Roundtable: Mining
We gather four leading mining lawyers from France, Brazil, Colombia and South Africa to discuss areas of activity, regulatory changes and law firm strategies in their respective jurisdictions.
Participants:
Stéphane Brabant
Herbert Smith LLP
France
Who’s Who Legal: Which are the countries to watch for mining work?
Glenn Faass: Our practice is particularly active at the moment in Latin America (especially Colombia), western Africa, Kazakhstan and Canada. This has been helped by political progress along the Atlantic coast of Africa, continued stability in parts of central Asia and consolidation of the security and economic gains of the last decade in Colombia. These are are all paying dividends for those areas, and Canada remains the “old faithful” in terms of geological prospectivity, stable rules of the game and ease of operation
Jaime Herrera: The “countries to watch” for us right now in the region are Colombia and Peru. These two countries have benefitted from sustained growth, long periods of economic stability and in the case of Colombia the consolidation of security all over the country. There are very high levels of work in Colombia in the mining sector.
Stéphane Brabant: Herbert Smith has offices in Asia and Europe and we are especially active at the moment in central Asia and Russia but most of all in Africa. Indeed our Africa practice is composed of over 50 lawyers worldwide reflecting the unique importance the continent has to our firm. In Francophone Africa investors should keep an eye on countries such as Guinea, Mali, Madagascar, the Republic of the Congo, DRC, Niger and Burkina Faso. Additionally, smaller but high potential countries – especially in regard to rare earth metals such as Burundi – are ones to look out for. Also, the “new” countries of Anglophone Africa such as Sierra Leone and Liberia, as well as “older” countries such as Zimbabwe and Zambia, are very active. We are also very involved in the Portuguese speaking countries of Africa such as Mozambique. The biggest projects in Africa are in iron ore, uranium, gold and manganese. Outside of Africa, Herbert Smith is also very busy such as in the former Soviet republics in central Asia and especially in Mongolia. Australia is an excellent jurisdiction and we have seen significant activity from that jurisdiction, from financing matters to hosting investment (such as in the large western iron ore projects, gold and of course in energy such as LNG). In terms of work levels, we have been seeing significant growth: our Africa team and revenue has approximately tripled in the last three years and it is continuing to grow strongly.
Peter Leon: Following on from what Stéphane says, while South Africa remains Africa’s primary mining jurisdiction, we are seeing increasing activity from emerging sub-Saharan African mining jurisdictions including Zambia, Mozambique, Tanzania, Angola, the Central African Republic, Burundi and the DRC. West Africa is also emerging as a mining jurisdiction, including Liberia, Ghana, Sierra Leone and Guinea. These jurisdictions have, for the most part, demonstrated an intention to conform to international regulatory best practice, and some have taken concrete steps in this regard.
Although we do not have a physical presence in African jurisdictions other than South Africa, we have established “best friends” relationships with the leading domestic corporate and mining law firms in these jurisdictions and are able to project manage investments from South Africa if required.
Who’s Who Legal: What levels of activity are you seeing in the sector overall?
Stéphane Brabant: Overall we are seeing very significant activity in the sector – from investments being pursued by the largest international mining houses to smaller juniors carrying out renewed activities in far-flung places all over Africa and Asia. In general we have noted an increased appetite for coal and iron ore projects, with a greater willingness to engage in infrastructure and mine development for the largest deposits. There has been a flurry of mergers and acquisitions, consolidations and jockeying for position by streamlining and restructuring assets. Another factor that we have noticed is the channelling of investment money into African projects and assets: private equity, investment funds and venture capital have made their way into projects, perhaps in a passive form but in greater and greater blocks reflecting an interest in direct exposure to various commodity classes. In short, mining in Africa is booming.
Peter Leon: We have seen keen interest from foreign investors and mining companies in mining in sub-Saharan and West Africa, particularly with respect to iron ore and coal, although this interest declined somewhat in 2009, no doubt as a result of the 2008 global financial crisis. This year, investor interest has increased substantially.
Interest in the sub-Saharan and West African mining sectors has been shown by a wide range of mining companies, from the large listed and established mining companies to newer, smaller mining companies, as well as from private equity funds, investment funds and venture capital funds.
We have noticed a significant increase in interest from emerging markets such as Brazil, China, Korea, India and CIS countries in the former Soviet Union (such as Kazakhstan).
Webber Wentzel has been involved in several major African mining transactions since the beginning of 2009, valued at over US$7.1 billion.
