December 16, 2011 / 11:08 AM / 6 years ago

UPDATE 2-Sierra Leone plans hike in London Mining tax -draft

* SL increases London Mining tax rate from 6 to 25 pct

* London Mining shares down 2 pct by 1430 GMT

By Simon Akam

FREETOWN, Dec 16 (Reuters) - Sierra Leone plans to increase iron ore miner London Mining's tax rate by 19 percentage points to 25 percent, according to a draft agreement between the miner and government seen by Reuters on Friday.

The changes to London Mining's lease agreement are outlined in a renegotiated agreement which is still to be signed by Sierra Leone's president and approved by parliament.

Sierra Leone's director of mines, asked to comment, said the terms of the new agreement are not expected to change from the current draft.

London Mining declined to comment.

Shares in the London AIM-listed company was down over 2 percent at 283.5 pence by 1430 GMT.

London Mining is one of two iron ore projects coming on line in Sierra Leone. British peer African Minerals, which has its own tax arrangements with the government, has started shipping ore from its Tonkolili mine.

The initial agreement had fixed London Mining's tax rate at 6 percent for the first 10 years of operation.

But the agreement had stirred local controversy because it failed to conform to the poor West African nation's mines and minerals laws which specified a rate of 37.5 percent.

The International Monetary Fund has said renewed iron ore exports will push Sierra Leone's GDP growth to a staggering 51.4 percent next year.

Several governments across Africa have moved to renegotiate contracts and mining codes to get more revenue from the mining industry against the backdrop of the rise in commodity prices and widespread perceptions that the region's vast mineral wealth has not translated into broad prosperity.

The draft also said the company is no longer permitted to calculate royalties after deductions, while exemptions of charges and duties on sales of scrap metals and discounts on fuel duties will also be removed.

The document forecast that Sierra Leone's take from the operation will rise from 35 percent to 49 percent and from $1.8 billion to $2.2 billion throughout the lifespan of the mine, which will contribute to boosting growth in the country.

"The figures are based on the assumptions in the financing model used by the GoSL (government of Sierra Leone) team and consistent with the model used by the IMF," the document said.

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