Mining Codes And Agreements: The Impact On Financing The Sector

Author:Mr Ludovic Bernet
Profession:Field Fisher
 
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Article was first published in French in Revue Banque n°815-816, January 2018. French Article: Codes conventions miniers en afrique francophone

Although mining codes and the agreements between the host country and the extractive project operator that complement them do not contain provisions concerning the financial package for projects, they do include clauses that affect the financiers and their intervention capacity.

As soon as they became independent, French-speaking African states with natural resources passed foreign investment laws and drew up legislation specific to the extraction sectors - the mining and oil sectors codes - which have been regularly modified or reformed1. The specifics of each extractive project require these codes to be supplemented by agreements, signed between the host country and the extractive project operator, in which the parties' respective rights and obligations are laid down. The purpose of these agreements is to reconcile the interests of the government, the operator, but also the population, while taking into account economic and geological realities, the existing infrastructure and the infrastructure that will have to be built. Mining agreements, together with the related mining permits and the environmental and social certificate (or licence), constitute the legal keystone of mining projects. These are inherently complex because of the multitude of actors and contracts involved - for example the mining agreements themselves, the contracts concluded between the operator and its various subcontractors, and the financing contracts concluded between the operator and the financiers.

Financing the mining sector: from prospection to exploitation...

Although the mining industry partially finances itself by re-investing the proceeds from the sales of the products it extracts, processes and markets, with the exception of very small projects, self-financing alone is largely insufficient because of the scale of the investment required. External financing requirements vary according to the different stages of a mining project and the financial capacity of the mining companies:

in the major mining companies, the prospecting and exploration phases are generally financed from their own funds, but smaller companies turn to public offerings because banks are reluctant to finance these usually very risky phases. Several stock markets specialize in junior mining company financing, in particular the Alternative Investment Market (AIM), a subsidiary of the London Stock Exchange, but also the Toronto and Sydney Stock Exchanges. Junior companies also raise finance through private equity funds. in the construction phase (or development phase), which occurs after the exploration phase, financial requirements are particularly obvious in very large projects, particularly in the iron ore sector in Africa, as they involve the construction...

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