. All mineral rights are vested in the state. A person or company must hold a Mineral rights are distinct from surface rights. Prospecting License before being eligible for a Foreign and domestic companies may obtain Mining Lease. There is no limit on size of rights to prospect, explore, and mine for all mining lease but it must be within the major minerals, excluding construction materials prospecting license and may be enlarged if and industrial minerals. Major investments are necessary. Leases are for an initial twenty-five generally made under special Investment years and may be renewed. Both Prospecting Agreements negotiated during the application for Licenses and Mining Leases are transferable a Mining Lease. There is no separate with the Minister's approval. His approval is investment code but the constitution protects also needed for any change in ownership of a property against forfeiture without payment of voting right, or financial interest of over 20 prompt and adequate compensation. percent. Mineral Licenses Taxation There are three types of mining There is no discrimination between local concession: a Reconnaissance Permit, a and foreign investors. Special fiscal agreements Prospecting License, and a Mining Lease. A can be negotiated in investment agreements and Reconnaissance Permit is a general prospecting tax losses may be carried forward indefinitely. license valid for one year which grants no automatic subsequent exploration and production Government Free equity interest in all new rights. Equity: mining projects of 15 to 25 69 Annex 3 percent plus board representation. property rights, being freely mortgageable, Management is left to the private transferable, and protected by the constitution investors. The exact terms of against confiscation. participation are negotiated when Although not obligatory, most foreign applying for the Mining Lease, investment in mining has opted for the security along with any special fiscal granted by the Foreign Investment Law DL600. provisions which may be The law allows investors the option to fix by established in the investment agreement, the legal and fiscal regime applicable agreement. Although this leads to to their projects, and ensure access to necessary some uncertainty, in practice foreign exchange. Capital may be repatriated investors can anticipate the terms after three years and profits at any time. Under they are likely to receive. the contract, the investor elects either to fix the Income Tax: 40 percent. total annual income tax burden for ten years at Depreciation: Over life of mine. 49.5 percent, or to be taxed under the prevailing Royalties: Range of 3 percent on base metals income tax rate (now 32.5 percent) which may to 10 percent on diamonds. vary over time according to the prevailing law. Withholding The investor has the right to change to the Tax: 15 percent. alternative arrangement one time during the Import Up to 25 percent on imports from contract life. In practice, it appears that most if Duties: outside the Southern Africa not all mining companies have initially selected Customs Union. the fixed rate option and subsequently changed to the lower variable local rate once their CHILE projects started making profits. Overview Mining Licenses Chile has been the most successful of the The Mining Code recognizes countries surveyed. The economy is completely Prospecting, Exploration, and Production. free and there are virtually no restrictions on Prospecting is open to all persons on any land foreign exchange. Foreign investment is not covered by an exploration or production permitted under general legislation and there is concession subject to payment of compensation no discrimination between local and foreign to the landowner. This promotes prospecting private investment. Neither is there a specific but protects landowners. An Exploration law governing investment in mining. The Concession is for all minerals found and only Foreign Investment Law DL600 of 1974 is the holder of an Exploration Concession may applicable to investment in all fields and apply for a Production Concession. provides additional assurances to the investor. Concessions may be up to 5,000 ha in area and Its provisions need not be utilized. Some are granted for two years renewable once only investments have also been made by way of debt on half the area. Production Concessions are 10 or equity swaps but there is now less debt ha only. However, there is no limit on the available and the high quotation of Chilean debt number of exploration or production concessions on the secondary market has reduced the that may be held provided annual fees are paid. financial incentive. The procedures for granting and All mineral rights are reserved by the transferring the various types of concession are state. Surface and mining rights are separate, based on technical criteria and so are insulated and mining rights have all the attributes of from the potential arbitrariness of bureaucratic 70 Annex 3 discretion. Applications are reviewed by the knowledge. 