Dec '14/Jan '15

Regulatory review

Changes in mining legislation around the world

By Eavan Moore

The year 2014 saw a wide range of legislative responses to one of the toughest questions governments in mining jurisdictions face: How to sustain an active industry without relinquishing too much control of their own resources? Several countries and a province pursued wealth by way of local participation requirements while others chased investors with tax breaks. More than one policy reversal highlighted how fickle governments can be. Here is a measure of this year’s moods as reflected in mining legislation.

Passed

In Bolivia, a law came into effect in June requiring mining cooperatives to seek legislative approval before partnering with private entities, in accordance with the 2009 constitution that named the state as the owner of mineral resources. Cooperatives are unlikely to face major problems as a result of the move from private concessions to a service provision model, said Arthur Dhont, IHS Global Insight analyst, who remarked that the new legislation also offers better protection to foreign firms by requiring judicial security for mining operations.

Indonesia’s long-awaited ban on raw mineral exports came into effect in January. Starting Oct. 1, the country also required coal exporters to obtain permits. Rick Beckmann of Susandarini & Partners said Indonesia aimed to capture unpaid royalties from illegal coal exports, meet domestic market requirements, and better control coal exports, in conjunction with limiting exports to certain ports.

Australia repealed its carbon tax in July and its Mineral Resource Rent Tax in September, as promised by Liberal Prime Minister Tony Abbott. The taxes enacted by the previous government led by the Labour party in 2012 had charged the top 348 polluters AU$23 for every tonne of carbon dioxide (CO2) produced and taken 30 per cent of coal and iron ore profits. “The repeal of the carbon and mining taxes will go a long way to recovering some of the lost competitiveness that has occurred over recent years,” said Simon Bennison, CEO of the Perth-based Association of Mining and Exploration Companies. The Senate voted in October to implement an AU$2.55 billion Emissions Reduction Fund program in which the government will issue credits for CO2 reductions, then buy the credits in a reverse auction.

As of August, a new mining law in Mozambique requires local participation in mining operations, including in-country mineral processing if economically viable. Concession holders must list on the Mozambican Stock Exchange, new mining contracts will require state participation in operations, and operators must give preference to local products and services. A separate tax reform taking effect January 2015 will introduce a resource rent tax of 20 per cent when a company’s internal rate of return exceeds 18 per cent.

Cuba approved a new foreign investment law in March that allows 100 per cent foreign ownership of companies. For joint ventures with Cuban firms, it reduces the tax on profits from 30 to 15 per cent and exempts companies from paying a profits tax for the first eight years of operation. The law also allows up to a 50 per cent profit tax rate on natural resource exploitation, which was called out as a target sector for investment.

Quebec amended its Mining Act in December 2013. Among other changes, the act gave more authority to municipalities, required proponents to guarantee the full cost of mine restoration before receiving leases, and increased requirements for aboriginal consultation. In January 2014, the province enacted a progressive tax rate that ranged between 16 per cent and 28 per cent based on the operator’s profit margin, which replaced the single rate of 16 per cent, and also added a tax floor of one to four per cent based on mine-mouth output value.

Proposed

South Africa’s National Assembly passed amendments to the Mineral and Petroleum Resources Development Act in March. The as-yet unsigned bill would require Minister of Mineral Resources Ngoako Ramatlhodi to promote local beneficiation, give him authority to designate minerals with local beneficiation requirements, and give him discretion over percentages and other regulatory questions. These provisions “effectively allow the minister to interpose himself between the industry and its customers,” said Peter Leon, the head of mining at South African law firm Webber Wentzel.

The Mining Industry Coordinating Council of the Philippines drafted a law that would tax miners at 10 per cent of gross output or 55 per cent of adjusted net mining revenue (ANMR), whichever is higher. It also includes a windfall tax on ANMR margins that are over 50 per cent. As of November, the proposal was pending review with the president’s office. The Chamber of Mines of the Philippines opposes it, according to vice-president of legal and policy Ron Recidoro, who argued that the government overestimated its missing revenue. Bans on unprocessed ore exports were proposed in the House and Senate but saw little further action.

Canada drafted disclosure rules for mining and oil and gas companies making payments to any level of foreign or domestic government. Any extractive firm that is listed on a Canadian exchange has at least $20 million in assets, generates at least $40 million in revenue, or employs at least 250 people would be required to report cumulative payments of $100,000 or greater. Andrew Godfrey, associate at Norton Rose Fulbright, said the legislation closely resembled U.S. rules, as suggested by an industry working group. The government committed to passage by April 2015.

Up in the air

Chile’s Minister of Mines Aurora Williams told Reuters in October she planned to streamline the mine permitting process, citing duplicate document requests and unnecessary permits. The results of a 60-day review will be shared in early 2015.

Greenland called new elections for November after prime minister Aleqa Hammond stepped down as party leader and went on a leave of absence during an investigation of her expenses. Hammond had promoted mining as an economic opportunity for Greenland and overturned a prior ban on uranium mining. Mark Fedikow, president and interim CEO of the junior exploration and development company North American Nickel, said the political events had had “no impact” to date on their exploration in Greenland, adding that working there had been “free from regulatory issues with the Greenland government agencies.”

Ecuador is considering tax incentives to encourage extraction of its gold, silver and copper resources. In June President Rafael Correa announced he would work on the issue, citing the recommendations of a government-commissioned Wood MacKenzie study that judged Ecuador an unattractive target for mining investment. Kinross Gold blamed Ecuador’s 70 per cent windfall tax for its decision to sell its interest in the Fruta del Norte project.

Kazakhstan is working on a new mining code to speed up international investment. Amendments to the law “On Subsoil Resources and Their Use” began wending their way through parliament in October. Alexander Melikishvili, senior analyst at IHS Country Risk, said the law envisions mandatory expert assessments of mining contracts will be cut by 60 per cent, and mining permits will be issued in a simplified auction procedure. “It is likely to be passed as proposed but the implementation, as with other laws in Kazakhstan, will be problematic, at least initially,” said Melikishvili.

Alternative energy sources are playing a larger role in miners’ strategies


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