Security of Mining Rights in Zimbabwe: The Mining Lease and the Special Grants
Security of Mining Rights in Zimbabwe: The Mining Lease and the Special Grants.
By James Tsabora PhD and Tawanda Parawira LLM Candidate, (UZ).
Introduction
The security of mining rights of any country’s mineral law framework is critical for investment in that sector. An insecure legal regime for mining rights drives off investment increases the costs of investment and deprives the mining sector of any investment appeal. Investors need to know the kind of rights in any sector, whether such rights are comprehensive in their entitlements; whether they are fenced by a host of legal safeguards and remedies, and whether investors have access to protest mechanisms, especially against the host state and governments. Governments need to guarantee the security of property rights, the transferability of such rights and ensure the utility of such rights in the financial and commercial sectors. Fundamentally, mineral rights security for developing states such as Zimbabwe is crucial where the economy seeks to depart from its age-old agricultural-sector pivot.
Mining leases and special grants are two key mining rights in the Zimbabwean mining law framework. Several controversies and misconceptions about the security of these rights have been raised previously. Few analyses have analysed the law to examine whether it gives security to mining rights. This article attempts to interrogate such laws in order to bust such myths and clear such controversies. This task is important as Zimbabwe moves to replace the current law with a new law altogether.
The Extraction/ Mining Phase
The extraction or exploitation of minerals in Zimbabwe occurs through various licenses. These are Certificate of Registration of Claims, Mining Lease, Special Mining Lease, Special Grant and another type of Special Grant under part XX of the Act. The discussion on the security of the mining rights conferred by the above licenses centers around the conditions under which these mining rights may be revoked, the right to transfer/cede the mining rights, the right to securitize these mining rights, the duration or length of time of these rights and lastly the administrative discretion given to the offices that regulate the mining rights. These licenses are discussed below in light of the criteria stated hereinabove.
Certificate of Registration of Claims
A certificate of registration of claims authorizes the holder of a prospecting license to start mining following the discovery of minerals. Following the discovery of the minerals, the holder of a prospecting license appoints a pegger who physically pegs the area by marking it with a Discovery Peg[1]. Thereafter he or she must post a registration notice on the ground[2] following which he or she will then make an application to the Provincial Mining Director for the certificate of registration[3]. This certificate of registration will then allow the holder to start mining operations subject to meeting other obligations such as an Environment prospectus. This certificate of registration of claims may be cancelled by the Provincial Mining Director if he or she is satisfied that provisions of the Mines and Minerals Act relating to the method of pegging were not substantially complied with. However, before such cancellation, the Provincial Mining Director is expected to give notice of at least 30 days of his intention to cancel such certificate and inform him of his right to appeal against such cancellation to the Minister. The requirement for the holder to be notified of an intention to cancel the certificate and to be allowed to make representations against such cancellation is a step forward in enhancing the security of such mining right.
Further, the holder of the certificate of registration of claims is expected to comply with provisions of Part XI of the Mines and Minerals Act relating to the Preservation of Mining Rights[4]. These provisions relate to applying and obtaining Inspection Certificates. The Inspection Certificate referred hereto protects the claims or block of claims from forfeiture in terms of section 260 of the Mines and Minerals Act[5]. The mining rights conferred to the holder of a certificate of registration of claims may be preserved by declaring continuous work (work done), production, capital expenditure or by payment (base metals only[6] The current Mines and Minerals Act adopts a “pay it or lose it” principle even though it provides for amount of work required to be done to obtain an inspection certificate[7]. The status quo appears to be favourable to large mining conglomerates who hold vast tracks of claims all over the country for speculative purposes as they have the financial muscle to pay for the inspection certificates. Generally, it appears that the conditions on which the mining rights conferred to a holder of a certificate of registration of claims may be revoked or cancelled are reasonable. For instance, the amount of work required to obtain an inspection certificate block of precious metal claims pegged under an ordinary or special prospecting license is ten metres and in the case of capital expenditure, two hundred and fifty dollars. With regards to duration of the license, it is valid for as long as the holder complies with part XI of the Act-
Preservation of mining rights.
Further, cognizance should be given to the provisions of section 399 of the Act which also relates to cancellation of mining rights in instances where the PMD has reason to believe that the holder of a registered mining location is using wasteful mining methods. It is important to note that before cancellation of the mining rights, the PMD inspects the registered mining location and allows the holder of the mining location to make representations on why his certificate of registered mining location should not be cancelled for using wasteful mining methods. Suffice to mention is also the fact that the holder of the mining location is given a chance to remedy the situation failing which the mining rights may only now then be cancelled. It would appear that this provision is quite just and fair as it conforms to the audi alteram parterm rule.
