Sierra Leone mulls mining reform, royalty hike

FREETOWN (Reuters) -- Sierra Leone's parliament will vote on Tuesday on a bill that would hike royalties on the extraction of diamonds, gold and other precious metals and give government the right to take a stake in big mining projects.

The bill aims to remedy the effects of years of mismanagement, corruption and a 1991-2002 civil war that have hamstrung the West African nation's mining potential, leaving it among the world's poorest countries.

"We want an act that will bring predictability, consistency and sustainability to our mining sector," trade and industry minister David Carew told Reuters by telephone from London, ahead of an investment conference on Wednesday.

Sierra Leone's gem-fuelled civil war killed some 50,000 people and left infrastructure and farmlands in ruins, pushing out many large foreign firms that had sought to develop the country's vast minerals deposits. Companies that remained sought favourable terms for their operations.

"We found out that over the years people were negotiating their own agreements outside the mining act. As a result there were various qualities of agreement inconsistent with our policy, negotiated at a time when the country was vulnerable," Carew said.

The bill would raise royalty rates, give government the option to take a share in large projects, increase mining companies' obligations to develop local communities and ensure they cannot sit idly on cheap licences.

Among the new proposals is a hike in royalty rates to 6.5 percent on diamonds, up from 5 percent, and to 5 percent on gold and other precious metals, up from 4 percent.

Companies would need to spend 0.1 percent of annual gross revenues on community initiatives, and new entrants would work under a new non-exclusive "reconnaissance" licence, which will replace the "prospecting" licence and is renewable only once.

Carew said the government has successfully renegotiated a former "special agreement" with Koidu Holdings, a private Israeli-owned company that mines the country's deepest vertical kimberlite diamond pipe.