By Ricardo Mota Veiga in Simmons & Simmons Elexica,
Angola has one of the largest, richest and most diversified mineral resources in Africa, ranging from oil, gas and diamonds to iron ore, phosphates, copper, feldspar, gold, bauxite and uranium – to name only a few.
Portugal is also a resource rich country with a long and positive history in the mining industry – the Iberian Pyrite Belt, which is partly within Portuguese territory, is one of the largest VMS provinces in the world. Furthermore, two of the biggest mines in Europe – Neves-Corvo and Panasqueira – are located in Portugal.
Owing to the huge potential of geological resources as a factor in Angola’s economic development, the following government sponsored developments have occurred: (i) a new and very comprehensive Mining Code was approved by Law 3/11, of 23 September and (ii) the Angolan Geological Plan (Planageo) approved in 2009 began implementation this year.
As stated in the Angolan Mining Code, the strategic goals for the mining sector include inter alia: (a) ensuring the sustainable social and economic development of the country; (b) creating jobs and improving the living conditions of populations living in mining areas; (c) ensuring tax revenues; (d) supporting and protecting the private business sector, giving preference to Angolan businessmen in the granting of mining rights; (e) protecting the environment by reducing negative impacts and repairing damages; (f) fighting against illegal mining; (g) establishing an effective, speedy and transparent regime for the granting of mining rights; (h) preventing the export of mineral resources which the country will have to import in the short or medium term; and (i) encouraging reinvestment in the country with income derived from the exploitation of mineral resources.
The Planageo aims to obtain geological information about Angola in order to assess the real potential of mining within Angola, to promote and attract the investments necessary for the exploitation of Angola’s mineral resources, and to ensure that the mining sector contributes increasingly to Angola’s sustainable development, by supporting actions inherent to the granting of mining rights. At the end of 2013, as a result of an international tender within the scope of Planageo, a consortium formed by the Geological and Mining Institute of Spain (IGME), the National Laboratory of Energy and Geology (LNEG) of Portugal and the Spanish company Industrial Impulse Alternative, SA was awarded a contract to provide technical assistance to the Geological Institute of Angola (IGEO) for the implementation of Planageo. This five year contract, in an amount of USD 115 million, focuses on general mapping and the associated engineering of about 37.5% of the total territory of the Republic of Angola.
In Portugal, a National Strategy for Geological Resources – Mineral Resources was approved by the Resolution of the Council of Ministers 78/2012, of 11 September. As stated in the Strategy, the conclusions from the diagnosis of the sector were the following: (i) Portugal currently has a deficit in the knowledge base of its territory; (ii) areas already identified with potential are, currently and in most cases, the object of requests for the granting of rights of exploration but are not, however, being sufficiently studied; (iii) there is room to reconsider the state’s presence across the value chain; (iv) it is necessary to promote the sector in a more structured manner; (v) there is potential for improvement within the legislative and contractual framework; and (vi) the royalties system can be further developed.
For this reason, the National Strategy aims to promote a mining sector that:
(a) Is dynamic, ensuring the uptake and retention of investment and the proper exploitation of national resources;
(b) Is sustainable at economical, social, environmental and territorial levels;
(c) Promotes the growth of the national economy, by ensuring supply of essential raw materials, thereby reinforcing its importance to the national Gross Domestic Product and its importance to exports; and
(d) Promotes regional development, guaranteed return and employment for local people and ensures the development of the communities where it operates.
The guidelines of the National Strategy for Geological Resources are based on four areas of action:
Axis A – Adequacy of the bases of the sector, by redefining the role of the State and revising the rules of organization and discipline of the activity;
Axis B – Development of knowledge and appreciation of the national potential by improving collection methods and systematizing information for a better use of resources;
Axis C – Dissemination and promotion of the national potential, through communication initiatives and the creation of an office within the General Directorate of Energy and Geology, to act as a one-stop-shop; and
Axis D – Economical, social, environmental and territorial sustainability.
A comparison of the aforementioned instruments from Angola and Portugal make it clear that the Governments from both countries have similar concerns and goals although there are naturally objectives, which address specific challenges of each country.
The Portuguese Government has followed up the above National Strategy with the announcement on July 2014 of its 2014-2020 mineral fostering programme. According to this programme, the following steps shall be taken immediately:
(1) Approval of the new base law for geological resources;
(2) Opening the one-stop-shop contemplated in the National Strategy; and
(3) Revision of the plan to implement the National Strategy namely to include new focus points, identified by the Government.
