Mozambique signs new law requiring state ownership in mines

Mozambique has introduced new laws requiring at least a 15% state ownership stake in all mining ventures, which will be conducted through a new National Mining Company.

Under the legislation, the government will take a minimum, non-dilutable stake in all mining projects, regardless of their stage in the value chain. It will also require local processing of minerals before export.

Edward James, a corporate crime expert with Pinsent Masons, said the law followed similar positions taken elsewhere across the continent.

“The move towards greater localisation aligns with other mineral rich countries in Africa, and we have seen similar approaches were in Zambia, Botswana, Burkina Faso and Uganda, to name a few,” he explained.

“It is indicative of a trend in Africa where governments are looking to increase government ownership and local participation through legislative change.

“However, the stance adopted by Mozambique differs to that of most of its neighbours in that the new law appears to allow state intervention at any stage of the value chain - not only at the grant of a mining license.”

The Southeast African nation is the world’s third largest producer of graphite – which has seen demand rise for its use in batteries for electric vehicles and storage.

It is also home to the world’s largest ruby mine, along with major coal assets. Under the new regulations, exporting minerals before they have been processed will be banned unless given special government approval, as it looks to increase strategic resource management.

Earlier this year Ghana and Mali both announced plans to increase their own respective governments’ influence on international mining operations.

Mozambique’s mining ministry has yet to clarify if the new law will retrospectively apply to existing mining operations, which operate under their own long-term government agreements.

Vishana Mangalparsad, a cross-border investigations expert with Pinsent Masons in South Africa, said the country’s government will need to ensure that the National Mining Company acts strictly within the bounds of the law.

“Implementing strong anti-corruption safeguards into operations of the National Mining Company, such as independent audits, public disclosure of contracts, and transparent procurement, will be crucial to ensuring that the purpose of the entity is not departed from,” she added. “These measures are equally important to sustaining investor confidence, as if investors are not confident that their ownership rights will be respected, they are unlikely to invest in exploration or the development of mining assets.”

James said that, for existing investors, any perceived or actual threat to withdraw mining rights may give rise to heightened compliance risks. In such circumstances, individuals in positions of authority may seek to exploit uncertainty by soliciting improper payments in exchange for favourable outcomes. While these risks may arise, international investors should resist any such approaches and instead pursue resolution through lawful and legitimate channels, he said.

He added: “The special government approval to export unprocessed minerals will add another layer of compliance risk – particularly for existing operators who have built well-established businesses around the export of unprocessed minerals. In essence, these companies will potentially face government gate-keepers who may want to exploit their position for personal gain, knowing that companies will be dependent on them for their survival. They may directly or indirectly solicit bribes – either to grant the special permissions or to speed things up. Companies need to approach these developments with caution and ensure that they apply enhanced compliance measures to avoid problems down the line.”