By Peter Finan, principal at Support Legal in New York, USA
29 November 2020 – The Democratic Republic of the Congo (DRC) is a treasure trove for mineral exploration and mining companies. There are a few factors in the country’s mining code to be aware of though.
The code was introduced by law n° 18/001 and modified, but did not replace, the former mining code of 2002. While many of the changes are consistent with the mining laws introduced elsewhere in Africa, some changes have attracted concern from investors.
The following is a summary of the key changes introduced by the 2018 mining code.
The mining permits available under the new code include:
- an exploration permit, for a term of five years, applicable to all minerals, renewable once for the same term; and
- a 25-year mining permit, renewable for periods of up to 15 years.
These permits can now only be granted to legal entities and not to natural persons.
Royalties and taxes
Increased royalties and taxes are among the key changes of the new mining code.
A tax varying from 2% to 10% on certain “strategic substances” which are defined as minerals which “on the basis of the Government’s opinion of the prevailing economic environment, are of special interest given the critical nature of such mineral and the geo-strategical context“.
The DRC is a major global producer of cobalt, coltan, lithium and germanium, and the Government has suggested these will be designated as strategic substances. These have seen increased demand with the move towards electric vehicles and grid storage technology.
Other royalty rates are increased under the code, such as for non-ferrous metals, from 2% to 3.5%; precious metals from 2.5% to 3.5% and precious stones from 4% to 6%.
A further change requires that 10% of these royalties must be paid to a fund dedicated to future generations. While corporate income tax remains at a reduced rate of 30% for miners, a new ‘super profits’ tax of 50% has been introduced on profits exceeding 25% of those forecast in the mine feasibility study.
Furthermore, miners must now contribute a minimum of 0.3% of turn-over to development projects for communities affected by the mine’s activities.
The new code requires mining companies to comply with a local law which requires contractors to be Congolese and owned by Congolese shareholders. Furthermore, in concluding services contracts for mining activities (not including the sale of goods), priority must also be given to Congolese companies. Any such contracts concluded with a foreign company are subject to a 14% tax.
The State’s free-carry shareholding in the mining company is increased from 5% to 10%, increased by 5% each time the permit is renewed. Furthermore, at least 10% of the capital must be owned by Congolese citizens.
Subject to a one-year exemption, the exportation of raw minerals is forbidden, and miners must present a plan for the refinement of their minerals to the authorities.
Requirements relating to state approvals for transfers, farm-outs and option contracts are expanded, including a new requirement that changes-of-control in companies holding a mining permit are subject to state approval.
Access to a documented state-studied deposit, secured by tender, will be subject to the payment of a ‘doorstep’ (pas de porte) fee of 1% of the tender price.
The stability period during which taxes cannot be modified is reduced from 10 to 5 years. While existing mining rights are subject to the new law, it is unclear to what extent existing mining agreements with stabilisation provisions will be affected. Companies must now retain 0.5% of turnover for mine rehabilitation.
While many of the changes have stemmed from the state’s intent to improve the mining sector’s legal framework, with greater benefits for state coffers and local communities, it is regrettable that many industry concerns were not addressed, particularly those relating to the local contracting requirements, the reduced stability regime and the Congolese shareholding requirements.
Foreign companies feeling aggrieved by the changes could consider protections offered by bilateral investment treaties which allow foreign investors to seek compensation where a government has breached protections offered to a foreign investment.
With the publication of the regulations accompanying the new code, only time will tell whether the new regime will ultimately increase the sector’s benefits for the DRC.
For more information contact Peter Finan at email@example.com