Sierra Leone: Dangerous draft mining contract about to be enacted

Dangerous draft mining contract about to be enacted, NACE warns

The National Advocacy Coalition on Extractives (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.[1]

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 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.

[1] PKF, Sierra Leone Tax Guide 2009