Mining has long been intrinsic to the development and progression of the North African country Mauritania, with income from the exportation of iron ore, copper, gold and petroleum contributing to more than a quarter of the country’s gross domestic product.

The country’s mining industry is seen as a strategic asset in its long-term growth strategy, and it remains attractive to overseas investors, although recent reforms within the sector have had a significant impact on its tax and legal framework.

New Model Mining Convention Law
The New Model Mining Convention Law passed on February 2012 is designed to provide a standard and harmonised framework reflecting the provisions of the Mining Code implemented in 2008, which will serve as a basis for negotiation between the Mauritanian State and investors.

Importantly for current and potential investors, this law specifies that a standard mining convention which is not compliant with the new model cannot be approved. Although this provision appears particularly strict, there probably remains some room for negotiation between the parties, especially if the mining convention is ratified at a later stage by parliament.

The law also states that the administration remains free to decide whether it is appropriate or not to negotiate and sign a mining convention, but in practice major projects will require the protection of a mining convention.

Expanding on a provision introduced in the Mining Code in 2009, the New Model Mining Convention also now refers to the 10 per cent "free participation" and optional maximum 10 per cent additional participation in cash to be granted by the relevant investor to the Mauritanian State in the operating company.

The New Model Mining Convention specifies that the 10 per cent "free participation" mentioned above cannot be subject to dilution in case of share capital increase, as is usual in other African countries. Unfortunately, the new model does not provide further details on the regime applicable to such participations (issuance date, no priority on dividends, no application to existing permits etc.)

To ensure investment in new mining sites benefits the local economy, the new model also contains provisions on training and placing a priority on employing local people. Similarly, the regulation also ensures mines comply with environmental laws and use national laboratory services.

Other significant provisions include a governmental right of prior scrutiny, in case more than 10 per cent of shares of the operating company are assigned, or its majority shareholders change.

From a tax perspective, the New Model Mining Convention suggests that the 36 month "tax holiday" set out in the Mining Code applies on the basis of the production level indicated in the feasibility study provided for the purpose of the relevant exploitation licence.

Should the investors decide to increase the production by 10 per cent above the level specified in the feasibility study, the standard tax regime would apply to the income generated by the excess production. This is an example where provisions of the New Model Mining Convention are more detailed than in the Mining Code on which it is based.

To sum up, investors should take careful note of the New Model Mining Convention, which is not a mere replication of such the Mining Code. Therefore, careful review is essential to ensure investors’ future interests are protected.

The Mining Code Amendment
Investors should also familiarise themselves with the law amending the Mining Code passed on February 2012, the second change to the Mining Code since it was introduced in 2008.

In particular, this amendment sets out new royalty rates calculated (for iron ore, gold and copper) on the basis of the international market prices for the relevant minerals . For example, while the previous royalty rate for iron ore was set at 2 per cent of the production in the Mining Code, the new royalty rate is now 2.5 per cent, if the iron ore is transformed into steel in Mauritania, or ranging from 2.5 per cent (if the ‘Steel Index Price is less than $1000 per ounce) to 4 per cent (if the ‘Steel Index Price exceeds $1800 ounce) if the iron ore is exported.

From a tax perspective, the Mining Code Amendment sets a specific 10 per cent capital gain tax arising from transfers of exploitation licences and also suggests a new mining training tax equal to one per cent of the net income of the mining company will be created by future regulations. This will obviously have a meaningful impact on the economics of the operating company.

From a regulatory standpoint, this amendment states that the area of the exploration licence will be automatically reduced by 25 per cent upon each renewal of the licence. It also sets reduced maximum surface areas for exploration licences (1,000 km² instead of 2,000 km² for iron ore).

In short, these latest reforms are consistent with the Mauritanian government’s intention to encourage investment in the country, while at the same time trying to obtain its share of the benefits generated by the mining industry.