Sierra Leone Agreement with UK miner is "illegal"

Published by MAC on 2010-04-24
Source: NACE Press Release

NGOs slam concessions granted to London Mining

London Mining Agreement: Superior to the Mines and Minerals Act 2009 and other National Legislations

Press Release

Campaign for Just Mining in Sierra Leone

14 April 2010

Freetown - The Campaign for Just Mining (CJM) and its associated platform, the Association of Journalists on Mining and Extractives (AJME), have been following with keen interest recent public discussions, particularly in the media, between the Sierra Leonean civil society engaging in the mining sector and the Ministry of Mineral Resources and Political Affairs on the one hand and the Sierra Leonean civil society and London Mining Company on the other hand, in relation to the London Mining Lease Agreement.

Our interest was further rekindled by various publications by campaigners relating to the said agreement.

We note with considerable concern that the Mines and Minerals bill which was hurriedly enacted into an Act on the pretext of taking it to the investment forum in London has so many missing clauses and inclusion of some provisions that make it stand a greater potential of losing its value.

The excessive powers of the Minister of Mineral Resources and Political Affairs and his Director, coupled with the absence of an oversight role of the Mineral Advisory Board in executing the Act, which has been some of the major concerns for civil society groups even before the bill was enacted into an Act, are some of the contributing factors responsible for signing reckless mining agreements that do not conform to our national legislations.

This has placed the civil society in an ever apprehensive position as it does create room for corruption, unaccountability and non transparency in the mining sector. We further note that the little good things in the Act are on the verge of being eroded into extinction.

The Campaign for Just Mining is therefore adding its voice to the many cries of civil society in relation to the already ratified London Mining Lease Agreement on the following grounds:

The heavy tax concessions offered to London Mining in the agreement especially in relation to income tax and the manner in which the royalty is calculated...which is not in line with the current Mines and Minerals Act, set a bad precedent for subsequent negotiations and renegotiations of other mining contracts and have the potential of undermining the country's national development agenda.

The much talked about 0.1% Community Development Fund in the agreement requires the company to control exclusively 50% of this fund for their so-called corporate social responsibility, which is not in line with the mining laws as cooperate social responsibility should not be tied up to the community development fund.

The confidentiality clause, inserted in the agreement aiming at limiting information to the public, creates room for corruption and stands testament to undermining the Extractive Industry Transparency Initiative (EITI) process in the country.

Another clause in the agreement that is also of keen concern to the civil society is the non imposition of any liability on the company in respect of pollution or loss or damage to the environment where such loss or damage arises from any act or omissions in or in respect to the Mining Lease Area prior to the signing of the agreement. This is worrying, giving the fact that London Mining has been operating in the area for the past years and cannot therefore escape responsibility for the damages that may have already been caused.

The London Mining Agreement also exempts the company from paying the Goods and Services Tax. This sends a worrying national signal because Sierra Leoneans have forcefully accepted to pay the GST on the premise of increasing domestic revenue; and here we are London Mining a profit making company is exempted from such a tax.

The Campaign for Just Mining Sierra Leone is therefore demanding the following:

• That the LMC agreement be reviewed to keep it in line with the provisions of the law
• That the Mines and Minerals Board be immediately constituted and operationalized
• That LMC makes public their Environmental Impact Assessment document by which they can be held accountable.

About the Campaign

The Campaign for Just Mining Sierra Leone is a coalition of both national and international civil society organizations working on mining and environmental issues. It is a platform that advocates for social responsibility, transparency and accountability in the mining and extractives industry, as well as for better living conditions of host mining communities. The establishment of the Campaign was initiated in 2000.

Contact
Leslie Mboka, National Chairman, Campaign for Just Mining, 076-714561/ 033-752171 on Mining and Extractives
Theophilus S. Gbenda, Chairman, Association of Journalists, 076-982623

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Sierra Leone's Parliament ratifies illegal mining agreement that is bad for the country's development

Network Movement for Justice and Development (NMJD) Press Release

24 March 2010

Sierra Leone's Parliament has ratified a mining lease agreement with the UK-based company, London Mining Company, which contravenes the recently enacted 2009 Minerals Act and is not in the best economic interests of the country. UK-based campaign group Global Witness and Sierra Leonean partner Network Movement for Justice and Development (NMJD) warn that substantial changes to the contract are needed if it is to benefit Sierra Leone's people.

The terms of the agreement, which was ratified last month but has not been made public, are heavily weighted against the war-torn and impoverished country, and contain clauses that are contrary to the new mining law. Elements of the contract that go against the new law include the way in which the royalty rate has been calculated, and the inclusion of a clause which would allow the contract to override the law if they conflicted. The President has reportedly asked the Ministry of Mineral Resources to make unspecified amendments to the contract, but there are no guarantees the necessary changes will be made.

"The London Mining agreement is a bad deal for Sierra Leone and its people. It sends a worrying signal that the Government is willing to break a law as soon as it has been enacted, and is not serious about the reform of the minerals sector," said Natalie Ashworth, Campaigner at Global Witness. "What was the point of spending vast sums of donor aid, and a huge amount of time and effort developing laws to reform the minerals sector, if the government won't enforce them?"

