2024 – Cross-Border Mining Investments in Francophone West Africa: Legal Compliance and Due Diligence Essentials
- A rise in mining investment in Francophone West Africa
For the purposes of this article ‘Francophone West Africa’ shall comprise the following countries: Benin, Burkina Faso, Chad, Ivory Coast, Guinea, Guinea-Bissau, Mali, Mauritania, Togo, and Senegal.
Francophone West Africa has historically attracted significant mining investment from a wide variety of players in the mining sector from small-scale artisanal mining, to semi-industrial mines all the way to large-scale international and industrial mining houses. Typically the latter category has focussed its efforts on the exploitation of precious metals and gemstones (e.g. gold and diamonds), heavy metals (e.g. iron, bauxite, and manganese), and other substances such as phosphate, copper, lead, and zinc. The most popular jurisdictions for investment within Francophone West Africa today remain Burkina Faso, Ivory Coast, Guinea, Mali, and Senegal with proven deposits of high-grade minerals and precious metals making them attractive destinations for mid-size and larger-scale exploration and mining companies.
Major Canadian and other international mining houses are actively involved in the region, including in Senegal, Guinea, and Ivory Coast, with many of them experiencing sustained growth. West Africa is already a major producer of gold and bauxite and is benefitting from major iron ore development projects. The long-term economic futures of these countries, as well as the region more generally, would benefit hugely if this mineral resource sector were put at the service of broader economic development. This said the mining sector in Mali is dominated by foreign groups such as the Canadian Barrick Gold and B2Gold, the ASX-lised Resolute Mining, or London Main Market-listed British Hummingbird Resources.
In recent years, we have witnessed a boom in foreign direct investment in the African mining sector. This is in large part due to a revitalising strategy of the mining sector which has focused on the privatization of public companies and the total or partial transfer of their assets to private investors. To attract the latter, lawmakers and lobbyists have encouraged the governments of Francophone West Africa to make a concerted effort to adopt investor-friendly mining codes and to develop a set of institutional, legal, and fiscal provisions aimed at making the business climate more attractive. The West African mining sector is now in an era characterized by an influx of foreign companies. Across the region, these investors have actively developed exploration, trading, and/or mining activities and continue to work closely with the mining ministries in country and local communities to ensure sustainable growth and development.
- Features of investment in the mining industry
Under the Investment Code common to the member states of the Economic Community of West African States (ECOWAS), an ‘investment’ must normally have the following features: a substantial commercial activity, the commitment of capital or other resources, the expectation of gain or profit, risk-taking and a significant contribution to the development of the host country. In general, a foreign investment will take the form of either the creation of an entirely new entity (Greenfield Investment) or the acquisition of an existing entity (Brownfield Investment). More specifically, in the mining sector, mining investments often take the form of investors acquiring the assets of an existing mining company, including acquisition of mining titles.
- Due diligence in the mining industry
In West Africa, the mining industry is known for its high-profit potential but also hides great risk. Investment in the mining sector in this region is usually therefore undertaken on the basis of a due diligence exercise, which is the process of conducting a thorough investigation of a company or property before making an investment or a business decision. In this regard, due diligence constitutes the foundation of mining investments by helping investors identify potential risks and opportunities. Best practices to ensure that due diligence is performed effectively include the following: identifying the objectives of the transaction (i.e., the investment project), carrying out a thorough investigation of the company and its assets (particularly the mineral titles to be acquired), reviewing the financials and business operations, identifying potential risks and opportunities, and carrying out legal and regulatory reviews. Specifically, in the mining industry, investor due diligence may include a review of the company's geological data, financial statements, and management team. Investors may also visit the property and speak to local stakeholders to better understand the potential of the project.
- Legal and regulatory framework of the mining sector in West Africa
Article 5 of the Common Mining Code applicable to WAEMU member states in West Africa states that no one may undertake or carry out prospecting, research, or exploitation activities on WAEMU territory without first having obtained a mining title under the conditions laid down by the mining regulations in force. The WAEMU or West African Economic and Monetary Union (also known by its French acronym, UEMOA) is a regional bloc including the following West African countries: Benin, Burkina Faso, Côte D'Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo. Under the Common Mining Code, a mining title is defined as an authorisation, permit, or concession relating to prospecting, research, and exploitation of mineral substances.
Each WAEMU member state has therefore adopted its own mining legislation under the provisions of the Common Mining Code. This is the case of the government of Mal, which has just adopted a new mining code in August 2023. However, the legal and regulatory requirements regarding the procedure for granting mining titles, the duration and validity of titles, the rights, and obligations of their holders or even the obligations to be considered for the protection of the environment may thus vary from one country to another. Mining regulations of most of WAEMU member states also include provisions aiming to protect the rights of local communities affected by mining activities and measures to mitigate environmental impacts.
For countries in West Africa that are not members of WAEMU such as Gambia, Guinea, or Mauritania, the principle remains the same. The procedures for granting mining titles generally involve formal applications to the relevant authorities, assessments of proposed projects, and specific criteria for awarding mining titles.
It should be noted that despite the general similarities, there are significant variations in mining regulations from one country to another in West Africa, depending on the specific political, economic, and social contexts of each country. It is therefore important for investors and those involved in the mining sector to familiarize themselves with the specific legislation of each country in which they wish to operate.
John W Ffooks & Co would be delighted to assist any investor in Francophone West Africa with its application for a new mining permit(s), the acquisition and sale of mining permits, or to pledge as a security for a loan.
Please contact us at [email protected]