More so, there is also section 400 of the Act which relates to cancellation of mining rights in circumstances where the Minister has reason to believe that a miner has failed within a reasonable period after commencing mining operations, to declare any output from his or her mining location or has knowingly rendered a false return or declaration regarding the output from his mining location. As with the above provisions, an investigation is carried out and the holder of the mining location is called upon to make representations on why his certificate of registered mining location should not be cancelled. This provision is also quite fair conforms to the audi alteram parterm rule.
Unfortunately, the rights conferred on the holder of a certificate of registration of claims cannot be ceded or transferred without the permission from the ministry and this is not in line with the broad concept of security of mining rights as mentioned earlier on.
Mining Leases
In addition to the certificate of registration of mining claims above, mining rights can also be acquired through a mining lease in Part VIII of the Act[8]. A mining lease, put simply, means converting several contagious blocks and any other open ground adjacent to these blocks into one mining title. The application for a mining lease is made to the Provincial Mining Director who then submits the application together with his report on the application to the Mining Affairs Board for consideration. The holder of a mining lease possesses an exclusive right of mining any ore or deposit of any mineral which occurs within the vertical limits of the area covered by his or her lease[9]. In considering, the application for a mining lease, the Board looks at whether the applicant’s financial status is such that he or she will be able to meet any payment which may become due and he or she is likely to conduct mining operations on a substantial scale and for a considerable period among other things[10].
With regards to duration of the mining lease, it would appear that the mining lease is valid for as long as the holder preserves it by complying with the requirements of part XI of the Act which relates to preservation of mining rights. The mining lease will be cancelled where the holder fails to comply with the terms and conditions of the mining lease[11]. The holder of a mining lease must obtain annual Inspection certificates. The Act also stipulates the amount of development work and fees payable to obtain inspection certificates for mining leases which is quite reasonable[12]. For instance, if the principal mineral being mined is a precious metal the development work should 10 metres. In the case of capital expenditure, US$ 1000.00 for precious metals. More importantly, the Act also tasks the PMD with notifying the holder of a mining lease whenever he or she fails to obtain an inspection certificate to rectify the failure before forfeiture of the mining lease. In addition to the above, the Act also provides for Retention Licenses for instances where the holder of a mining lease fails or has reason to believe that he or she is likely to fail to develop or work the mining lease by the time an inspection certificate falls due[13]. On payment of a prescribed fee, equipped with Retention License, this holder of a mining lease will then be able to obtain the inspection certificate and thus preserve his mining right. The current Mines and Minerals Act appears to be revenue oriented and this is a positive thing to large mining conglomerates as they are able to secure their mineral tenure, this is the aforementioned “pay it or lose it” principle.
When it comes to transferring of the mining lease, approval from the Mining Affairs Board is required[14]. The Board considers the financial states of the transferee[15]. This restriction on freely transferring mining rights diminishes the security of mining rights in Zimbabwe hence it must be done away with.
Special Mining leases
Special mining leases are provided for in terms of Part IX of the Mines and Minerals Act. They are available to a holder of one or more contiguous mining locations who intends to establish or develop a mine thereon and invest in the mine wholly or mainly in foreign currency and such investment exceeding US$100 million in value, and the mine’s output is mainly intended primarily for export[16]. The application for a special mining lease is made by a holder of one or more contiguous mining locations to the PMD who submits it to the Mining Affairs Board. Having received the application the Mining Affairs Board forwards it to the Minister together with their recommendations. The Minister then submits them to the President together with his own recommendation for the President’s approval. Upon the President’s approval, the Minister is then authorised to issue the special mining lease.
In terms of the Mines and Minerals Act, a special mining lease shall not be issued for a period exceeding twenty-five years, but provision may be made for its renewal by the Minister with the President’s approval for periods not exceeding ten years, having regard to the life of the mine concerned and the circumstances then prevailing[17]. This is a reasonable duration for such a license and this enhances the security of the mining right. A special mining lease is more superior to the ordinary mining lease as the holder of a special mining lease’s corporate income is taxed at a special rate of 15% instead of the general tax rate of 25%. It is more of a contract between the holder and the ministry or the government and the applicant of the mining lease and each party negotiates with their best interest at heart. For instance after consultation with the Minister responsible for the administration of the Mines and Minerals Act, the Minister of Finance may declare the holder of a Special Mining Lease exempt to the following taxes:
- Non-Residents shareholders tax[18]
- Non-Residents tax on Fees[19]
- Non-Residents tax on Remittances[20]
- Non-Residents tax on Royalties [21]
More so, expenditure incurred in respect of royalties paid to the Government on minerals won is deductible when it comes to a special mining lease[22].