After a brutal civil war that was fuelled by conflict diamonds, reform of the country's natural resources sector is vital for its post conflict reconstruction. As a part of wider reforms of the mineral sector, the Government of Sierra Leone has been working with the international donor community, including the British and American governments and the World Bank, to renegotiate key mining contracts to bring them in line with international standards and ensure that they are good for the country in the long term. The deal with London Mining Company, negotiated independently by the Ministry of Mineral Resources, goes against these reforms. The negotiation was shrouded in secrecy and sets a poor precedent for the renegotiation of other contracts.

Another clause in the London Mining agreement that is not in the best interest of the country is a ten year tax break for the company, reducing its tax rate from 37.5% to 6%. Furthermore, the contract is initially for 25 years but is renewable for a further 15 years on the same terms and conditions as the current agreement, unless the company suggests amendments. This place the Government at a significant disadvantage should the global demand for iron ore change.

"Sierra Leone's parliament should not have enacted a contract with such serious flaws. It is essential that the deal is amended to bring it in line with the law and ensure that it actually benefits Sierra Leone's people", says Abu Brima, Director, NMJD. "This has set a dangerous precedent for other companies renegotiating mining contracts."

For press enquires: Natalie Ashworth- + 44 (0)207 492 5820 or +44 (0)7968160377 in London or Abu Brima on +232 766 453 14 in Sierra Leone

Notes for the Editor:

(1) Global Witness investigates and campaigns to prevent natural resource- related conflict and corruption and associated environmental and human rights abuses.

(2) The Network Movement for Justice and Development (NMJD) is a national civil society development and human rights organization. Established in 1988 it aims at working towards building a just and self-reliant Sierra Leone, where there is economic justice, accountable governance and sustainable peace for especially the marginalized and exploited citizens and communities in Sierra Leone.

(3) In the contract, the royalty rate is calculated after sales tax, value added tax, export duty and other taxes have been deducted, which conflicts with the 2009 Minerals Act. Furthermore, the "arms length price" would not be taken into account when calculating the royalty rate, which again conflicts with the new law. The "arms length price" is based on the market price of the ore and its inclusion is vital to avoid transfer pricing (which is where a company sells ore to another part of the same company at a rate lower than the market price). Failure to take this into account could result in a significant loss of revenue for the Government of Sierra Leone.

(4) A "stabilization" clause in the contract effectively means that the terms of the contract would override the provisions in the new law in the event that they conflicted. An "indemnification" clause makes the government liable for any costs incurred by the company as a result of further legislative change (e.g. if the government passed new legislation increasing the obligations of the company to their employees the government would have to cover the related costs.)

(5) London Mining Plc is a UK-based company that is developing mines for the steel industry. It has iron ore mines in Sierra Leone and Greenland, a 50% stake in a joint venture in Saudi Arabia, a 50% stake in the China Global Mining Resources joint venture, and minority interests in two coal developers in South Africa and Colombia. The Company listed on the Oslo Stock Exchange on 9th October 2007.

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Dangerous draft mining contract about to be enacted, NACE warns

National Advocacy Coalition on the Extractive (NACE) Media Release

4 March 2010

Freetown - A mining agreement between the government and UK-based Company, London Mining, contains numerous concessions to the company which contravene the new Minerals Act. This makes a mockery of the new law which has taken years to finalise.

The mining agreement, relating to the iron ore deposit at Marampa, has already been ratified by Parliament having been signed off by the Ministry of Mines. NACE has just become aware of this process which appears to have been shrouded in secrecy. This new Act was meant to ensure that individual companies were not given special treatment in dubious deals - instead, the draft agreement appears to show that little has changed. It contains over a dozen discrepancies with the new Minerals Act.

The major concessions being offered to London Mining include:

Paying royalties on a percentage of the gross sales price of minerals mined after deducting Sales Tax, Value Added Tax, export duty and other levies. The new Minerals Act makes no such provision and requires companies to pay royalties simply on the market value of minerals mined.

An obligation to pay only 6 per cent in income tax for the first 10 years. The Minerals Act says nothing about giving companies concessions to reduce their income tax payments. They should be paying the standard rate of income tax for mining companies of 37.5 per cent. [ PKF, Sierra Leone Tax Guide 2009]

A clause stating that if the government enacts different tax legislation during the term of the agreement - 25 years - the company will not be liable to pay those higher taxes. No such provision exists in the Minerals Act.

NACE is especially outraged that the draft agreement also contains a clause unheard of internationally which states that it takes precedence over the provisions of the Minerals Act. This in effect puts the company above the law.
The government is supposedly committed to greater mining revenue transparency by implementing the Extractive Industries Transparency Initiative [EITI]. The agreement completely undermines that commitment.

The biggest challenge facing the mining sector is to ensure that the people of this country benefit. NACE Coordinator Cecilia Mattia said: "The new Minerals Act is a positive step in that direction but only if it is implemented. If the London Mining agreement is allowed to proceed, other companies will negotiate their own special deals and the new Minerals Act might as well be thrown away".

NACE calls on:

• Parliamentarians to recall this agreement
• The President to ensure that any agreement signed with London Mining is consistent with the Minerals Act
• The Minister of Mines and Mineral Resources to provide a statement explaining how this contract could possibly have been drafted in this form
• The British government to ensure that all UK Mining Companies abide by the new Minerals Act

For further information, contact NACE Coordinator Cecilia Mattia on 076602470 or 82 Soldier Street, Freetown.