Botswana, the world’s second-largest diamond producer, will require companies to sell a 24% stake to locals under revised legislation awaiting presidential approval, which would mean that mining controls across Africa would be required. It’s part of a push to strengthen the law, and lawyers predict it will trigger legal disputes and compliance issues.
Botswana’s parliament passed amendments to mining laws in July, a month before the country announced the discovery of a 2,492-carat rough diamond, the second largest diamond ever discovered.
The proposed 24% ownership amendment is significantly higher than the government’s discretionary 15% interest in mining projects as provided for in current law. If the revised law receives presidential approval, companies in Botswana wishing to become part of Anglo American, MMG and other global mining giants will have to meet new requirements before mining licenses are issued.
In that case, the investor would need ministerial approval and evaluation before exporting the minerals abroad, Eddie Babsen, a partner at Gaborone-based boutique firm Babsen & Maswabi, told Law.com International. Ta.
Conflict is ‘inevitable’ Botswana's legal changes may benefit locals and the government, but may also deter short-term investors due to the capital requirements, Babsen added.
The changes are likely to increase work for law firms in the areas of deal structuring, due diligence on potential investors, and disputes.
Edward James, a partner at Pinsent Masons who advises on South Africa’s local content regulations, said: “In that we may need to find a (local) buyer to meet the percentages based on our requirements. There will be a lot of deals.” “And when you split ownership, as soon as multiple individuals or one company owns a mine or an asset, conflicts are bound to arise.”
Lawyers also expect to receive requests from sovereign wealth funds and state-owned companies to sell mining profits and dividends to other businesses, said Dayo Okusami, a Lagos partner at Knights Templar.
The firm advised the Ghana Mineral Income Investment Fund (MIIF) on its acquisition of LSE-listed Atlantic Lithium shares and a related $30 million transaction involving one of Africa’s largest salt miners.
Corruption and litigation risks
Like Botswana, several mineral-rich countries, including South Africa, Angola, Ghana, and Tanzania, have enacted local laws aimed at resource management, equal access, and environmental safety.
As a growing number of countries demand stricter local content requirements, Edward James has cited the experience of South Africa to warn of the risks of corruption and litigation.
South Africa’s Local Content Act, popularly known as the Black Economic Empowerment (BEE) Act, provides ownership requirements of up to 30% for various citizen groups. While this law is beneficial for historically disadvantaged people and communities, it does raise the risk of corruption, especially if politicians try to manipulate the situation to their own benefit and influence who gets the shares. James said.
Local content rules complicate company ownership structures and allow some companies to arrange deals that are advantageous to them. For example, Mr. James said he has handled shareholder disputes involving multinational corporations, often triggered by management fee arrangements. He noted that such disputes are usually resolved outside of court.
shareholder dispute
Patrick Ryden, a partner at Herbert Smith Freehills in Johannesburg, said further shareholder disputes could arise given how the required equity would be financed. Some acquiring parties may lack the initial capital to purchase stock. In these cases, the company provides a loan to the employee or community trust to fund the stock acquisition, and the loan is repaid with dividends.
Leiden explained that this can be a problem if it takes a long time to repay the loan.
employment restrictions
Lawyers in Angola and Tanzania say they have not seen any shareholder disputes arising from local content laws, but acknowledge the impact of employment restrictions associated with these regulations.
In Angola, foreign companies are required to employ at least 70% of their workforce locally, in addition to the mandatory 10% state participation in the mining sector, said Renata Valenti, a partner at Portuguese law firm PLMJ in Angola. is required.
“These regulations limit foreign investors’ access to many sectors in Angola, such as oil, gas and mining,” he said, adding that the country remains a viable investment option for investors. He emphasized the challenge of convincing the public.
In Tanzania, Michael Strain, managing partner at Bowmans, which is involved in a $250 million gold mine acquisition, said the restrictions add another layer of compliance to the regulatory environment. However, he noted that some investors remain willing to take risks.