Introduction
Dentons has recently combined with law firm Eric Silwamba, Jalasi and Linyama Legal Practitioners in Zambia. This exciting opportunity provides Dentons with skilled practitioners in a globally recognized mining market. Zambia, the largest copper producer in Africa and home to some of the world’s highest-grade copper deposits, will undoubtedly continue to be a major player in the global mining market for years to come. Eric Silwamba, Jalasi and Linyama have provided the following summary of the Zambian mining regulatory regime, and information about the industry, which we trust will be informative for readers of Dentons’ mining blog.
Overview of Mining Industry
Zambia is internationally recognized as a major producer of copper and cobalt. The country also produces precious metals such as silver, gemstones (amethyst, aquamarine, emerald, and tourmaline), coal, and industrial minerals. The country has recently also seen increases in findings of gold and manganese.
The majority of copper mining occurs in the Copperbelt Province, although new major mines are located in the North Western province. There have also been significant mining activities occurring in other areas such as the Central province (manganese), the Eastern province (gold), and the Luapula province (manganese).
Legislation that regulates the mining industry
The primary law governing the mining sector in Zambia is the Mines and Minerals Development Act No. 11 of 2015 (MMDA) as amended by the Mines and Minerals Development (Amendment) Act No. 14 of 2016.[1] The MMDA deals with mining rights, licences, large-scale mining rights, gemstone mining, health and safety, environmental protection, and geological services for analysis, royalties, and charges.
Other legislation relevant to mining operations in Zambia include the Mines Acquisition (Special Provisions) Act, Chapter 218, Volume 13 of the Laws of Zambia and the Mines Acquisition (Special Provisions) (No. 2) Act, Chapter 219, Volume 13 of the Laws of Zambia. The Mines Acquisition (Special Provisions) Act, Chapter 218 facilitates the acquisition of a 51% interest in each of the main Zambian copper mining companies by the Zambian Government. The Mines Acquisition (Special Provisions) (No. 2) Act, Chapter 219, facilitates the incorporation under the laws of Bermuda of a company incorporated under the laws of Zambia by the name Zambian Anglo American Limited.
The Zambian mining industry is administered by the Ministry of Mines and Minerals Development (the Ministry) (previously called the Ministry of Mines, Energy and Water Development), specifically by the office of the Director of Mines.
The MMDA gives primary power to the Director of Mines, Director of Mines Safety, Director of Mining Cadastre, and Director of Geological Survey. Additionally, the Minister of Mines and Minerals Development (the Minister) has an appellate and supervisory role over the Directors’ actions. Some of the powers and duties of the Ministry include:
(a) inspecting the area of mining activity, premises, or workings;
(b) examining the exploration, mining, or mineral processing operations or the treatment of minerals at the area. working, or premises;
(c) ascertaining whether the provisions of the MMDA or the conditions of a mining right or non-mining right are being complied with;
(d) ascertaining whether any nuisance exists upon the area, land, mine, or in the premises or workings;
(e) giving directions and taking steps to enforce any provision of the MMDA or abating or removing any nuisance;
(f) taking soil samples or specimens of rocks, ore concentrates, tailings, minerals or any other material from the area, premises, or workings for the purpose of examination or assay;
(g) examining books, accounts, vouchers, documents, maps, drilling logs, or records of any kind; and
(h) obtaining any information necessary for the purposes of the MMDA.
Acquisition of mining rights
A person is required to make an application to the Director of Mining Cadastre in order to conduct reconnaissance or exploration activities, acquire prospecting rights, conduct mining activities, or dispose of or sell minerals.
Section 12 of the MMDA prohibits any person from undertaking any reconnaissance activity without a mining right, a mineral processing licence, or a gold panning certificate. Section 18(2) of the MMDA provides that a holder of a mining right or a mineral processing licence shall survey and demarcate the area covered by the licence and register a pegging certificate at the Mining Cadastre Office within 180 days of the granting of the licence.
To acquire prospecting rights, the applicant must apply for an exploration licence with the Director of the Mining Cadastre and pay a prescribed fee. The Mining Licence Committee (the Committee) of the Ministry, which includes all the directors mentioned earlier, will grant the applicant an exploration licence within 60 days of the receipt of an application, if the application complies with the provisions of the MMDA. An exploration licence confers on the holder exclusive rights to carry on exploration in the exploration area for the minerals specified in the licence and to do all such other acts and things as are necessary for, or incidental to, the carrying on of those operations.