20 percent on Mining Technical Service, which makes payments for technical recommendations, and granted by a judge. All assistance. disputes are settled in the courts. Import Duties: 15 percent plus 18 percent Value Added Tax (VAT). Taxation Capital goods imported underinvestment agreements are exempt from VAT. Customs Effective income tax rates are lowest of duties on cATa imotsma all countries considered in this study, especially duties on capital Imports may be in the light of liberal rules on depreciation, pars amortization, and carry-over of losses. Taxes yes. are levied only on the distribution of profits or GHANA dividends, not retained earnings. This rewards Overview reinvestment. The Minerals and Mining Law of 1986 Government Equity: No requirement. allows foreign companies and partnerships Income Tax: First Category Tax of 10 registered in Ghana exclusive rights to prospect, percent after which the explore for, and produce minerals, with the remaining taxable income is exception of construction materials and industrial taxed at 35 percent. Payment of minerals. The law also guarantees access to First Category Tax creates a foreign exchange and establishes a special fiscal credit against the additional tax regime, which is more generous than the general resulting in a net effective tax regime. Most mining investments take place income tax rate of 32.5 percent. through an Investment Agreement (the Deed of Tax losses may be carried Warranty). Mining leases are granted by the forward indefinitely. Secretary for Lands and Natural Resources on Depreciation: The investor can choose advice of the Minerals Commission. between standard and The Secretary is authorized to exercise accelerated depreciation some discretion regarding mining rights. In case schedules and can also amortize of dispute, the Mining Lease and Deed of all organizational, start-up, and Warranty provide for international arbitration. research and development costs Special permission to remove minerals from the relatively rapidly. There is no lease and separate export licenses are needed. depletion allowance but a The government retains first right to purchase proposal is going through minerals. In practice, the marketing Congress to allow the purchase arrangements are submitted for approval by the price of mining properties to be Bank of Ghana and the Minerals Commission depreciated over the life of the and have usually been approved as part of the mine. overall financing package. Royalties: None. A number of mining agreements have Withholding 40 percent on payments to been concluded in recent years and procedures Taxes: foreign entities for use of trade are becoming more formalized as Ghana builds marks, and other technical up a successful track record. 71 Annex 3 Mining Licenses There is a liberal foreign exchange regime; companies are permitted to retain up to 80 The Mining Law specifies that mineral percent of their foreign exchange earnings in deposits are owned by the State and grants overseas accounts; exemptions from import power to the Secretary of Lands and Natural duties for mining equipment and supplies and Resources to negotiate, grant, revoke, suspend, depreciation allowances are generous. and renew licenses and mining leases. Applications for Reconnaissance Licenses, Government Free 10 percent with an option Prospecting Licenses, and Mining Leases must Equity: to purchase a further 20 percent all be accompanied by statements giving on terms to be negotiated. particulars of the financial and technical ability Income Tax: 45 percent. Additional Profits of the company, estimates of expenditure, Tax at 25 percent is applied to particulars of the program, and plans for the after tax income once the capital employment and training of Ghanaians. has been repaid and the project A