April 26, 2011 / 11:27 AM / in 7 years

Guinea eyes bigger mine stakes, new rules

DAKAR (Reuters) - Guinea’s government aims to more than double the stake it can hold in mining projects and to toughen procedures for issuing development permits, according to a draft of the West African state’s new mining code.

The changes are aimed at boosting the impoverished country’s share in its vast minerals wealth, but could backfire by limiting much-needed future investment from international mining firms, analysts and industry insiders said.

Other proposed changes in the code, which is set to become law in coming months, include new tax breaks for mining companies involved in exploration and mine construction, and the creation of a ‘Local Development Fund’ fed by an existing 0.5-1.0 percent levy on minerals sales.

Guinea is the world’s top exporter of the aluminum ore bauxite and holds some of the world’s biggest unexploited iron ore reserves that have drawn billions of dollars in planned investment from miners Rio Tinto and Vale.

STATE SHARE

The draft mining code would give the Guinean state a free 15 percent of mining projects, as well as the option of purchasing an additional 20 percent -- bringing the total potential state share to 35 percent.

This proposal, which would more than double the current 15 percent state share in projects, will draw the biggest protest from mining companies who argue it will cut into their revenues without reducing capital outlay.

It is unclear if the government will compromise on the issue and legal battles over retroactivity to existing mining projects are a possibility if the code becomes law.

Guinea President Alpha Conde has signalled that this change is a priority, stating earlier this year that he wants Guinea to have a blocking minority stake in all of the country’s mining projects -- something requiring at least 33 percent.

The code would also toughen up procedures for companies seeking to get a mining permit, requiring them to complete a feasibility study and environmental and social impact studies beforehand.

“In the past, companies with big investments were offered the possibility of a customisation of the code to give them some security -- basically a convention or framework agreement that would mean they could avoid the various studies before the concession was granted,” said one industry official who asked not to be named. “That’s been removed.”

In a move to attract more exploration, however, companies doing research and mine construction would get a series of new tax breaks and deductions, including on value-added, equipment imports, and customs duties.

The taxes would mostly be reimposed once exploitation began, according to the draft document.

The draft code also references the creation of a new ‘Local Development Fund’ that would by fed by a 0.5-1.0 percent existing community development levy on minerals turnover.

The code does not detail how the new fund would be managed and a Guinean mining official was not immediately available to comment.

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