Further, a person wishing to conduct mining and dispose of minerals is required to first acquire a mining right or a mining licence granted under the MMDA. In order to acquire mining rights, the applicant is required to apply for a mining right by addressing the application to the Mining Cadastre Office. The Director of Mining Cadastre may, before issuing a mining right or mining licence, require that the land over which the mining right or mining licence is to be issued be properly surveyed in accordance with the provisions of the MMDA.
The MMDA additionally provides for restrictions on the ability to transfer reconnaissance, exploration, and mining rights. The transfer of these rights requires the prior consent of the Minister of Mines and the production of a tax clearance certificate.
The MMDA distinguishes between mining rights and surface rights. The holder of a right to conduct reconnaissance, exploration, or mining does not automatically have the right to use the surface of land. However, the holder may have the following rights in relation to the surface of land:
i) to enter the mining area and take reasonable measures on or under the surface for the purpose of mining operations;
ii) to carry on mining operations and to do all such other acts and things as are necessary for carrying on of those operations;
iii) to dispose of any mineral products recovered;
iv) to stack or dump any mineral or waste product; and
v) to erect the necessary equipment and buildings for the purpose of mining, transporting, dressing, or treating the minerals recovered in the course of the mining operations.
The holder of a reconnaissance, exploration, or mining right has an obligation to the landowner or the lawful occupier, subject to the mining right, to pay fair and reasonable compensation for any disturbance of the rights of the occupier, including any damage done to the surface of the land by the operations.
Where the holder requires exclusive or other use of the whole or any portion of the prospecting or mining area, the holder has an obligation to acquire a lease to use the same as agreed between such holder and the landowner or lawful occupier. This is referred to as an access agreement. Section 57 of the MMDA, however, provides for exceptions to the above. Any dispute with respect to compensation between the surface rights holder and the holder of a mining right may be resolved by the Director of Mining Cadastre with the consent of the parties. The Director may also require the parties to submit to arbitration in accordance with the provisions of the Arbitration Act.
Customary law has some influence with respect to surface rights on land held under customary law tenure.
Foreign ownership and indigenous ownership requirements and restrictions
It is important to note that prospecting permits, small-scale mining licences, and small-scale gemstone licences, cannot be granted to a person who is not a citizen of Zambia or a company that is not citizen-owned as defined by the MMDA. Under the MMDA, a citizen-owned company is a company where at least 50.1% of its equity is owned by Zambian citizens and in which the Zambian citizens have significant control over the management of the company. There are no restrictions with respect to foreign ownership for holders of large-scale mining licences.
Small-scale mining relates to mining over an area covering a minimum of three cadastre units and not exceeding 120 cadastre units. Large-scale mining on the other hand relates to mining over an area of a minimum of 121 cadastre units and not exceeding 7,485 cadastre units.
Additionally, under the MMDA, artisanal mining rights, mineral trading permits and gold-panning certificates cannot be granted to a person who is not a citizen of Zambia or a company that is not a citizen-owned company. Artisanal mining shall only be undertaken by a citizen or a co-operative wholly composed of citizens.
There are no ownership restrictions with respect to exploration, large-scale mining, mineral processing, and mineral import and export permits.
Health regulations and the impact of COVID-19 on the mining industry
The outbreak of the COVID-19 pandemic has negatively affected the mining industry in Zambia. The Minister of Health issued the Public Health Act (Laws, Volume 17, Cap. 295) and the Public Health (Infected Areas) (Coronavirus Disease 2019) Regulations Statutory Instrument No. 22 of 2020 which established punitive measures on companies that fail to comply with health regulations. Additionally, the mining sector is China’s topmost interest for investing in Zambia and travel restrictions, shutdowns, and port closures have resulted in decreased demand for minerals. Some mines have threatened to go under care and maintenance but it is difficult to ascertain if any mines actually undertook such a decision.
Protection of investment in Zambia
Zambia has laws in place designed to promote foreign investment and to protect and guarantee such investments through agreements with investors and other countries. Any compulsory expropriation of an investment may only be done under customary international law and is subject to the Constitution of Zambia.