Reconnaissance License has no size reaches a return on investment limit and may be exclusive or non-exclusive. It - of 35 percent. Losses may be excludes, drilling, trenching, and other carried forward but are limited sub-surface techniques. A Prospecting License to the value of capital can cover up to 150 km2 and is valid for a allowances for the period. maximum of three years, renewable for an Depreciation: 75 percent in the first year and unlimited number of two-year extensions. At 50 percent on the balance each renewal the area is reduced by half. The thereafter. license carries extensive work obligations and Royalties: 3 to 12 percent depending on the expenditure agreed must be spent. The the operating ratio (defined as license is exclusive for the minerals specified but net cash flow divided by gross can be amended to include other minerals. revenues-where net cash flow A Prospecting License holder has the equals gross revenues minus automatic right to a Mining Lease but the law interest minus cash operating gives the Minister some discretion as to the costs) for the company. In terms of the lease. The maximum size of a practice close to 3 percent. mining lease is 50 km2 but three leases totalling Withholding 150 km2 may be held. Leases are valid for up Tax: Nil. to thirty years and are renewable at the Import Duties: Mining equipment and supplies Minister's discretion. Generally the initial lease are exempt. agreement includes a clause providing for lease renewal. INDONESIA Taxation Overview Ghana's tax regime includes a combination of income taxes, sliding-scale Indonesia's regime for foreign royalties based on the companies' operating investment in mining is a prime example of a performance and for extremely profitable regime with extensive governmental regulation, projects (with an after-tax return of 35 percent in that mining companies sign Contracts of or more), Additional Profits Tax. In addition, Work (CoW) with the state and essentially act as the government takes 10 percent free equity. "contractors" mining on behalf of the state. 72 Annex 3 Ownership of minerals is vested in the state extendible for a further year if necessary. which regulates all aspects of mining in great Construction follows immediately and must be detail. The Foreign Investment Law establishes completed in the time stipulated. The initial the basic pre-requisite guarantees of private mine operating period is thirty years but this can property protection and access to foreign be extended. exchange. CoWs provide the investor with a clear Taxation definition of rights and obligations, including The liability of the contractor for all financial burdens, and also guarantee access to taxes, duties, rents, royalties, fees, and other foreign exchange, land, markets, and protection charges are spelled out m detai the CoW against adverse changes in the laws. Indonesia which locks in income and withholding taxes for has built a positive track record with mining the life of the agreement. The CoW grants investors in that all CoW arrangements have exemption from import duties on capital goods been fully respected by the government. All and postponement of VAT on a range of goods. factors affecting the investment are set out in the From time to time modifications have been made CoW at the outset and it therefore represents a to the fiscal terms and incentives available to convenient "one-stop" foreign investment investors in successive "generations' of CoWs. agreement with the government. While the general terms are outlined here, Mining Lcses additional incentives apply to investments in those remote areas designated as "frontier The CoW authorizes the investor to zones." Coal mining takes place under proceed through the various stages of minerals production-sharing arrangements which are quite development from prospecting to sales. There different from the CoWs for non-fuel minerals. are five successive stages: general survey, Government Although the government does exploration, feasibility study, construction, and Equity: not insist on an initial equity operation. stake, the contractor is obliged A General Survey (prospecting) to offer shares up to 51 percent concession is valid for one year renewable for ownership to the government or an additional year, and entitles the holder to to private Indonesian parties priority in applying for an Exploration License. over a period of ten years. The