Jaime Herrera: We are certainly seeing a distinct increase in the amount of mining work, particularly with respect to coal and precious metals. Companies listed in Australia, Brazil, Chile, Canada and the UK are increasingly partnering with local investors to explore and develop mining assets in Colombia so it seems like the effects of the crisis are easing.
Glenn Faass: After a slightly slower 2009, 2010 has definitely picked up. While the effects of the financial crisis are still being felt, the equity markets have again become available to a wider variety of companies, and particularly for projects where the mineral or the jurisdictions have a “buzz”, such as Colombia does, at the moment. There also seems to be an interest in a greater variety of materials than we have historically seen. Of course, the bulk of projects are still precious metals, but we are seeing a lot more interest in industrial materials, such as coal, construction sands and other less conventional types of projects, including coltan. This means that the mining practice is becoming less dependent on price cycles in a few minerals.
Who’s Who Legal: Have there been any regulatory changes in your jurisdiction or region in recent months, or are any in the pipeline?
Stéphane Brabant: In Africa, there have been numerous developments on the regulatory front including closing of the contract revisitation process in the DRC; amendments being made to a number of mining codes, especially in regard to West Africa such as Mali; and developments in Zimbabwe which have had the effect of increasing mining exploration and development expenditure in addition to production in that country.
One major change – not necessarily with domestic laws and regulations – relates to certain principles of “soft law” relating to human rights, environmental matters and consequences therefrom in terms of sanctions such as reputational risk, risks to share value, NGO pressure and new conditions to financing (Equator principles). Companies and states are looking much more into the potential effect these principles could have and what changes these principles have already brought to the industry. For example, environmental concerns are very high on the agenda with all mining actors and this shall increase with time.
Peter Leon: On the whole, there have been no major developments in the mineral regulatory regimes of any of South Africa’s neighbouring states recently, though change is very much on the agenda.
Zambia enacted a new mining regime in the form of the Mines and Minerals Development Act 2008, which increased royalties, introduced annual operating permits and caused all licences that had been granted prior to the Act coming into effect to lapse in 2009. Mozambique introduced an electronic mining cadastre system which has regularised the process of applying for mining licences, significantly improving access by foreign investors to its mining industry. Ghana has established a Minerals Commission that independently assesses and awards mining licence applications. Ghana’s mineral regulatory regime also narrows the discretion of administrative officials.
The South African mineral regulatory regime is likely to change significantly in 2011. The Department of Mineral Resources has announced that it intends to amend South Africa’s mining code, the Mineral and Petroleum Resources Development Act 2002, although the proposed changes have not yet been published. The new minister of mineral resources has initiated major changes to the licensing system with a view to making it more transparent. In September 2010, a new mining charter was published by the department, which stipulates specific compliance targets aimed at the transformation of the mining sector, although its legal status is uncertain.
Stéphane mentioned the DRC, whose government is continually trying to improve its international profile to attract significant investment in its mining sector, which it considers key to its economic revival. The DRC is eager to partner with private investors to revitalise state-owned companies such as diamond miner Compagnie Minière de Bakwanga (MIBA) and La Générale des Carrières et des Mines (Gécamines). In addition, the government has instituted a tender process to award mining title to other companies and is currently reinforcing its legal framework. Several pieces of legislation should enter into force in the next few months, including a new land and environmental code as well as a new taxation regime. Further the DRC will implement the Organization for the Harmonization of Business Law in Africa’s uniform legislation, which will modernise the DRC’s business law principles and align these with international best practice. A development to watch is the series of discussions regarding eventual modifications to the 2002 Mining Code, in particular, the proposal to increase the DRC government and local community participation in the mining sector.
Glenn Faass: Earlier this year, significant amendments were made to Colombia’s 2001 Mining Code. These include extending the exploration phase potentially to 11 years (from five), reducing contract length to 50 years (from 60), and setting the surface tax at the same value for all sizes of concession. In addition, we are shortly expecting the implementation of the Canada/Colombia Free Trade Agreement. Its investment chapter extends to Canadian investors’ investment protection provisions that are enjoyed by very few other investor nationalities.
Jaime Herrera: Mining authorities are struggling to fully implement and to further regulate many of the substantial amendments made to the Mining Code that Glenn refers to. We expect these amendments in the medium term to encourage a greater exploration of the areas and less speculation. As a result of the reforms environmental concerns have become paramount and are one of the most significant challenges for mining companies in Colombia. As the experiences of some high-profile precious metals projects have shown, local expertise is key in order to work through some of the environmental limitations.