Additionally, Zambia has entered into a number of multilateral and bilateral treaties, which include the Convention on the Settlement of Investment Disputes between States and Nationals of other States, the SADC Protocol, the COMESA Treaty, and the COMESA Common Investment Area (CCIA) Agreement.
Zambia also has bilateral investment treaties with the United Kingdom (2009), Mauritius (2015), the Netherlands (2003), the Belgium-Luxembourg Economic Union (2001), China (1996), France (2002), Germany (1996), Egypt (2000), Cuba (2000), and Switzerland (1994).
Taxes and royalties
Under Zambia’s Income Tax Act, the corporate income tax rate applicable to companies carrying out mining operations is 30%. The variable profits tax of up to 15% no longer applies. However, there is a limit on the deduction of losses to 50% of taxable income. Withholding tax on dividends declared by a company carrying out mining operations is charged at a rate of 0%.
Mineral royalties for holders of mining rights are payable at a rate of 5% on base metals (except copper) and energy and industrial minerals and 6% for gemstones and precious metals. For copper, the mineral royalty rate is 4% when the price of copper is less than USD$4,500 per tonne, 5% where the price of copper is between USD $4,500 and USD $6,000 per tonne, and 6% where the price of copper is more than USD $6,000 per tonne.
Cancellation, abandonment and relinquishment of exploration or mining rights
The MMDA allows the holder of a right to abandon the right either totally or partially, subject to the licence or permit, upon application to the Director of Mining Cadastre for a certificate of abandonment. An application for abandonment must be made no later than 90 days before the date on which the holder wishes the abandonment to have effect.
Moreover, there are obligations placed upon the holder of an exploration right or a mining right to relinquish a part of the right after a certain period of time. An exploration licence is valid for a period of four years and it may be renewed for two further periods not exceeding three years each. The maximum period from the initial granting of the licence shall not exceed 10 years. A holder of an exploration licence shall relinquish 50% of the exploration at each renewal. However, an exploration licence for small-scale exploration and gemstones, other than diamonds, is not renewable.
Power of the government to cancel an exploration or mining right
It is important to note that under the MMDA, the Government of Zambia has the power to cancel an exploration or mining right if the holder fails to comply with the conditions relating to mining rights or non-mining rights.
A mining right may be cancelled if the holder:
(a) contravenes a condition of the mining right or non-mining right;
(b) fails to comply with any requirement of the MMDA relating to the mining right or non-mining right;
(c) fails to comply with a direction lawfully given under the MMDA;
(d) fails to comply with a condition on which any certificate of abandonment is issued or on which any exemption or consent is given under the MMDA;
(e) is convicted on account of safety, health, or environmental matters;
(f) in the case of a large-scale mining licence or large-scale gemstone licence, has failed to carry on mining operations in accordance with the proposed plan of mining operations, and the gross proceeds of sale of mineral from an area subject to such licence in each of any three successive years is less than half of the deemed turnover application to that licence in each of those years; and
(g) is convicted for giving false information on recovery of ores and mineral products, production costs, or sale.
Legal recourse
Disputes under the MMDA may arise from issues concerning the application for a mining licence, the validity of permits and licences issued or deemed to be issued by the Ministry, and the constraints of the rights conferred upon holders of the respective licences or permits.
Whenever the Minister, the Committee, any of the Directors, or an authorized officer makes a decision against the holder of a right under the MMDA, the holder or applicant affected by the decision shall be informed of the decision and the reasons for the decision by through written notice and the notice shall inform the applicant of their right of appeal.
A decision of the Director of Mining Cadastre, Director of Mines Safety, Director of Mines, Director of Geological Survey, or the Committee under the MMDA may be appealed to the Minister within 30 days of receipt of the decision. A decision of the Minister may be appealed to the court within 30 days of receipt of the Minister’s decision.
Within 14 days of determining an appeal, the court informs the appellant and the Minister of its decision and provides written reasons. If a party is still unsatisfied with the outcome of its matter from the court, they may appeal to the High Court of Zambia within 30 days of receiving the court’s decision. The appellate procedure may advance all the way to the Supreme Court of Zambia subject to the rules of the Court that may become applicable at each appellate stage.
[1] The MMDA came into effect on July 1, 2015 although the date of assent is August 14, 2015. It repealed and replaced the Mines and Minerals Development Act No. 7 of 2008.