general mining legislation stipulates a Income Tax: 15 percent on profits up to maximum area of 25,000 ha but under a CoW it US$5 million, 25 percent on can be over 1.5 million ha. Minimum profits of US$5-30 million, and expenditure of $45/km2 is required and the 35 percent above US$30 contractor may proceed directly to the million (approximate current exploration phase on interesting areas while values). Losses may be carried leaving the rest under general survey. forward for eight years. An Exploration License grants the Depreciation: 25 percent of the declining contractor exclusive rights to explore and balance. evaluate minerals in the reduced contract zone Royalties: Payable on most exported for up to three years and rights to proceed to minerals. Precious metals mine. Expenditure of at least $450/km2 is average 1 to 2 percent. required coupled with significant reporting and Withholding 20 percent to non-residents. relinquishment obligations. A one-year Taxes: 15 percent to residents. feasibility study stage follows automatically, Import Duties: Average 10 percent. 73 Annex 3 PAPUA NEW GUINEA confers the right to prospect for gold or other Overview specified mineral on an area up to 25,000 km2 for a term of two years. An unlimited number Although Papua New Guinea has a of two-year extensions may be granted subject to detailed mining law, a special mining tax law, reductions in area of 50 percent each time to a and a foreign investment law, a supplementary minimum 250 km2. An annual fee is payable. Mining Development Agreement is required for There are three types of mining lease: a commercial-scale mine developments. The Gold Mining Lease, a Mineral Lease, and a investment regime protects foreign investors Special Mining Lease. In practice, a Special against expropriation and guarantees rights to Mining Lease is nearly always issued. The law remit earnings, capital, and certain expenses in forbids the leaseholder to transfer, sublet, or foreign exchange. Unlike Indonesia, however, mortgage his lease without the consent of the it does not protect investors against adverse Minister, but this may not be withheld changes in the fiscal regime. The developer is unreasonably. Unique infrastructure obligations authorized to maintain foreign exchange in a exist whereby the state reserves the right to bank account outside PNG sufficient to cover finance any project infrastructure (including three months obligations. administrative buildings, housing, mining and Ownership of minerals is vested in the processing facilities, and roads) and to charge State and a foreign mining company carries out the developer provided it can agree reasonable prospecting and exploration on its own under a finance costs with the government. Prospecting Authority from the government. Once a potentially commercial deposit is Taxation identified, an extensive and detailed process of PNG pays for its government coordination with the Department of Minerals participation and is one of a handful of countries and Energy begins. This culminates in the to levy an Additional Profits Tax. negotiation of a Mining Development Government 10 to 30 percent paid for up Agreement and a sale to the government of a 10 Eq*t* frot to 30 percent equity interest. The government equity: front. pays for its 10 to 30 percent interest with cash has recovered the cost of up front. Under new arrangements agreed in investment plus an after tax rate 1990 and 1991, approximately half the of return of about 20 percent, government interest will be ultimately fanned Additional Profits Tax at 35 out to local governments and landowners. Both percent also becomes payable. the participating terms and development Losses may be carried forward agreement are negotiated simultaneously. The for up to seven consecutive process involves tripartite negotiations and years following the loss. contracts between the developer and the national Depreciation: Generous. The investor can government; the developer and the provincial elect between standard and government and landowners; and the national government and the provincial government and Royalties: 1.25 percent of the fob or net landowners. 12 ecn ftefbo e smelter return value. Mining Licenses Withholding Tax: 17 percent. The Minister has considerable discretion Import Duties: 7.5 to 10 percent. There is no in the issuance of Prospecting Authorities and deferment of payment during Mining Leases. The Prospecting Authority construction. 