Who’s Who Legal: Are international firms looking to establish local offices in your jurisdiction, or is your firm expanding overseas?
Glenn Faass: We have just opened an office in Colombia, in response to the needs of our mining, and oil and gas clients. In our other jurisdictions, we are not looking at increased competition from international firms. Perhaps this is because of our specific locations, but also the sense that recovery has not yet consolidated, leaving some firms unconvinced that this is the time to increase their overseas risk.
In Colombia, as with our other international offices, we have focused on lateral hires, together with relocation of a very few key partners from our other offices for a period. Our initial approach will be to bring international and industry expertise to our core natural resource clientele. We believe we have identified a niche (but an important one) that is underserved by the impressive players already in the domestic legal services market.
Jaime Herrera: We are seeing increased interest from many firms, including our own, to establish or strengthen “best friends” relationships with key firms in other markets. While boutiques often have a lot of talented lawyers we have found that to provide the best service to our clients we have to be a full-service firm with the depth to advise them in the different legal challenges raised by complex international transactions including, tax, labour and other areas of the law. We feel that having those capabilities within our firm is the only way to guarantee the quality standards that our clients demand.
Stéphane Brabant: We have extremely strong relationships with local correspondent counsel in most African jurisdictions. We have over 30 lawyers specialised in African matters here in Paris and over 50 in the global Herbert Smith Africa team (many are locally qualified or have gained local experience). Our lawyers are often in Africa, for diligence, for negotiations or for visits with local officials and even to appear before the courts in Francophone countries (we are authorised, as French lawyers appear before the courts in Francophone countries provided, we do so in conjunction with local law firms).
Peter Leon: Some English, Canadian and US law firms have established a limited presence in South Africa. South African law firms remain the primary legal advisers regarding African mining transactions.
Webber Wentzel has a specialised mining, energy and natural resources group with some 30 professionals actively involved in mining projects on the continent, as well as advising governments on regulatory issues. The group works closely with the firm’s Africa practice, which includes English and civil law qualified lawyers, and is able to cover Anglophone, Francophone and Lusophone Africa. We have also established and maintain on an ongoing basis “best friends” relationships with the leading corporate and mining law firms in numerous African jurisdictions.
ROUNDTABLE
PARTICIPANTS
StÉphane Brabant
Herbert Smith LLP
France
Macleod Dixon Consultores em Direito Estrangeiro
Brazil
Posse Herrera & Ruiz
Colombia
Webber Wentzel
South Africa
Who’s Who Legal: Which are the countries to watch for mining work?
Glenn Faass: Our practice is particularly active at the moment in Latin America (especially Colombia), western Africa, Kazakhstan and Canada. This has been helped by political progress along the Atlantic coast of Africa, continued stability in parts of central Asia and consolidation of the security and economic gains of the last decade in Colombia. These are are all paying dividends for those areas, and Canada remains the “old faithful” in terms of geological prospectivity, stable rules of the game and ease of operation
Jaime Herrera: The “countries to watch” for us right now in the region are Colombia and Peru. These two countries have benefitted from sustained growth, long periods of economic stability and in the case of Colombia the consolidation of security all over the country. There are very high levels of work in Colombia in the mining sector.
Stéphane Brabant: Herbert Smith has offices in Asia and Europe and we are especially active at the moment in central Asia and Russia but most of all in Africa. Indeed our Africa practice is composed of over 50 lawyers worldwide reflecting the unique importance the continent has to our firm. In Francophone Africa investors should keep an eye on countries such as Guinea, Mali, Madagascar, the Republic of the Congo, DRC, Niger and Burkina Faso. Additionally, smaller but high potential countries – especially in regard to rare earth metals such as Burundi – are ones to look out for. Also, the “new” countries of Anglophone Africa such as Sierra Leone and Liberia, as well as “older” countries such as Zimbabwe and Zambia, are very active. We are also very involved in the Portuguese speaking countries of Africa such as Mozambique. The biggest projects in Africa are in iron ore, uranium, gold and manganese. Outside of Africa, Herbert Smith is also very busy such as in the former Soviet republics in central Asia and especially in Mongolia. Australia is an excellent jurisdiction and we have seen significant activity from that jurisdiction, from financing matters to hosting investment (such as in the large western iron ore projects, gold and of course in energy such as LNG). In terms of work levels, we have been seeing significant growth: our Africa team and revenue has approximately tripled in the last three years and it is continuing to grow strongly.
