Insights

New Legal Developments on the Horizon for Foreign Mining Companies in Zimbabwe

In recent weeks, reports have emerged of two proposed legal developments in Zimbabwe that may raise concerns for foreign investors in the country's mining industry.

On April 23, 2013, news agency Reuters reported that Zimbabwean President Robert Mugabe's political party, Zanu-PF, had proposed a new law that would amend Zimbabwe's Indigenisation and Economic Empowerment Act (the "Indigenisation Law")[1] to permit the uncompensated expropriation of foreign-owned companies in the country's mining sector.[2] The Zimbabwe government quickly denied that the amendment had been published.[3]

The reported amendment, if approved by Zimbabwe's Parliament, would constitute the latest development in the country's indigenisation policy, which under the Indigenisation Law and its implementing regulations requires foreign-owned companies to offer majority shareholdings to indigenous Zimbabweans.[4] Implementation of Zimbabwe's Indigenisation Law has reportedly proved difficult due to both a lack of clarity in the law and the state's apparent inability to finance the transfers of share ownership.[5]

Despite these challenges, segments of Zimbabwe's mining industry experienced a strong recovery last year, with production increasing at a number of mines.[6] Mining companies have expressed concerns that the amendment would affect deals already reached with the Zimbabwe government and limit foreign miners' capacity to invest in the further expansion of mine production.[7]

More recently, during the week of May 5, 2013, several news sources reported that Zimbabwe's Ministry of Mines and Mining Development had circulated a draft minerals policy document and initiated consultations with foreign mining companies.[8] The new policy would reportedly subject foreign mining companies to significant new regulations and higher taxes.[9]

As reported, there are several significant aspects to the new minerals policy. First, Zimbabwe would award mining licenses on the basis of mineral deposit auctions and could restrict the output and prices of minerals identified as strategic.[10] Second, Zimbabwe would have marketing authority for the mineral output and could vest companies with exclusive marketing rights for certain types of minerals.[11] Third, the current mining tax regime would be scrapped—the Additional Profits Tax would be replaced by a Resource Rents Tax, while existing fees and royalties would be subject to review.[12]

It is uncertain whether the Zimbabwe government will implement either the amendment to the Indigenisation Law or the new minerals policy. If implemented, however, these developments may have a significant impact on foreign mining companies in Zimbabwe. Given the significant risks presented by these developments, foreign investors operating in the country's mining sector may want to review the structure of their investments and ensure that they are adequately covered by investment protections conferred under bilateral investment treaties ("BITs").

Zimbabwe has signed BITs with 30 countries, but only six of those BITs have actually entered into force—specifically, those with China, Denmark, Germany, the Netherlands, Serbia, and Switzerland. Foreign investors based in jurisdictions such as the United Kingdom and South Africa that have signed BITs with Zimbabwe that have not yet entered into force, and investors from countries without any treaty in the first place, such as Canada, may wish to consider restructuring their investments to avail themselves of the investment protections of a jurisdiction that has a BIT with Zimbabwe that has entered into force.[13] This in turn raises issues around the availability of any restructuring options in light of the continued U.S. and EU sanctions regimes that, despite certain relaxations in early 2013 by the EU, continue to affect parts of Zimbabwe's mining sector.

Jones Day will continue to closely watch Zimbabwe's legislative developments and would be happy, within the requirements of the relevant regulatory and sanctions framework, to discuss any questions or concerns you may have regarding Zimbabwe's investment climate, or the structuring of foreign investments in order to maximize protections under available BITs.

Benjamin T. Jones, an associate in the San Francisco Office, assisted in the preparation of this Alert.

Lawyer Contacts

For further information, please contact your principal Firm representative or one of the lawyers listed below. General email messages may be sent using our "Contact Us" form, which can be found at www.jonesday.com.

Baiju S. Vasani
London
+44.20.7039.5562
bvasani@jonesday.com

Steven L. Smith
San Francisco
+1.415.875.5725
stevensmith@jonesday.com

Harriet Territt
London
+44.20.7039.5709
hterritt@jonesday.com

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[1] Indigenisation and Economic Empowerment Act, Apr. 17, 2008, available at http://www.nayoyouth.org/docs/Zimbabwe's%20Indigenisation%20and%20Empowerment-Act.pdf.

[2] MacDonald Dzirutwe, "Zimbabwe's ZANU-PF Plans Measure to Seize Stakes in Foreign Mines," Reuters (Apr. 23, 2013), available at http://www.reuters.com/article/2013/04/23/us-zimbabwe-mines-idUSBRE93M0R220130423. Geoffrey York, "Mugabe Threatens Expropriation of Foreign Mining Assets," The Globe and Mail (Apr. 25, 2013), available at http://m.theglobeandmail.com/report-on-business/international-business/african-and-mideast-business/mugabe-threatens-expropriation-of-foreign-mining-assets/article11535466/?service=mobile.

[3] Dow Jones Newswires, "Zimbabwe Denies Plan to Seize Foreign Mines Without Compensation," Fox Business (Apr. 24, 2013), available at http://www.foxbusiness.com/news/2013/04/24/zimbabwe-denies-plan-to-seize-foreign-mines-without-compensation/.

[4] Tony Hawkins, "Zimbabwe PM Contradicts Minister Over Mines," Financial Times (Apr. 6, 2012).

[5] Id. (noting that South African mining company Impala Platinum "effectively called the [government's] bluff" on indigenisation by demanding cash compensation for its shares); Irene Madongo, "BAT Zimbabwe: ready to deliver on local ownership, but is the government?," Financial Times (Oct. 12, 2012) (quoting an economic analyst: "There is still lack of clarity on the laws and serious aggression on the part of the implementing minister.").

[6] York, "Mugabe Threatens Expropriation of Foreign Mining Assets."

[7] Id.

[8] See Godfrey Marawanyika, "Zimbabwe Proposes Mineral Deposit Auctions, Draft Policy Shows," Bloomberg Businessweek, May 5, 2013, available at http://www.businessweek.com/news/2013-05-05/zimbabwe-proposes-mineral-deposit-auctions-draft-policy-shows; Tawanda Karombo, "Zimbabwe Plans New Controls on Mineral Sales," Business Day BDlive, May 7, 2013, available at http://www.bdlive.co.za/africa/africanbusiness/2013/05/07/zimbabwe-plans-new-controls-on-mineral-sales; Tony Hawkins, "Zimbabwe: Government Plans to Tighten Further Its Grip on Mining," Financial Times: Beyondbrics Blog (May 9, 2013, 4:03 p.m.), http://blogs.ft.com/beyond-brics/2013/05/09/zimbabwe-government-plans-to-tighten-further-its-grip-on-mining/#axzz2SWsdqeL4.

[9] See Marawanyika, "Zimbabwe Proposes Mineral Deposit Auctions, Draft Policy Shows"; Hawkins, "Zimbabwe: Government Plans to Tighten Further Its Grip on Mining."

[10] Marawanyika, "Zimbabwe Proposes Mineral Deposit Auctions, Draft Policy Shows."

[11] Id.

[12] Hawkins, "Zimbabwe: Government Plans to Tighten Further Its Grip on Mining."

[13] See United Nations Conference on Trade and Development, "Zimbabwe—Total number of Bilateral Investment Agreements Concluded," June 1, 2012, available at http://unctad.org/Sections/dite_pcbb/docs/bits_zimbabwe.pdf.

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