74 BIBLIOGRAPHY Background studies commissioned by the Bureau of Mines, United States Department of World Bank the Interior. May 1990. International Strategic Minerals Inventory Summary Report - The Daniel, Philip. April 1991. "A General Regional Resources of Subequatorial Africa. Review of Mining Taxation. " Institute for U.S.A. Development Studies, Sussex, University, England. Garnaut, Ross and Ross, Anthony Clunies. 1983. "Taxation ofMineral Rents.' Clarendon Duncan, Allen and Talmage. July 1990. Press, Oxford, England. "Comparative Study of the Mineral Lawm and Related Investment and Fiscal Lawv of Six Brown, Roland. June 1986. 'New Mining Selected Countries." Washington, D.C., Codes - Salient Features.' Frankfiurt, U.S.A. Germany. Raw Materials Group. June 1991. 'World Mineral Industries ofAfrica, 1989 International Mineral Exploration Trends." Stockholm, Review, Minerals Yearbook Volume lll, United Sweden. States Department of the Interior, Bureau of Mines, Washington D.C., 1992. Duncan and Allen. June 1990. "The Use of Mining Investment Agreements. " Washington, Background materials for Chapter 2 and D.C., U.S.A. Annex 2. BUGECO. September 1989. 'Report on the Keyworth. 1991. "British Geological Survey, Mineral Sector on 12 Sub-Sahelian African Personal Communication, Various Reports and Countries. " Brussels, Belgium. Files." United Kingdom. BRGM. December 1989. "7he Mineral 1989. "British Geological Survey, Archaean Potential of Ten Sub-Saharan African Goldfields of Afica Project, Final Report, Countries. " Orleans, France. Technical Report WC189/SR. " Duncan, Allen and Talmage, June 1990. "A 4th Regional Conference. 1991. "ECA, Critical Evaluation of the Minerals Laws of Review of African Potential for Precious and Botswana, Cameroon, Gabon, Ghana, Guinea, Semi-Precious Stone Production. " Ougadaya. Tanzania, Zaire, Zambia, Zimbabwe." Washington, D.C. U.S.A. Foster, R.P. et al. 1991. The Tectonic and Magmatic Framework of Archaen Lode Gold Richard Notstaller. May 1991. "Artisanal and Mineralization in the Midland Greenstone Belt. " Small Scale Mining. " Vienna, Austria. Zimbabwe (draft for Brazil Gold Conference). Other General Reference Materials Foster R.P. and Piper D.P. 1991. "Archaen Lode Gold Deposits in Africa: Crustal Setting, Australian Government Publishing Service. Metallogeny and Cratonization, Draft Paper." February 1991. "Mining and Minerals Processing in Australia Overview Finding and Fozzard, P.M. May 1990. 'Mining Recommendations - Report No. 7. Canberra, Development in Sub-Saharan Africa; Investment Austrlia. and its Relationship to the Enabling 75 Environment. " Natural Resources Forum, pp Mining Journal. 1989, 1990. 'Mining Annual 97-105, Vol. 14, No. 2. Reviews. " London, England. Key, R.M. 1991. "An Introduction to the Ontario (Ministry of Northem Development and Crystalline Basement of Africa. " Draft Report. Mines). 1991. 'Personal Communication. Lavreau, J. 1984. "Vein and Stratabound Gold Deposits of Northern Zaire, Mineralium University of Leeds Industrial Services (ULIS). Deposits." 19, pp. 158-165. (1986-1988). "African Gravity Project, Malawi (Gvrmeto) 'tBrochure of Commissioned Report." Leeds, Malawi (Government of). "Strategy for Unitedi Kingdom. Development of the Mining and Mineral Processing Industries." Internal Report. University of Leeds Industrial Services (ULIS). Mining Association of Canada. 1990. "Mining "The African Magnetic Mapping Project, in Canada, Facts and Figures." Ottawa, Brochure of Commissioned Report." Leeds, Ontario. United Kingdom. 76 Bank Publicatons by the Indusby and Energy Division, Afria Technical Department Afrka Technical Information Notes No. 1 Schloss, Resource Mobilization for Development in Africa, May 1988. No. 2 Schloss, Structural Adjustnent in Africa, October 1988. No. 6 Schloss, Industrial Development in Africa, May 1990. No. 7 Private Enterprise in Africa: Remarks by M. Qureshi, November 1990. Industry and Energy Division Notes No. 1 Schloss, Fnancial Sector Adjustment: Requirementsfor Sub-Saharan Africa, November 1990. No. 2 Cowie, Entering the lnformation Age: Implicatons for Developing Countries, November 1990. No. 3 Fozzard,Mining Developnent in Sub-Saharan Africa: Investment andits Relatonsh4p to the Enabfing Environment, November 1990. No. 4 Upstream Petroleum Promotion andDevelopment: Possibk Multi-Country Approach in Sub-Saharan Africa, Remarks