Mali: Entry Into Force of the New Mining Code

Following in the footsteps of other Western and Central African countries richly endowed with natural resources, Mali has effected a further reform of its mining legislation, replacing the relatively recent Law No.2012-015 dated 27 February 2012 (the 2012 Mining Code) which regulated the mining industry up to the present time.

Rather than following the parliamentary process, Mali chose to adopt its new mining code by way of Government Order (Ordonnance), promulgating Ordonnance No.2019-022/P-RM dated 27 September 2019 enacting the mining code of the Republic of Mali (the New Mining Code), which was published in the Malian Official Gazette dated 30 October 2019.

However, the process of revision of Malian mining legislation is not yet complete as the New Mining Code is to be supplemented by a Decree supplementing the New Mining Code (the New Mining Decree), the content of which remains to be prepared and adopted by the Malian Government, as well as several further Decrees dealing with related issues. It appears in this respect that Malian authorities are awaiting the finalization of the various implementing Decrees before actually enforcing the New Mining Code.

That being said and although a number of important provisions, including on the tax front, are to be set in the New Mining Decree, an initial review of the New Mining Code reveals that it is on the whole less favorable to investors than the previous mining legislation as it eliminates certain tax and customs advantages granted under the 2012 Mining Code, creates additional tax and other financial burdens and shortens the duration of the exploitation permit and correlatively of the stability period offered to mining investors. This is in line with the trend generally observed in Sub-Saharan Africa: increase in control by the State, increase in taxes and reduced scope both of exemptions and of benefits for investors.

We highlight below the major changes introduced by the New Mining Code, bearing in mind that certain elements remain unknown, pending the adoption of the New Mining Decree and other implementing Decrees.

Mining titles

The principal changes concerning the classification of minerals, superposition and mining titles are as follows:

• Group classification of substances has been shuffled. For instance, nickel, cobalt, titanium, tin, lithium and rare-earth metals have all been removed from Group 2 and added to Group 3, while gold, silver and platinoids remain in Group 2.
  
  The New Mining Code also removes the possibility for mining titles relating to Group 1 substances to be superimposed onto mining titles relating to other groups.
• The New Mining Code introduces certain changes to the types of mining titles. The prospection authorisation has been removed while the provisions regarding artisanal mining have been substantiated and detailed. There are now 2 different types of artisanal mining titles depending on whether the method used is purely manual or traditional (artisanal exploitation permit) or semi-mechanized (semi-mechanized exploitation permit). In addition, the exploitation of mineral substances in watercourses by dredging or any other method is now prohibited.
  
  With respect to exploitation permits, a distinction is made between small scale exploitation permit versus large scale exploitation permit with the large scale mine referring to a deposit that exceeds the limits of a small scale mine. However, unlike the 2012 Mining Code, the New Mining Code does not set out a precise definition of what constitutes a small scale mine. The New Mining Decree may hopefully bring some clarification.
• A number of changes have been made to the rights attached to mining titles. For example:
  • with respect to the exploration permit, the length of each renewal period has been increased from 2 years to 3 years. However, exploration permit holders are no longer entitled to request an extension of the validity of their permit if they have failed to finalize the feasibility study by the end of the second renewal period.
    
    Exploration permits are still granted on a first come, first served basis. However, the Government is now authorized, under certain conditions, to launch tenders for the granting of exploration permits over perimeters that have been subject to previous significant exploration work and which are not subject to any mining rights
  • The large scale exploitation permit is now granted for 12 years (as opposed to 30 years under the 2012 Mining Code) but still renewable for 10-year periods until depletion of the deposit.
    
    The New Mining Code states that each exploitation company may only be entitled to hold a single exploitation permit (i.e. the one for which the company was created).
    
    While such restriction was not specified under the 2012 Mining Code, this principle was generally applied in Mali.
    In addition, the scope of the activities that can be carried out by the titleholder under a large scale exploitation permit has been limited to exploitation activities (while exploration activities were permitted under the previous mining legislation).
• The list of events that could result in a withdrawal of a mining title has expanded but unlike the 2012 Mining Code, such list is now exhaustive.

Mining conventions

The requirement to conclude a mining convention with the State is maintained for both exploration and exploitation permits. However, the duration of the mining convention is 20 years, a duration that is not necessarily aligned either with the validity periods of the mining titles (the exploration phase can expand over 9 years and the initial period of the large scale exploitation permit is 12 years) or that of the stability period which is reduced to initial validity period applicable during the exploitation phase, which is in turn reduced to 12 years for large scale exploitation permits.