Peter Leon: Following on from what Stéphane says, while South Africa remains Africa’s primary mining jurisdiction, we are seeing increasing activity from emerging sub-Saharan African mining jurisdictions including Zambia, Mozambique, Tanzania, Angola, the Central African Republic, Burundi and the DRC. West Africa is also emerging as a mining jurisdiction, including Liberia, Ghana, Sierra Leone and Guinea. These jurisdictions have, for the most part, demonstrated an intention to conform to international regulatory best practice, and some have taken concrete steps in this regard.
Although we do not have a physical presence in African jurisdictions other than South Africa, we have established “best friends” relationships with the leading domestic corporate and mining law firms in these jurisdictions and are able to project manage investments from South Africa if required.
Who’s Who Legal: What levels of activity are you seeing in the sector overall?
Stéphane Brabant: Overall we are seeing very significant activity in the sector – from investments being pursued by the largest international mining houses to smaller juniors carrying out renewed activities in far-flung places all over Africa and Asia. In general we have noted an increased appetite for coal and iron ore projects, with a greater willingness to engage in infrastructure and mine development for the largest deposits. There has been a flurry of mergers and acquisitions, consolidations and jockeying for position by streamlining and restructuring assets. Another factor that we have noticed is the channelling of investment money into African projects and assets: private equity, investment funds and venture capital have made their way into projects, perhaps in a passive form but in greater and greater blocks reflecting an interest in direct exposure to various commodity classes. In short, mining in Africa is booming.
Peter Leon: We have seen keen interest from foreign investors and mining companies in mining in sub-Saharan and West Africa, particularly with respect to iron ore and coal, although this interest declined somewhat in 2009, no doubt as a result of the 2008 global financial crisis. This year, investor interest has increased substantially.
Interest in the sub-Saharan and West African mining sectors has been shown by a wide range of mining companies, from the large listed and established mining companies to newer, smaller mining companies, as well as from private equity funds, investment funds and venture capital funds.
We have noticed a significant increase in interest from emerging markets such as Brazil, China, Korea, India and CIS countries in the former Soviet Union (such as Kazakhstan).
Webber Wentzel has been involved in several major African mining transactions since the beginning of 2009, valued at over US$7.1 billion.
Jaime Herrera: We are certainly seeing a distinct increase in the amount of mining work, particularly with respect to coal and precious metals. Companies listed in Australia, Brazil, Chile, Canada and the UK are increasingly partnering with local investors to explore and develop mining assets in Colombia so it seems like the effects of the crisis are easing.
Glenn Faass: After a slightly slower 2009, 2010 has definitely picked up. While the effects of the financial crisis are still being felt, the equity markets have again become available to a wider variety of companies, and particularly for projects where the mineral or the jurisdictions have a “buzz”, such as Colombia does, at the moment. There also seems to be an interest in a greater variety of materials than we have historically seen. Of course, the bulk of projects are still precious metals, but we are seeing a lot more interest in industrial materials, such as coal, construction sands and other less conventional types of projects, including coltan. This means that the mining practice is becoming less dependent on price cycles in a few minerals.
Who’s Who Legal: Have there been any regulatory changes in your jurisdiction or region in recent months, or are any in the pipeline?
Stéphane Brabant: In Africa, there have been numerous developments on the regulatory front including closing of the contract revisitation process in the DRC; amendments being made to a number of mining codes, especially in regard to West Africa such as Mali; and developments in Zimbabwe which have had the effect of increasing mining exploration and development expenditure in addition to production in that country.
One major change – not necessarily with domestic laws and regulations – relates to certain principles of “soft law” relating to human rights, environmental matters and consequences therefrom in terms of sanctions such as reputational risk, risks to share value, NGO pressure and new conditions to financing (Equator principles). Companies and states are looking much more into the potential effect these principles could have and what changes these principles have already brought to the industry. For example, environmental concerns are very high on the agenda with all mining actors and this shall increase with time.
Peter Leon: On the whole, there have been no major developments in the mineral regulatory regimes of any of South Africa’s neighbouring states recently, though change is very much on the agenda.
Zambia enacted a new mining regime in the form of the Mines and Minerals Development Act 2008, which increased royalties, introduced annual operating permits and caused all licences that had been granted prior to the Act coming into effect to lapse in 2009. Mozambique introduced an electronic mining cadastre system which has regularised the process of applying for mining licences, significantly improving access by foreign investors to its mining industry. Ghana has established a Minerals Commission that independently assesses and awards mining licence applications. Ghana’s mineral regulatory regime also narrows the discretion of administrative officials.