by M. Schloss, December 1990. No. 5 Sub-Saharan Energy Fiancing: The Need for a New Game Plan, Remarks by M. Schloss, December 1990. No. 6 ssues in Telecommunications Development: Policy Responses and Sector Strategyfor Sub-Saharan Africa, April 1991. No. 7 Nulty, Holcer, Lomax, Constraints and Challenges to Telecommunications Development: East European Telecom Development and Sub-Saharan Telecomn Development, June 1991. No. 8 FromStagnationtoMarket-DrivenGrowth. StrategiesforaDynainiindustrialDevelopmentDecade for Africa. Remarks by M. Schloss, August 1991. No. 9 Investing in Africa: The World Bank s Program of Assistance and Opportunies sfor the Private Sector. Remarks by Ismail Serageldin, January 1992. No. 10 Miguel Schloss, Energy, Environment and Sustainable Development: Lateral Departures, February 1992. No. 11 Strategic Agendafor Private Sector Development, March 1992. No. 12 Strategy for African Mining, April 1992. No. 13 Thomas O'Connor, Upstream Petroleun Development: The Case of the Red Sea and Gulf of Aden; its Replication Possibilities in Sub-Saharan Africa, May 1992. No. 14 M. Schloss, Does Downstream Petroleum Trade Matter? June 1992. Cross FertRi;ztion Briefs Newcombe, O'Connor, Gorton, Petroleun Exploration Promotion Projects: A Decade of Experience, December 1990. Cosenza, The Institutional Quagmire of the Power Sector in fica, September 1991. Gulstone, Prepayment Metering, October 1991. Cosenza, A Proposalfor a Tariff Adjustment Formula, January 1992. van der Plas, Floor, Bond, The importance of Traditional/Household Energyfor the Energy Sector, February 1992. Bond, Mayorga Alba, Regional Approach to Rationalization of Petroleun Supply in Sub-Saharan Africa, March 1992. 77 EXTERNAL PUBLICATIONS OF INDUSTRY AND ENERGY DMSION WORK Arlkes Razvoi Development, (Institute for Developing Countries; Yugoslavia), January 1989, Miguel Schloss, 'Resource Mobilization for Development in Africa" Journal of Petroleum Geology, (UK), April 1989, Z.R. Beydoun, "The Hydrocarbon Prospects of the Red Sca- Gulf of Aden: A Review" Technoloev and Society Magazine, (Institute of Electrical and Electronics Engineers, USA), December 1989, James B. Cowie, "Entering the Information Age: Implications for Developing Countries" Journal of Petrleum Geoloev, (UK), April 1990, P.M.S. Haitham and A.S.O. Nani, "The Gulf of Aden Rift: Hydrocarbon Potential of the Arabian Sector" Natural Resources Forum, (United Nations Centre for Natural Resources, Energy and Transport, UK), May 1990, Peter M. Fozzard, "Mining Development in Sub-Saharan Africa-Investment and Its Relationship to the Enabling Enviromnent" World Telecommunication Forum, (The Zimbabwe Posts and Telecommunications Corporation and the International Telecommunications Union, Zimbabwe), December 1990, David Lomax and R. A. Kayani, "Issues and Constraints for Telecommunications Investments in Africa" 1992 Single Market Communications Review, (UK), January 1991, Timothy Nulty and Nikola Holcer, "Issues in East European Telecom Development" Marine and Petroleum Geology, (Geological Society, UK), August 1991, G. Wyn Hughes, Osman Varol and Ziad R. Beydoun, "Evidence for Middle Oligocene Rifting of the Gulf of Aden and for Late Oligocene Rifting of the Southern Red Sea" Negocios (A. lbaiiez University; Chile), December 1991, Migul Schloss, "Perspectivas de la Economla Mundial" 1992 Single Market Communications Review, (UK), Winter 1992, Miguel Schloss, "Issues in Telecoms Development: Policy Responses and Sector Strategy for Sub-Saharan Africa" Marine and Petroleum Geology, (Geological Society, UK), February 1992, G. Wyn Hughes, S. Abdine and M.H. Girgis, "Miocene Biofacies Development and Geological History of the Gulf of Suez, Egypt" Industry Africa, (UNIDO), Vienna), April 1992, Miguel Schloss, 'Challenges for Africa's Industrial Development in the 1990s" Journal of Petroleum Geology, (UK), April 1992, T.E. O'Connor, "The Red Sea-Gulf of Aden: Hydrocarbon Evaluation of Multinational Sedimentary Basins" Journal of Petroleum Geology, (UK), April 1992, G. W. Hughes and Z. R. Beydoun, "The Red Sea-Gulf of Aden: Biostratigraphy, Kithostratigraphy and Palaeoenvironments" Journal of Petroleum Geology, (UK), April 1992, J. Makris and C. Henke, "Pull-Apart Evolution of the Red Sea." Journal of Petroleum Geology, (UK), April 1992, R. Crossley et al., "The Sedimentary Evolution of the Red Sea and Gulf of Aden." Joumal of Petroleum