The new base law of geological resources in Portugal, which shall repeal Decree Law 90/90 of 16 March, shall include among others:
(a) A revision of the royalties policy allowing for 25% of the royalties amount to be used directly by the concessionaire on social commitment programs and projects, as well as for a Geological Resources Fund to be created to support actions which promulgate knowledge, conservation and protection concerning Portuguese mining and geological heritage;
(b) Mandatory consultations with municipalities and other competent entities on environmental preservation and land planning, for all phases of the concession process;
(c) Publication of the non-binding opinions provided by the above entities and any claims made;
(d) A new phase of prior evaluation with a maximum duration of one year to allow research and studies of the existing resources, including access to the national archives and the collection of samples from the surface; and
(e) The possibility of two or more concessionaires joining in a group of concessionaires with a single representative if they, (i) have adjacent concessions, (ii) belong to the same group or (iii) the exploited resources are similar or complementary.
With regard to the new royalties policy in Portugal, it should be noted that Decree Law 88/90 of 16 March which approves the regulation of mineral deposits merely determines that the concession agreements shall include the rights and obligations of the concessionaire and the State, including the compensation to be paid by the first to the latter. The new law shall be more detailed on this matter, although, according to the information available, the new law will not set out the maximum and minimum percentage of royalties that would be relevant for present and future investors.
The Angolan Mining Code, in this respect, has a better solution and determines the following rates on the value of the ex-mine value of the extracted minerals or concentrates:
(a) strategic minerals and precious metals and stones: 5%;
(b) semi-precious stones: 4%;
(d) metallic minerals: 3%; and
(e) construction materials of mining origin and other minerals: 2%.
The royalties are levied in addition to: (i) the industrial tax which rate is reduced for mining activity to 25% of which 5% reverts to the municipality of the area where the mine is situated; and (ii) a surface fee paid annually between USD 2 and USD 80, per square kilometre.
Although the mandatory consultations of the announced Portuguese new base law concerning geological resources seem a positive measure, this may result in the concession process becoming more drawn-out. It is therefore important that the law contemplates relatively short deadlines before which the municipalities together with any other relevant entities must issue their opinions. The fact that the opinions are non-binding is also a very relevant aspect to be considered in the foregoing.
The Angolan Mining Code contemplates similarly mandatory consultations with local communities, wherever the implementation of mining projects may result in the destruction or damage to material, cultural or historic assets from the local community as a whole. The law, however, is silent on the weight of possible opposition by the local communities to the granting of mining rights.
The Angolan Mining Code does not include a phase of prior evaluation, unlike the recently announced new law in Portugal. Although this phase seems to be a positive step, the rights of prior evaluation can be granted only to an extension of up to 15 km2 which may be insufficient to establish whether or not an exploration license shall be requested. Furthermore, it could be advantageous if the law would set out a mechanism for assigning third party rights following the maximum one year duration of this phase. In accordance with the Angolan Mining Code, any mineral right may be assigned provided that (i) the competent authority authorises the assignment and (ii) the entity to whom the rights are to be assigned meets the requirements of the original concessionaire.
The one-stop-shop in Portugal which shall open very soon is expected to serve as a focal point for the investor and establish communication lines with different government entities. The one-stop-shop will also prepare a guide for mining investors, promote Portugal’s mineral potential, foster partnerships and raise awareness of the country’s geological resources.
Finally, the new focus points which the Portuguese Government understands as needing to be analysed in more depth are the following:
(1) Axis D: financing instruments for the whole value chain such as flow-through shares, streaming arrangements or Government financing programmes;
(2) Axis B: fostering the knowledge of the country’s geological resources taking into account international examples such as the Tellus project, the PACE targeting or the National Cooperative Geological Mapping Program;
(3) Axis B: creating access to qualified human resources and available equipment;
(4) Axis A: reviewing the procedure for granting concessions and licenses;
(5) Axis A: mitigating the effects of the bonds by reducing the value of the bond in proportion to the investment made or by reducing the value of the bond gradually every year, if the activities defined in the work plan are executed; and
(6) Axis A: defining the future role of the state-owned company EDM.
It is therefore expected that in the near future Portugal will have a new base law concerning geological resources and that all legislation applicable to geological resources, particularly to mineral deposits, mineral and geo-thermal resources and spring waters will be revised. In Angola, the nationwide airborne geological survey shall continue, and will definitely contribute to a better knowledge of the existing resources; further measures will likely be implemented based on such knowledge. Thus it is clear that, in both countries, relevant steps are being taken to create a favourable environment for the development of the mining activity. The future will tell how these measures will reflect in the actual growth of the mining sector and particularly its contribution to the Angolan and Portuguese GDP.