The terms and conditions of establishment of the mining convention are to be set out in the New Mining Decree but there is no longer any reference to a model mining convention being adopted by way of Decree. This could be read as a shift from the practice in Mali to have the mining titleholders sign a mining convention based on a model mining convention, with in practice no or very little possibility to make any amendments. This should hopefully be clarified in the New Mining Decree.

Following the trend of increased transparency over mining activities, the New Mining Code requires that all mining conventions, including their schedules and amendments, be published on the Ministry of Mines’ website.

State and local participation in mining activities

The free carried participation of the State remains at 10%; however, the provisions regarding the priority dividend attached to such free carried participation are more stringent as they allow for fewer deductions to the net profits available for distribution on account of the State’s free carried interest than permitted under the 2012 Mining Code. The conditions and payment terms of the State’s priority dividend are to be further detailed in the New Mining Decree.

The State continues to hold an option to acquire an additional 10% participation for cash (in addition to its 10% free-carried participation), and the New Mining Code requires that the amount, the subscription price and the date of exercise of the State’s option be agreed on the basis of an evaluation of the project.

Most importantly, the New Mining Code now entitles the State to hold an unlimited contributory participation in the capital of a company holding the rights to a deposit in which the State had invested during the exploration and identification phases.

Finally, the State has been granted the ability to contribute its participations in mining companies to a portfolio company (société de patrimoine) controlled by the State. Such portfolio company could possibly have other private shareholders and be used as an investment vehicle for the 5% participation that is reserved to private Malian investors. Despite this, the provisions regarding the 5% local participation have become more strenuous as it is now the mining company’s obligation (rather than the private Malian investor’s option) to ensure such local participation is set up.

Mining funds

The New Mining Code creates 3 mining funds, 2 of which are of particular interest to exploitation titleholders, namely:

• The Local Development Mining Fund (Fonds minier de développement local), funded by way of a combination of State funding – up to 20% of the royalties collected - and contributions from exploitation titleholders – up to 0.25% of their monthly turnover before tax or the value of the products extracted during the month.
  
  The obligation to contribute to this fund will apply to all exploitation titleholders, even pre-existing exploitation titleholders who may benefit from tax stability.
• The Fund for the financing of geological and mining exploration; the promotion of mining activities, and support of training on earth sciences (Fonds de financement de la recherche géologique et minière, de la promotion des activités minières et de soutien à la formation sur les sciences de la terre): exploitation titleholders will be required to make contributions to such fund through payments made at the time of execution of their mining convention and the transfer of their titles. In addition, they will be required to make annual contributions the amounts of which are to be determined by the New Mining Code. These contributions will be tax deductible for the purpose of calculating the IBIC-IS. The details of the contribution and management of this fund will be set forth by way of Decree.

Increase in taxes

• Progressive royalty in case of a significant increase in the sale price of mining commodities: similar to the 2012 Mining Code, the New Mining Code provides that exploitation titleholders are subject to a mining royalty composed of the Special Tax on Certain Products (ISCP) and the Ad Valorem Tax (TAV), the rate of which will now be set out in the General Tax Code, rather than in a Minister of Mines’ Order as per the 2012 Mining Code. The New Mining Code also adds that in the event of a significant increase in commodity prices, as compared to the prices retained in the feasibility study, titleholders will be required to pay a progressive royalty, the basis, rates and payment modalities of which are to be set out in the New Mining Decree.
• Revised overproduction tax: The New Mining Code has provided more clarity on the overproduction tax which was originally introduced in the 2012 Mining Code. The New Mining Code provides that any titleholder producing over a period of one year a higher quantity of products than those forecasted in the exploitation schedule of its feasibility study, must pay an overproduction tax, the base, rate and payment terms of which are set out in the New Mining Decree.
• Broader capital gains tax: the capital gains tax continues to apply to the gains generated by a direct transfer of a mining title and is further extended to an indirect transfer of such mining title, as well as to the direct and indirect transfer of shares in the capital of a titleholder. Note that capital gain tax would apply to any direct or indirect transfer of shares, irrespective of whether a change of control has occurred. Capital gains will be taxed in accordance with the provisions of the General Tax Code.