Geoloey, (UK), April 1992, P. C. Barnard et al., "Thermal Maturity Development and Source-Rock Occurrence in the Red Sea and Gulf of Aden." Journal of Petroleum Geology, (UK), April 1992, D. J. W. Mitchell et al., "Tectonostratigraphic Framework and Hydrocarbon Potential of the Red Sea." Journal of Petroleum Geoloey, (UK), April 1992, W. F. Bott et al., "The Tectonic Framework and Regional Hydrocarbon Prospectivity." Africa Communications, (AFCOM Intemational, Inc., U.S.A.) March/April 1992, Miguel Schloss, "Sub- Saharan Africa: Issues in Telecommunications Development." International Enerzy Foundation Reoort, (UK), June 1992, Miguel Schloss, "Energy, The Environment and Sustainable Development." 78 Conference Papers International Svmoosium on Development Stratefy Toward the 21st Century in Commemoration of "International Cooieration Day, (Japan International Cooperation Agency and the Overseas Economic Cooperation Fund, Japan), 1988, Miguel Schloss, "Structural Adjustment in Africa" International Conference on Rural Telecommunications, (Mhe Institution of Electrical Engineers, UK), Conference Publication, May 1988, R. A. Kayani, "Rural Telecommunications Development Policy in Developing Countries' Second International Conference on Rural Telecommunications, (The Institution of Electrical Engineers, UK),Conference Publication Number 328, October 1990, R.A. Kayani, 'The Impact of Liberalization and Sector Restructuring on Rural Telecommunications Development in Developing Countries" Absfacs AAPG Bulletin (American Association of Petroleum Geologists, USA), August 1991, A.G. Abouzakhm, R.B. Allen and A.H. Sikander, "Characteristics of the Bab Al Mandab-Northern Afar Area of the Southern Red Sea' AAPG Bulletin, (USA), August 1991, Y.H. Ahmed, A.A. Shalaan and H.A. Zaki, "Egyptian Red Sea Petroleum Geology and Regional Geophysical Evaluation" AAPG Bulletin, (USA), August 1991, R.B. Allen, A.G. Abouzakhni and A.H. Sikander, "The Tectonic Evolution of the Red Sea and Gulf of Aden" AAPG Bulletin, (USA), August 1991, R.B. Allen, A.G. Abouzakhm and A.H. Sikander, "Petroleum Geology of the Gulf of Aden" AAPG Bulletin, (USA), August 1991, M. Al-Sanabani and F.M. Said, "Yemeni Red Sea and Gulf of Aden Petroleum Geology and Regional Geophysical Evaluation" AAPG Bulletin, (USA), August 1991, A. Assefa, K. Tadesse, T. Worku and E.G. Tsadik, "Ethiopian Red Sea Petroleum Geology and Regional Geophysical Evaluation" AAPG Bulletin, (USA), August 1991, M. Behi, S. Mohamed and A.K. Abukar, 'Somalian Gulf of Aden Petroleum Geology and Regional Geophysical Evaluation" AAPG Bulletin, (USA), August 1991, Z.R. Beydoun, "The Red Sea-Gulf of Aden Hydrocarbon Potential Reassessment" AAPG Bulletin, (USA), August 1991, C. Ducreux, G. Mathurin and M. Latreille, "Red Sea-Gulf of Aden Source Rock Geochemical Evaluation" Joumal of Petroleum Geologv, (UK), April 1992, Z. R. Beydoun and A. H. Sikander, "The Red Sea-Gulf of Aden: Reassessment of Hydrocarbon Potential" 79 Distibutors of World Bank Publications ARGENIINA EL SALVADOR JAPAN SOUTH AFRICA, BOTSWANA Car1os Hich, SRL Fusd.. Eastem BookSevie Fortsi hti Gakeia Cuea. Alam Dr. Manul Ensique Aiaujo #3530 Hongo 3.Chom.t Bunkyo.ku 113 O=ford University Pt Florida 165,4th Floor4Of. 453/46 Edfidco SISA. ler. Piso Tokyo Southn Afica 1333 Buem Are San Salvadot 011 P.O. 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Pdi-Pu Industrial Bk1& 24 New Industil Road Sinppor 1953 AFRICA PRIORITY ZONES FOR MINERAL DEVELOPMENT; PRECIOUS METALS, BASE-METALS AND DIAMONDS IBROD 23738 z v J XTU~~~~~~~~NISIA| ATLANTGC UINEA FEASNEON S- OCEAN-SSAU FORMER ALGERIA SSAHNARAH X H \ / LIBYA | ~~~~~REPLIBLIC \ \ 0*~~~~~~~~~~~~~~~~~O 20' 22' g MAURITANIA MooI hu e e \ e W B SE NEGEGAL NlGER CHAD | t THE GAMBIA FAO SUDAN lo' GUIN FASO~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Bo eox h eosioio se n h bodue soso h GUJNEA-BISSAU NIGEI SIERRALOE LE t S+E TRALX ETH!OPIA w / LIBEI / COTE~~~~~~~~~~~~~~~~~~~~~~~~~~~0 the legal stL oaytrroyor an nosmn o cetneo os' D'IVOIRE IK- \ 3 0 7 F 2 ENYA | /o GHANA O ONG INDIAN | TGHhA>tGBO ZAIRE RWANDA ,S IDA TOGO + t / < S f t > / ~~~~~~~~~~~~~~OCEAN BENIN - - | BURUNDI , EQUATORIAL GUINEA / , TANZANIA SAO TOME & PRINCIPE /\- _ lo g q a ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~SEYCHE.'.ES /ANGOLAS 1 t l ~~~~ZAMBIA ,C; Xv' \ AIBIA MA @AstA 20' PRIORITY ZONES FOR _BOTSWANA\ s MINERAL DEVELOPMENT 0 R r BiUE) Wf ON LESOTHO,'-\ 30~~~~~~~~~~~ OUH<, 0 KILOMETERS O SOO 1000 I50 sa OUTH7_ 3 r / ThisDDAP ho be tn repanedby The World bonk's mff -ycl.