Investing in Portuguese Mining Jurisdictions
Leonardo Neves and Mark Sills*
This article provides a brief overview and an update on certain legal issues affecting foreign investments in the three main Portuguese language mining jurisdictions —Brazil, Angola and Mozambique, all of which are civil-law based countries.
Brazil
Brazil is the world’s top producer of niobium, the second largest producer of iron ore and a major producer of bauxite, manganese and tantalite. Copper and nickel production have also significantly increased in the past few years.
From a purely mineral endowment perspective, the country is ranked the second most appealing jurisdiction after Canada’s Northwest Territories, according to the 2006-2007 Fraser Institute Report.
Brazil is also a main destination for foreign investments in Latin America. It has tax treaties with various countries and has also entered into bilateral investment treaties with 14 countries that have not yet been ratified by the Brazilian Congress.
There are no distinctions between the mineral rights that may be acquired in Brazil by domestic parties and those that may be acquired by foreign parties through a Brazilian subsidiary. There is, however, a lively debate on whether a 1979 statute restricting foreign ownership of mineral rights to 49 per cent in the border zones is in full force and effect.
The government has yet to acknowledge that a 1995 amendment to the Constitution has overruled the 49 per cent restriction and that there should be no remaining restrictions in the border zones (a 150- kilometre strip from Brazil’s international borders towards the interior of the country). The matter has not yet reached the courts for a final and binding decision.
Another important issue in Brazil is the uranium business. Under the current regime, both mining and trade in uranium are subject to a state monopoly and exports are generally not allowed.
Brazil has the world’s sixth-biggest uranium reserves, but production is not significant. There have been recent reports that the state-owned nuclear mining company Indústrias Nucleares do Brasil is lobbying for governmental authorization to start exporting uranium. However, private investment is also required to increase exploration and production. Such investment can only be promoted following governmental action to modify Brazil’s existing laws in this area.
Angola
Angola has, until recently, been involved in a 27-year civil conflict that devastated the country. Since the ceasefire in 2002, the country’s economy has grown on average more than 10 per cent a year (with forecasts of 19.8 per cent growth for 2007), mainly due to its oil revenues.
The country’s mineral resources are the property of the Angolan State. Mining takes place under a system involving exploration licences and mining titles granted to private entities. Public tenders can also take place.
An important feature of the Angolan mining legislation is the mining agreements entered into between the state (or parastatal organizations, such as Empresa Nacional de Diamantes de Angola– “Endiama”) and investors, which set forth the terms and conditions for exploration and mining activities in the country. Such agreements cover minimum investment commitments, work plans, tax, customs and foreign exchange regimes applicable to mining projects together with dispute resolution mechanisms (with arbitral proceedings often available).
A peculiarity in Angola is that, although it is not legally required, the involvement of a local business partner is encouraged by the government. Agreements with Endiama often include provisions for the investor to contract employees of the parastatal entity or to bring in a local investor as a joint-venture participant.
Endiama is reportedly seeking investors interested in diamond exploration, as it is believed that only about 40 per cent of Angola’s territory has been explored. This has stimulated not only the return of investments from companies that have previously worked in the country such as De Beers (South Africa) and Odebrecht (Brazil), but also the arrival of new investors, such as the Brazilian mining company Vale, formerly known as CVRD.
Angola is not a party to many (if any) international treaties or conventions applicable to the mining industry or foreign investments in the sector. Nevertheless, a number of statutes have been published in recent years in an attempt to promote the recovery and development of the country’s mining industry and expand it beyond its known oil reserves and diamond deposits.
Mozambique
Mozambique has also suffered from civil war, which ended in 1992. With peace, the country has developed its security of tenure provisions, reduced official discretionary powers over the award or revocation of mining titles and has implemented a first-come, firstserved policy for the granting of exploration permits. It also offers the possibility of entering into mineral licensing agreements, which can include provisions to protect investors.
Foreign investors may take advantage of the fact that Mozambique is a member of the International Centre for Settlement of Investment Disputes, whose primary purpose is to provide facilities for conciliation and arbitration of international investment disputes. This makes Mozambique a relatively attractive jurisdiction for mining investment in the African context.
The longer period of peace in Mozambique has prompted an increase in the flow of foreign investment and the development of world-class mines, such as the Moatize coal project currently being developed by Vale. Forecasts indicate that economic growth is expected to reach 7.3 per cent in 2007 and 6.8 per cent in 2008. The commissioning of the Moma Titanium Project by Irish company Kenmare Resources and the Mozal aluminium smelter constructed with Australian and South African investment have also contributed to Mozambique’s growth.
Conclusion
The Portuguese-speaking mining countries are focusing on the issue of further ensuring certainty for mining investors. Brazil is considered by many commentators to be more stable than its neighbours Bolivia, Venezuela and Argentina in this regard.
Angola and Mozambique appear to be moving towards offering greater stability as well. Although they maintain the concept of state ownership of minerals in the ground, the authorization/ concession regime is demonstrating consistency in its treatment of investors. By contrast, some other African jurisdictions have recently adopted proceedings for the review of their mineral title system, such as Tanzania, the Democratic Republic of Congo and Sierra Leone. For these reasons, further developments in the main Portuguese-language mining jurisdictions are worth watching in 2008.
*Leonardo Neves (London) and Mark Sills (Toronto) of Fasken Martineau DuMoulin LLP.
Article to appear in the March/April 2008 issue of CIM Magazine – “Eye on Business”.