4.8 Practices to Avoid

an established mining country, and a different approach may suit a country establishing a mining regime for a new industry. If they are required, or thought valuable in lessening political risk or financial risk for the investor or to address site specific issues, the following guidelines may be noted.55

Filling Gaps and Making Clarifications. Well-designed mining agreements can (in situations where the laws and regulations are incomplete or poorly drafted) be used to fill gaps, clarify ambiguities and uncertainties, or resolve differing interpretations. However, where there is a satisfactory modern legal and fiscal regime, agreements should not be used to define licensing conditions, environmental and social protection requirements, or fiscal terms—these should all be set by the law. Five practices that should be avoided in designing a mining development agreement are identified and briefly discussed in box 4.8.

Contentious Issues. While laws and regulations may specify regulatory requirements, the procedures by which they are applied can also be very important. Mining agreements can also be used to spell out the details of procedures regarding actions that have potentially significant financial implications or risks for both the investor (such as expropriation and cancellation or suspension of a license) and the government (such as abandonment, closure, and reclamation). In this vein, agreements can also spell out more detail on force majeure and dispute resolution procedures.

Benefit Sharing. The management and mitigation of environmental and social risks should be a matter of regulatory compliance and enforcement. In contrast, site-specific issues related to how a mining operation can support national and local economic development involve developing a shared understanding among government, the mining operator, and (for local impacts) the community regarding matters such as targets for or minimum levels of (1) employment and procurement for the economy as a whole and (2) employment and training for the local community, community programs, community infrastructure, and social capital development. A mining agreement can be used for the investor to provide and government and the community to receive commitments in this regard and might also cover the use of foundations funded by the company.

Government Commitments. A mining agreement can also provide site-specific commitments by the government to the investor and/or community of actions that the government will take. This could include benefit-sharing actions (for example government support for mine-related vocational training programs or small business training programs) or assurances for investors that are not in the law—such as tax stabilization clauses if the government is prepared to make such a concession.

Box 4.8 Practices to Avoid

At least five practices should be avoided, and if they are present in mining development agreements they should be treated as a source of significant concern. 1. Fiscal terms: Mining agreements that include fiscal terms that are more favorable to the investor than the fiscal terms in the law 2. “Most-favored investor” provision: Mining agreements that include a “most-favored investor” provision, entitling the company to any benefits subsequently granted to another investor 3. Extension to other areas: Mining agreements that contain provisions for their own extension to cover new areas, a particularly bad practice when the terms are potentially unfavorable to government (Sierra Leone had a bad example of this.) 4. Long-lived exploration rights: Mining agreements that provide license holders with long-lived exploration rights (such as rights lasting longer than a decade) and that do not require substantial work activity or costs for holding land—so that the license holder can “bank the land” for its own benefit, thereby denying the possibility of mineral development that could benefit the nation as a whole 5. Land banking: Mining agreements that tie up very large amounts of land relative to the size of the area to be mined during the expected life of the mine—which again has the effect of enabling the license holder to bank the land for its own benefit

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