Mining in Africa is a tricky task

Africa may be richly endowed with minerals, but setting up and running mining businesses across the continent is not straightforward. Yet not impossible - despite growing resource nationalism, political and legal uncertainties, competition from resource-hungry countries and corruption.

At a seminar run by law firm Webber Wentzel in Johannesburg this week, discussion focussed on the legal aspects of mining in Africa. The attorneys made it clear that it takes more than a reliance on local and international laws to ensure successful projects.

Zambian lawyer Arshad Dudhia set the scene with his take on events since his country's change of government. President Michael Sata swept to power on the back of popular revulsion over corruption by politicians and civil servants.

The upshot has been a string of executive acts to root out corruption in departments responsible for the all-important minerals industry.

As Dudhia sees it, Sata aims to ensure that benefits from the exploitation of Zambia's minerals filter down to host communities.

Zambian courts have retained independence despite the previous government's attempts to subvert them. And that implies mining companies can rely on due process should disputes arise with government.

Webber Wentzel partner Peter Leon pointed to different circumstances across Zambia's border in the Democratic Republic of Congo (DRC).

The DRC's Kabila government operates differently to that of Zambia, often paying scant heed to international laws, much less domestic ones.

Going beyond the strictly legal considerations, Webber Wentzel's Bruce Dickinson said a number of African countries face elections in the coming year and are grappling with how best to ensure that finite mineral resources benefit the countries as a whole.

Accountability and transparency are growing and governments are looking for more from mining ventures than simply revenues.

They want employment, skills transfers, infrastructure development and sustainability after the mines have closed.

Dickinson's colleague Steven de Backer underscored the importance of fairness and compliance. Success can largely depend on understanding what is fair and beneficial to the companies, host governments and to the mines' host communities.

The choice of country is clearly defined by geology. But, as Leon pointed out, mutual security depends on legal structures. He said Botswana ranks highly in the Fraser Institute's analysis of jurisdictions that are fair and favourable to foreign investment. Botswana's mining laws afford little in the way of discretion to ministers or the officials who administer them.

Discretion is the keyword. Ministerial or administrative discretion can (and often does) open the door to corruption.

Smaller companies are particularly vulnerable to demands for bribes or "facilitation fees" to speed up administrative processes.

When you are up against a corrupt government and faced with, say, expropriation or the loss of assets, better that you have adhered rigorously to the legal and social agreements that came with your entry into that particular jurisdiction.

The fewer loopholes bent politicians can find, the greater your chances of winning in the courts.

The case of First Quantum, which was deprived of its minerals assets in the DRC, is salutary. It has won its international arbitration case against the government but has still to receive a penny of compensation. Yet the internationally binding arbitration gives First Quantum the right to compensation from another company that might acquire its lost assets.

There is no single rule governing every venture into Africa. An agreement that might be appropriate for an exploration company, hoping to prove a resource and then flip it to a developer, might be wholly inappropriate for the developer of that resource.

If your project delivers obvious benefits to host countries and host communities, the better the chances of your seeing it through all its stages from opening to closure.