Guide for investors in the mining sector in Equatorial Guinea
The government has strived to improve the mining regime given its important economic role, explains Abraham Abia, managing director of Clarence Abogados & Asociados
Equatorial Guinea is a civil law jurisdiction rooted in Spanish civil law. The government system of the country is presidential, led by the Executive branch and headed by the President, who is both the head of state and head of government. The Legislative power is vested in both the government and the Parliament, which is comprised of two chambers: the Chamber of Deputies and the Senate.
Equatorial Guinea is a member state of CEMAC and OHADA, and as such their treaties and regulations are directly applicable in the country.
The Legal Framework and the Regulator
According to the EG Constitution, the country can explore and exclusively exploit all mineral resources and riches as well as its hydrocarbons. Furthermore, as per the Mining Law, and State is the original owner and holder of all rights declared to be of public utility. Likewise, all the mineral resources and materials existing in the national territory are also property of the state.
Given the role of the mining sector for the economy of the country, the government of EG has been striving to improve its mining regime, aiming to achieve both the improvement of production and sustainability. Hence, the new Mining Law (Law No. 1/2019, of 29 November 2019) brought important updates on the legal framework for the mining sector. It establishes new rules applicable to the exploration and exploitation of mineral resources such as metallic and non-metallic minerals, industrial rocks, gravel, radioactive and strategic minerals, stones and precious metals and underground waters.
Under the Mining Law, the Ministry of Mines and Hydrocarbons (“MMH”) may grant mining rights to third parties by means of concessions, licences, authorisations (“Mining Rights”) and, where appropriate, contracts in favour of natural or legal persons interested in engaging in mining activities and operations of research, prospecting, exploration, and exploitation of mineral and geological resources.
The Mining Law regulates HSE, local content, environmental matters, titles over minerals, mining operations, mining rights (concessions, licenses, and authorisations), mining contracts and contractors, fiscal regimes (royalties, surface rental fees), transfers, abandonment and decommissioning and sanctions. Moreover, the new Mining Law also contemplates the creation of the National Geological Service and Mining Registry (“NGS”) within the MMH.
The MMH is the sole regulator of the mining sector. The MMH’s responsibilities include:
- Ensuring compliance with the provisions of the Mining Law, implementing regulations, and other Applicable provisions.
- Regulating all mining activities and operations across the national territory.
- Awarding mining contracts to interested parties for the prospecting, exploration, or exploitation of mining resources.
The NGS – which is yet to be created – will be the entity responsible for developing and maintaining geological infrastructure, elaborating and/or updating the different national cartographies and geological maps, undertaking geological research, data management of mineral, geological, water and environmental resources, creating and updating the database, carrying out technical and methodological control of the services and facilities of the country’s geological research laboratories, and prepare and provide geological information.
Any company operating in EG will also have to comply with other applicable laws, subject to any provisions of the contract with the State, and deal with various ministerial departments and other branches of the State such as the EG parliament and judiciary.
Title Over Minerals and Securing Mining Rights
Mining Rights may be awarded after consideration of bidders in a competitive international public tender system or by direct negotiation.
The process to obtain Mining Rights requires:
- The submission of an application letter addressed to the Minister of Mines.
- Enclosing all the documents and legal and regulatory requirements applicable to the type of activity.
- Compliance with the preliminary requirements to obtain a Mining Right and carry out mining activities.
- Obtaining all licenses and authorisations of the Ministries and competent bodies in charge of environmental, employment, social security, water and forestry, public works, and other sectors; and
- Submission to the MMH of the plans and other required documents related to the applicable mining activity.
Factors Considered on the Application for Mining Rights:
- Experience, technical and financial capability.
- The highest level of planned investment, speed, and efficiency in the execution of the project, and program of the mining activity.
- The best technical and financial conditions.
- Reinvestment of part of the income generated in EG into the EG economy.
- Largest use of EG personnel.
- Largest transfer of technology.
- Highest profitability for the State.
- Highest level of security and protection to people, goods, and equipment, as well as environmental sanitation.
- Plans to carry out social projects.
- Any other regulatory requirements.
- Obligation to be resident in EG for Tax purposes – having an entity registered locally prior to applying.
- Absence of conflicts of interest or making use of privileged information, linked to the decision-making bodies of the mining activity.
The resolution granting a mining right is always delivered together with the general and specific conditions for carrying out the mining activities or operations of research, prospecting, exploration, and exploitation of mineral resources.
Companies must apply for a mining contract within ninety (90) days of receiving notification that they have been granted a Mining Right. These companies must present themselves to the MMH with:
- The respective Mining Right.
- The corresponding documents and projects; and
- any other data or information determined by the MMH.
The contract shall specify: (a) the terms, conditions, and duration of the mining activity to be carried out; (b) the boundaries and areas of the mining activity or operation that is being discussed; the contractor’s obligations in relation to:
- Protection of the environment.
- Provision of guarantees.
- Liability insurance policy.
- National and local content.
- Payment of taxes and royalties.
- Rehabilitation and restoration of affected areas.
- Partial or total closure liability insurance.
- The abandonment and decommissioning plan.
- Other aspects deemed necessary.
