spRING 2011 GlobAl MARKETs INTERNATIoNAl - Willis

PolItICal rIsks
soMe ReCeNt MiNiNg PolitiCal Risk iNCideNts.
dRC
Termination by the government of the Democratic Republic of Congo
of its copper and cobalt mining contracts with First Quantum Minerals
Ltd for the IFC-back Kingamyambo Musonoi Tailings (KMT) project,
following a review of 61 mining contracts. The review was launched in
2007 by the Congolese government in efforts to boost the country’s
revenues from the Mining sector and bring contracts in-line with
international minimum standards. The government cited issues such
as non-payment of royalties and a failure to adhere to an agreed time
table as reasons for the cancellation. The seizure was First Quantum’s
latest problem in an escalating fight with Congolese government.
The company, which has invested USD 1billion in its Congolese
facilities, alleges that Congo took the Frontier mine in retaliation for
First Quantum’s move to challenge the government’s ‘illegal’ seizure,
and resale of its stake in another nearby copper project, Kolwezi.
Similar problems were faced by Freeport McMoRan in relation to the
Tenke Fungurume copper project in the Katanga Province. This has
been fraught with problems when the Congolese government said
Freeport had failed to meet the requirements of its mining licence
review. This has since been resolved.
south aFRiCa
Uncertainties have grown since the Black Economic Empowerment
(BEE) initiative led to legislation requiring 26% of mining enterprises
to be owned by historically disadvantaged South Africans by 2014.
guiNea
In 2008 the exploration and mining rights to Simandou blocks 1 and
2 were expropriated by the mines minister during the rule of former
president Lansana Conte – who died in December 2008 and was
replaced by a military junta in a bloodless coup, and subsequently
awarded to BSG Resources and Vale. Rio Tinto now have been given
until February 2011 to formally relinquish its rights to the two blocks
at Simandou or risk losing its remaining stakes in the project.
seNegal
South African iron-ore miner Kumba Iron Ore Ltd initiated legal
proceedings against the Senelgalese government in 2007 for a breach
of a mining licence agreement. Kumba was exploring the Faleme
iron-ore deposit in the country but mining rights were subsequently
given to ArcelorMittal.
60 | Willis | Mining Market Review 2011
tyPes oF PolitiCal Risk iNsuRaNCe
FoR MiNiNg PRojeCts
Political Risk Insurance is available to,
amongst others, contractors, investors and
lenders of mining projects and can be used as
an effective risk management tool to mitigate
many of the risks inherent in mining projects.
CoNFisCatioN, eXPRoPRiatioN
aNd NatioNalisatioN
(iNCludiNg liCeNCe CaNCellatioN)
Confiscation, Expropriation and
Nationalisation (CEN) insurance forms the
central pillar of cover, offering protection
against acts of a foreign government that could
deprive the project sponsor of its ownership
or equity in the project company, its right to
extract the resources, remove the extracted
materials, or use its equipment to operate the
project facilities. This can include cancellation
or termination of any concession or operating
agreement provided to the project company,
forced abandonment of the project, selective
discrimination by the host government as
well as forced divestiture of the project assets.
Cover for ‘creeping expropriation’ which
is a series of acts over a period of time that
ultimately have an expropriatory effect can
also be provided.
eMBaRgo
Cover can be provided to protect the project
company against the introduction of any law,
order or decree including the cancellation or
non-renewal of any valid import, export, or
transit licence which prevents or delays the
import or export of goods and services into
or out of the host country. This is particularly
relevant to recovered commodities that are to
be exported for overseas refining or sale.