-Ivl fo he MILES 0 250 500 750 1000 03PdntsPy . nhpfo TheWordBEsnkGr2up. -y iugon .. te lego7 astsu of ony seror -r y -ndorstY-e or , et eo 73 1 D 0 10~~~~~~~~~~lo 20 ~ 36 46 5C M., 1992 I RECENT WORLD BANK TECHNICAL PAPERS (continued) No. 148 The World Bank/UNDP/CEC/FAO, Fisheries and Aquaculture Research Capabilities and Needs in Latin America: Studies of Uruguay, Argentina, Chile, Ecuador, and Peru No. 149 The World Bank/UNDP/CEC/FAO, Fisheries and Aquaculture Research Capabilities and Needs in Africa: Studies of Kenya, Malawi, Mozambique, Zimbabwe, Mauritania, Morocco, and Senegal No. 150 The World Bank/UNDP/CEC/FAO, International Cooperation in Fisheries Research No. 151 The World Bank/UNDP/CEC/FAO, Tropical Aquaculture Development: Research Needs No. 152 The World Bank/UNDP/CEC/FAO, Small-Scale Fisheries: Research Needs No. 153 The World Bank/UNDP/CEC/FAO, Small Pelagic Fish Utilization: Research Needs No. 154 Environment Department, Environmental Assessment Sourcebook, vol. III: Guidelines for Environmental Assessment of Energy and Industry Projects No. 155 Belot and Weigel, Programs in Industrial Countries to Promote Foreign Direct Investment in Developing Countries No. 156 De Geyndt, Managing Health Expenditures under National Health Insurance: The Case of Korea No. 157 Critchley, Reij, and Seznec, Water Harvesting for Plant Production, vol. II: Case Studies and Conclusions for Sub-Saharan Africa No. 158 Hay and Paul, Regulation and Taxation of Commercial Banks during the International Debt Crisis No. 159 Liese, Sachdeva, and Cochrane, Organizing and Managing Tropical Disease Control Programs: Lessons of Success No. 160 Boner and Krueger, The Basics of Antitrust Policy: A Review of Ten Nations and the European Communities No. 161 Riverson and Carapetis, Intermediate Means of Transport in Sub-Saharan Africa: Its Potential for Improving Rural Travel and Transport No. 162 Replogle, Non-Motorized Vehicles in Asian Cities No. 163 Shilling, editor, Beyond Syndicated Loans: Sources of Credit for Developing Countries No. 164 Schwartz and Kampen, Agricultural Extension in East Africa No. 165 Kellaghan and Greaney, Using Examinations to Improve Education: A Study in Fourteen African Countries No. 166 Ahmad and Kutcher, Irrigation Planning with Environmental Considerations: A Case Study of Pakistan's Indus Basin No. 167 Liese, Sachdeva, and Cochrane, Organizing and Managing Tropical Disease Control Programs: Case Studies No. 168 Industry and Energy Department, An Introduction and Update on the Technology, Performance, Costs and Economics No. 169 Westoff, Age at Marriage, Age at First Birth, and Fertility in Africa No. 170 Sung and Troia, Developments in Debt Conversion Programs and Conversion Activities No. 171 Brown and Nooter, Successful Small-Scale Irrigation in the Sahel No. 172 Thomas and Shaw, Issues in the Development of Multigrade Schools No. 173 Byrnes, Water Users Association in World Bank-Assisted Irrigation Projects in Pakistan No. 174 Constant and Sheldrick, World Nitrogen Survey No. 175 Le Moigne and others, editors, Country Experiences with Water Resources Management: Economic, Institutional, Technological and Environmental Issues No. 176 The World Bank/FAO/UNIDO/Industry Fertilizer Working Group, World and Regional Supply and Demand Balances for Nitrogen, Phosphate, and Potash, 1990/91-1996/97 No. 177 Adams, The World Bank's Treatment of Employment and Labor Market Issues No. 178 Le Moigne, Barghouti, and Garbus, editors, Developing and Improving Irrigation and Drainage Systems: Selected Papers from Word Bank Seminars No. 179 Speirs and Olsen, Indigenous Integrated Farming Systems in the Sahel No. 180 Barghouti, Garbus, and Umali, editors, Trends in Agricultural Diversification: Regional Perspectives The World Bank Headquarters European Office Tokyo Office 1818 H Street, N.W. 66, avenue d'Iena Kokusai Building Washington, D.C. 20433, U.S.A. 75116 Paris, France 1-1 Marunouchi 3-chome Chiyoda-ku, Tokyo 100, Japan Telephone: (202) 477-1234 Telephone: (1) 40.69.30.00 Facsimile: (202) 477-6391 Facsimile: (1) 40.69.30.66 Telephone: (3) 3214-5001 Telex: wui 64145 WORLDBANK Telex: 640651 Facsimile: (3)3214-3657 RCA 248423 WORLDBK Telex: 26838 Cable Address: INTBAFRAD WASFlNGTONDC ..C .... 0...3. -219 Cover design by Joyce Petruzzelli .ISBN 0-8213-2192-7