Reduced stabilization and tax advantages

• Reduced stabilization period: tax and customs stability is now limited to the initial validity period of an exploitation permit, which itself is capped at 12 years for large scale exploitation permits.
• Shorter period for IBIC-IS reduced tax rate: the principle of a reduction of IBIC-IS tax rate to 25% remains but it only applies for 3 years after start of production instead of 15 years under the 2012 Mining Code.
• Removal of the 3-year VAT exemption enjoyed by exploitation titleholders: the New Mining Code removes the three 3-year VAT exemption following start of production, which was previously granted to exploitation titleholders under the 2012 Mining Code.
• Shorter period for the tax exemptions on petroleum products: the duration of exemption on taxes on petroleum products has been reduced from the term of the exploitation permit to the development phase (i.e. 2 years with the possibility to request a 1 year extension) ending on the date of first commercial production, following which such products will be subject to customs duties at a rate of 5%, in addition to RS, PSC and PC as well as to any new community tax and the domestic tax on petroleum products (TIPP). The same applies to oils and lubricants for equipment.

Local content

The New Mining Code introduces new mechanisms to ensure that local content obligations are complied with, making them more cumbersome and stringent overall than the existing ones.

• A “consultation framework” on local content is set up for the development and promotion of the growth of local supply and employment for the mining sector, the composition and terms of management of which will be set forth in the New Mining Decree.
• The feasibility study must be accompanied by a plan for the training and progressive replacement of expatriates by Malian nationals and this in relation to all employment categories. In addition, the recourse to expatriate personnel must take into account the training and progressive replacement plan.
• Exploitation titleholders are required to file a national procurement plan with the Mining Administration. Such a plan is drafted in consultation with the “consultation framework” and its purpose is to maximize the provision of services, material and equipment sourced in Mali. It is only once such a plan has been approved by the Mining Administration that the exploitation titleholder will receive its import authorization in relation to the material and equipment required for the construction and exploitation of the mine. In addition, the exploitation titleholder must provide an annual report on the implementation of its national procurement plan and the Mining Administration is entitled to require that such report be confirmed by an independent expert.

Environment & mine closure

More stringent obligations have been introduced during the exploration phase in relation to the protection of the environment. For example, exploration work may not be undertaken before an Environmental and Social Impact Notice (ESIN) has been filed by the exploration titleholder and approved by the Mining Administration (such obligation only applied at the exploitation phase under the previous mining legislation). Likewise, a first demand bank guarantee to cover the rehabilitation must be filed beforehand, whereas the previous legislation did not condition the commencement of exploration work on this requirement being met. The amount and terms of such first demand bank guarantee remains to be set out in the New Mining Decree.

The rehabilitation guarantee requirements for the exploitation phase have become more strenuous, as the first demand bank guarantee previously required under the 2012 Mining Code has been replaced by an annual contribution to an escrow account held at the Central Bank. Such contributions will be indexed on the closure and rehabilitation plan. The conditions pertaining to the functioning of the escrow account will be detailed in the New Mining Decree.

Closure and rehabilitation obligations have remained substantially similar to those existing under the 2012 Mining Code. However, two requirements have been introduced with respect to the closure and rehabilitation plan, namely that:

• it is published on the website of both the mining company and the Ministry of Mines;
• such closure and rehabilitation plan is required to take into account, as applicable, the possibility of resuming exploitation through subsequent discoveries, improved economic conditions or reprocessing.

Transitory rules

The New Mining Code has moved away from the tradition of legal stability supported by all previous Malian mining codes which, in each instance, stated which of their respective provisions were of immediate application to pre-existing titles but otherwise allowed such titles to continue to be governed by the Mining Code under which it was issued. Under the New Mining Code transitory provisions:

• pre-existing mining titles remain valid for their remaining term and substances for which they have been granted;
• mining conventions in force remain valid for their remaining term and their holders continue to benefit from the stability of the tax and customs regime set out therein;
• holders of pre-existing mining titles can opt for the full (not partial) application of the New Mining Code provided such decision is made within 12 months of the entry into force of the New Mining Code;
• other than for the stability set out in the first two paragraphs above, titleholders must abide by the provisions of the New Mining Code.

This effectively means that other than in respect to validity, scope and duration of the mining title, and the provisions on tax and customs regimes, previously issued mining titles are subject to the New Mining Code as from its entry into force. This immediate application is however subject to two exceptions, namely that holders of pre-existing exploitation permits are given:

• a period of 1 year to comply with health, safety, protection of the environment and cultural heritage provisions of the New Mining Code;
• a period of 6 months to file a community development plan.