The South African mineral regulatory regime is likely to change significantly in 2011. The Department of Mineral Resources has announced that it intends to amend South Africa’s mining code, the Mineral and Petroleum Resources Development Act 2002, although the proposed changes have not yet been published. The new minister of mineral resources has initiated major changes to the licensing system with a view to making it more transparent. In September 2010, a new mining charter was published by the department, which stipulates specific compliance targets aimed at the transformation of the mining sector, although its legal status is uncertain.
Stéphane mentioned the DRC, whose government is continually trying to improve its international profile to attract significant investment in its mining sector, which it considers key to its economic revival. The DRC is eager to partner with private investors to revitalise state-owned companies such as diamond miner Compagnie Minière de Bakwanga (MIBA) and La Générale des Carrières et des Mines (Gécamines). In addition, the government has instituted a tender process to award mining title to other companies and is currently reinforcing its legal framework. Several pieces of legislation should enter into force in the next few months, including a new land and environmental code as well as a new taxation regime. Further the DRC will implement the Organization for the Harmonization of Business Law in Africa’s uniform legislation, which will modernise the DRC’s business law principles and align these with international best practice. A development to watch is the series of discussions regarding eventual modifications to the 2002 Mining Code, in particular, the proposal to increase the DRC government and local community participation in the mining sector.
Glenn Faass: Earlier this year, significant amendments were made to Colombia’s 2001 Mining Code. These include extending the exploration phase potentially to 11 years (from five), reducing contract length to 50 years (from 60), and setting the surface tax at the same value for all sizes of concession. In addition, we are shortly expecting the implementation of the Canada/Colombia Free Trade Agreement. Its investment chapter extends to Canadian investors’ investment protection provisions that are enjoyed by very few other investor nationalities.
Jaime Herrera: Mining authorities are struggling to fully implement and to further regulate many of the substantial amendments made to the Mining Code that Glenn refers to. We expect these amendments in the medium term to encourage a greater exploration of the areas and less speculation. As a result of the reforms environmental concerns have become paramount and are one of the most significant challenges for mining companies in Colombia. As the experiences of some high-profile precious metals projects have shown, local expertise is key in order to work through some of the environmental limitations.
Who’s Who Legal: Are international firms looking to establish local offices in your jurisdiction, or is your firm expanding overseas?
Glenn Faass: We have just opened an office in Colombia, in response to the needs of our mining, and oil and gas clients. In our other jurisdictions, we are not looking at increased competition from international firms. Perhaps this is because of our specific locations, but also the sense that recovery has not yet consolidated, leaving some firms unconvinced that this is the time to increase their overseas risk.
In Colombia, as with our other international offices, we have focused on lateral hires, together with relocation of a very few key partners from our other offices for a period. Our initial approach will be to bring international and industry expertise to our core natural resource clientele. We believe we have identified a niche (but an important one) that is underserved by the impressive players already in the domestic legal services market.
Jaime Herrera: We are seeing increased interest from many firms, including our own, to establish or strengthen “best friends” relationships with key firms in other markets. While boutiques often have a lot of talented lawyers we have found that to provide the best service to our clients we have to be a full-service firm with the depth to advise them in the different legal challenges raised by complex international transactions including, tax, labour and other areas of the law. We feel that having those capabilities within our firm is the only way to guarantee the quality standards that our clients demand.
Stéphane Brabant: We have extremely strong relationships with local correspondent counsel in most African jurisdictions. We have over 30 lawyers specialised in African matters here in Paris and over 50 in the global Herbert Smith Africa team (many are locally qualified or have gained local experience). Our lawyers are often in Africa, for diligence, for negotiations or for visits with local officials and even to appear before the courts in Francophone countries (we are authorised, as French lawyers appear before the courts in Francophone countries provided, we do so in conjunction with local law firms).
Peter Leon: Some English, Canadian and US law firms have established a limited presence in South Africa. South African law firms remain the primary legal advisers regarding African mining transactions.
Webber Wentzel has a specialised mining, energy and natural resources group with some 30 professionals actively involved in mining projects on the continent, as well as advising governments on regulatory issues. The group works closely with the firm’s Africa practice, which includes English and civil law qualified lawyers, and is able to cover Anglophone, Francophone and Lusophone Africa. We have also established and maintain on an ongoing basis “best friends” relationships with the leading corporate and mining law firms in numerous African jurisdictions.