Validity of the Contract
A contract for exploration of Mining Rights is valid only after the conditions below are fulfilled, in the order they are presented:
- Signature by the MMH;
- Ratification by the President of EG; and
- Delivery of a written note of the ratification to the Company.
Transfer of Mining Rights
As a rule, the mining rights are non-transferable, i.e., only the person who holds the mining right has the right to exploit it.
Exceptionally, a transfer of mining rights may occur subject to obtaining the prior written consent of the MMH. Transfers can transpire either inter vivos (contracts and donations) or mortis causa (inheritance), and in accordance with the MMH’s established process in each case.
Royalties and Surface Rentals
The Mining Law defines Royalties as the economic compensation payable to the State for the exploitation of mineral resources or construction materials. Payments for royalties shall not be deductible for tax purposes nor are they cost recoverable.
The Mining Law provides for minimum royalties of 3%, which are payable annually, from the first year of production based on the net market price of the extracted mineral, in disposition or commercialised, subject to the type of mineral and in accordance with the percentages established under the applicable contract. The MMH is solely authorised to negotiate a different royalty in exceptional cases.
Royalties are payable by bank transfer to the State General Treasury within thirty (30) calendar days after the completion of the act or operation resulting in the obligation to pay it. Late payment accrues interest in the terms provided by the Mining Law.
The contractor is subject to the Republic of Equatorial Guinea’s Tax Law, and must pay surface fees and royalties, as well as any other taxes, fees, or other levies imposed by law.
The table below illustrates the payments that title holders must make for the lease of the area.
|Type of Contract||Frequency||Amount (USD)||Department|
|Prospecting contract||Annually, once only and in advance||One (1.00) USD/ hectare.||Public Treasury|
|Exploration contract||Payable once a year, in advance||2, 50 USD/ hectare||Public Treasury|
|Exploitation or production contract||Payable once a year, in advance||5 USD/ hectare||Public Treasury|
|Artisanal exploitation of minerals||Exempt||Obligation to register and obtain authorisation from the MMH.|
Payments for the leasing of areas must be made to the State Treasury by bank transfer thirty (30) calendar days after the operation resulting in the payment obligation.
Mining companies are required to:
- Take the necessary environmental protection and rehabilitation measures.
- Submit an environmental impact study and a detailed environmental protection and remediation plan to the Ministry, which must be approved by the environmental department.
- Respect occupational safety regulations and the quality of life and health of people.
- Appropriately manage the waste generated by their activities and operations, restoring and rehabilitating the space impacted by those activities and operations, and safely decommissioning unusable structures and facilities.
- Provide compensation to those who have been impacted by the environmental damage resulting from the mining operations.
The infringements arising from waste production and management activities, as well as those related to the restoration and rehabilitation of the sites indicated and the dismantling or abandonment of the affected facilities, are monitored, inspected, and sanctioned by the Ministry of Mines and its bodies.
The contractor will indemnify any natural or legal person, including landowners, who suffers loss or damage, direct or indirect, resulting from a contractor’s, its subcontractors’, or any other natural or legal person providing services for or on behalf of the contractor’s mining operations, and will hold the State blameless? from any such claims.
Failure to comply with the environmental environmental obligations constitutes a serious infringement or a very serious infringement. In addition to the above, any accessory penalties may be imposed on a case-by-case basis.
Early Termination by the State
Nullity, suspension, expiration and revocation are the four (4) scenarios in which the state can choose to terminate the contract in advance.
Nullity may co-occur when titles, mining rights and contracts are granted in violation of the legal provisions in force or in transgression of any title, right or contract which is legally in force, or which lacks an essential element for its validity. The nullity requires that all proceedings be restarted, and that the affected mining area be returned to the State for free disposal or to the holder or interested party with preferential rights.
The suspension of mining operations may follow the report and verification of possible risks or hazards to mining operations or may occur because of the investigation of a sanctioned expedient.
Expiration occurs when the holder of a mining right fails to comply with the obligations derived from the corresponding enabling title, within the period indicated for that purpose, 1 or for suspending operating activities for two years without justification.
The period in which the mining activities must begin varies: one hundred and eighty (180) days if the mining company holds a prospecting, exploration, or exploitation contract; sixty (60) days if the mining company holds a license or authorization.
Revocation is the withdrawal of the mining right, which can occur if the contractor commits a serious or very serious offence.
In addition, the mining company may request suspension of the activity for duly justified reasons to the Ministry, which may authorise it within the period indicated by the interested party, without exceeding two (2) months.
Concerning Cancellation, Abandonment and Relinquishment of Mining Facilities
A contractor must expressly submit its relinquishment to the Ministry with a legalised signature if he wants to abandon or relinquish a mining right.
The Ministry will then declare the mining right to be extinguished, which does not absolve the holder of any outstanding liabilities or obligations.
If, on the other hand, the contractor wishes to abandon the site where the operations are being carried out, the contractor must prepare and file an abandonment and decommissioning plan to the Ministry that includes all deadlines, facilities and equipment, environmental rehabilitation, and, if applicable, the continuation of mineral operations.
Clarence Abogados & Asociados is based in Malabo, Equatorial Guinea