Section 168 of the Mines and Minerals Act provides that provisions of the Act relating to mining leases and the rights and obligations thereof apply, mutatis mutandis in relation to special mining leases. Therefore, this means that the provisions relating to preservation of mining leases, cancellation of mining leases and restriction of transfer of mining leases apply to special mining leases as dealt with above.
Special Grants in terms of Part XIX of the Act
A special Grant gives the holder the right to carry out prospecting operations or mining operations in a defined area situated within an area which has been reserved against prospecting or pegging[23]. A special grant is issued by the President upon recommendations by the minister. The period of the special grant, amendment and cancellation of the special grant is usually specified within the terms and conditions of the special grant as may be approved by the Minister[24]. These terms and conditions differ from case by case basis. Therefore the security of the mining rights granted thereof also differ on a case to case basis.
Special Grants in terms of part XX of the Act
Mining title to mine coal, mineral oils, natural gas or nuclear energy may be acquired in accordance with a special form of Special Grant provided for in part XX of the Act[25]. The mining rights are issued by the President upon recommendations by the Minister. As with a special grant under part XIX of the Act, the duration of a special grant under part XX of the Act is specified within the terms and conditions of the special grant as deemed fit by the Minister. The restriction on the transfer, cession or assignment also applies to the special grant under part XX of the Act, and as if that’s not enough, it is the authority of the President that is needed before the rights can be ceded or transferred.
How secure are mining rights conferred by a certificate of registration of claims, mining lease, special mining lease and special grants against expropriation for public purposes Zimbabwe?
This interrogation cannot be made without referring to the most notorious provision in the Mines and Minerals Act, that is, section 398 of the Act. This provision relates to acquisition by a location for public purposes. In terms of this provision, the President may at any time for the utilization of any mining location for a purpose to the public generally acquire either the whole or any portion of such mining location. In exercising his powers under this provision, the President is also equipped with the provisions of the Land Acquisition Act[26]. For purposes of ascertaining the amount of compensation payable to the holder of the acquired mining location, an investigation is carried out. It is regrettable to note that mining rights conferred to a miner by a certificate of registration of claims, mining lease, special mining lease and a special grant are all susceptible compulsory acquisition by the President of Zimbabwe generally in terms of Section 398(1) of the Mines Act as read with section 7 (1) of the Land Acquisition Act. This particular provision in the Mines and Minerals Act has in the past been a catalyst for controversies involving large mining conglomerates as will be discussed in later papers on mining law.
The Mines and Minerals Bill has not changed much in respect of protection and cancellation of these mining rights. Provisions of the Bill on the security of these rights shall be discussed in later papers. This is based on the reality that the proposed changes are still undergoing debate, and may change with time as the law-making process kicks in.
The authors are consulting legal experts in mining law, property rights and governance. They can be reached at the following emails: [email protected] (+263783371045) and [email protected] (+263778912289) and write in their personal capacity.
[1] Section 42 of the Mines and Minerals Act
[2] Section 44 of the Mines and Minerals Act
[3] Section 45 of the Mines and Minerals Act- with respect to a block of claims.
[4]Section 197 to 221 C of the Mines and Minerals Act
[5]Section 260 relates to forfeiture for failure to obtain an inspection certificate for a block.
[6] Section 212 of the Mines and Minerals Act
[7] Section 205 of the Mines and Minerals Act
[8] Section 135 to 157 of the Mines and Minerals Act
[9] Section 150 (a) and (b) of the Mines and Minerals Act
[10] Section 142 of the Mines and Minerals Act
[11] Section 157 of the Mines and Minerals Act
[12] Section 221A of the Mines and Minerals Act
[14] Section 149 of the Mines and Minerals Act
[15] Section 149 (2) of the Mines and Minerals Act
[16] Section 159 (1) (a), (b) of the Mines and Minerals Act.
[17] Section 164 (4) of the Mines and Minerals Act
[18] Section 26 of the Income Tax Act as read with the 9th Schedule Income Tax Act
[19] Section 30 of the Income Tax Act as read with the 17th Schedule Income Tax Act
[20] Section 31 of the Income Tax Act as read with the 18th Schedule of the Income Tax Act
[21] Section 32 of the Income Tax Act as read with the 19th Schedule to the Income Tax Act
[22] 22nd Schedule, paragraph 4(1)(c) of the Income Tax Act.
[23] Section 290 of the Mines and Minerals Act
[24] Section 292 (1) (b) of the Mines and Minerals Act
[25] Section 298 of the Mines and Minerals Act
[26] Section 7 (1) of the Land Acquisition Act