Our experts across the region explore a number of pertinent themes that impact doing business in Africa..
Hassan El Tahir Partner, Litigation
Sara Omer Ali Associate, Litigation
Oil reserves in Sudan have been a long-standing contributing factor to the development of the Sudanese economy. Since the formal declaration of South Sudan’s independence from Sudan in 2011, Sudan has lost 50% of oil that used to be produced in south part of the old Sudan to South Sudan, this ultimately led the Sudanese government to utilize the country’s untapped and underdeveloped mineral reserves in an attempt to reduce dependency on oil revenues. Over the course of the past decade, mining has become an essential sector in Sudan – according to the report issued by US Geological Survey Management in 2018, production of gold in Sudan has increased significantly by more than 1200% throughout 2008 – 2017. To contextualize this growth, Sudan’s Minister of Mining (the “Minister”) confirmed in 2018 that the mining sector contributed by 6% to Sudan’s Gross Domestic Product (GDP), whereas government officials have announced more recently that this contribution has now doubled to 12%. Furthermore, Sudan’s gold exports have surpassed 700 USD million for the first quarter of 2022. As a result of such growth and development, the exploration and extraction of mineral reserves is being closely monitored, supervised and regulated by the Sudanese Ministry of Minerals (the “Ministry”).
Since 2011, the Ministry and other competent government bodies have made a targeted effort to accommodate for and adapt to the growth and development of the mining sector in Sudan for a variety of reasons, chief of which is to enable an investment-friendly environment in the sector.
The relevant governing law is the Mineral Resources and Mining Development Law of 2015 (the “Law”), along with the Regulations for Extraction of Minerals of 2018. In an attempt to put in place a number of bodies and authorities to regulate and oversee the mining sector, the Law established the Supreme Council for Mining (the “Supreme Council”) and the Technical Committee for Mining (the “Committee”), the latter of which serving as an executive body of the Ministry supervised by the Minister. The Supreme Council’s primary functions include approving the general policies and plans for mining proposed by the Minister, developing the strategies related to mining and mineral wealth and creating an attractive investment climate in the mineral sector by removing obstacles faced by investors. The Committee’s functions include receiving and examining any mining related requests, recommending to the Minister the granting of licenses for searching, exploration, navigation and landscaping, concluding and renewing mining contracts, in addition to recommending to the Minister tax exemptions for contracting parties.
The Geological Research Authority of Sudan (the “Authority”) is also mentioned in the Law and its main mandate is to supervise and control the activities and business of the mining sector as per its establishing resolution. The Authority was established in 1905 during the British colonisation and it was known as the Sudan Mineral Research Department (SMRD), its functions revolve around conducting geological surveys in the various states of Sudan, detecting and evaluating ground materials in addition to serving as a source of information for granting licenses to search for minerals and contracts for their exploitation in accordance with the Law. The Authority plays an important role in the investment landscape, as it has the power to invest in some types of minerals that are either strategic to the country – such as uranium, titanium, black sands and rare-elements, or in minerals and areas that are not attractive to the private sector, including offshore mining or mining in very remote and harsh areas. The Authority is mandated also to monitor and inspect the mining activities for large and small scale licensees working in the country from a technical perspective.
The Law also cites the Sudanese Mineral Resources Limited Company (the “Company”), which was established in accordance with the Sudan Company Law and is owned by the Ministry of Finance and the Central Bank of Sudan. The Company is managed and supervised by the Ministry of Minerals and it serves as the instrument used by the government to supervise the mining resources in Sudan in accordance with international principles and standards, and its development with the latest technologies, while preserving safety and the environment and maximizing the return to support the national economy. The Company is also mandated to collect the dues of the government from the mining sector both from small and large scale companies and artisanal mining activities, it also manages the government’s shares in the mining production company in which the government holds between 15- 30% of shares to be granted to the government when signing concession agreements. The Company is also required to dedicate resources towards the application of environmental, safety, occupational health and social responsibility systems through supervision and control over the mining sector, and to ensure the effectiveness of the application of these systems in line with international standards, laws, regulations and national legislation.
The rationale behind establishing this Company is to avoid the bureaucracy of government bodies managing the mining sector and to rely on a resilient practical instrument to act on behalf of the government.”
The rationale behind establishing this Company is to avoid the bureaucracy of government bodies managing the mining sector and to rely on a resilient practical instrument to act on behalf of the government.
It is worth noting that, pursuant to the Company’s articles of association, amongst the Company’s objectives, the Company shall execute works on behalf the Government of Sudan (i.e. the Ministry) in accordance with licenses, contracts, and the concession agreement for the exploration and exploitation of minerals entered into between the Ministry and the companies that signed agreements for exploration and exploitation of minerals, following the approval of the competent authority.
Pursuant to the Law, the government of Sudan has the full ownership of all mineral materials found on the surface and in subsoil of its lands, in its lakes, its continental shelf, its territorial waters and the adjoining area, and has the absolute right to search, explore and dispose of all mineral materials.
Having said that, investing in the mining sector is possible and welcomed either by obtaining the relevant license from the Ministry to commence exploration, searching or mining activities for minerals, or by entering into mining contracts to partner or divide production with the Ministry. In this regard the Ministry signs a concession agreement with national and international investors and grants them the right to explore a certain block for a specific period. Subsequently, if any mineral reserves are discovered, they proceed with establishing the mining exploitation company in which the government shall have an agreed portion of shares. The mining exploitation company shall be jointly managed by the investor and the government representatives, and shall work to obtain the licences and permits as detailed below.
Investors are able to obtain one of two typesof licenses from the Ministry:
A general license for research, which guarantees the right to enter the area governed by the license and to extract surface samples for study purposes, except for those areas licensed to others as absolute exploration areas or for which a mining contract has been concluded; or
An absolute exploration license, which guarantees the person to whom it is issued the exclusive right to explore in the area covered by the license, including conducting geological and geochemical research in addition to geophysical, excavation and sampling works for the purpose of analysis and technical studies – under the supervision of the Authority.
Alternatively, the types of mining contracts are as follows:
A mining contract, which grants the contractor the right to extract the mining materials covered by the contract in the authorized area, by all scientific, technical and technological means under the supervision of the Authority, and marketing or disposing of that production;
A small mining contract, which grants the contractor the right to extract the mining materials covered by the contract in the licensed area by the means determined by the Authority and the marketing of that production or disposal;
A traditional mining contract, which grants the contractor the right to extract a specific mineral by traditional means from the area specified in the contract and its marketing (reserved for Sudanese applicants (companies or individuals));
An extraction contract for minerals and industrial rocks, which grants the contractor the right to extract and manufacture these materials from the area specified in the contract and market the same.
An application for licencing or a contract must be submitted to the Committee, which would then review it and make the recommendation to the Minister. The Chairman of the Committee will then have the discretion to sign off on the granting of the mining license and/or contract.
In order to obtain a license or enter into a mining contract with the Ministry, investors (applicants) must meet the following conditions:
Submit a certificate of incorporation (if the applicant is a company, business name or branch of a foreign company);
Evidence of the availability of the financial capacity to carry out its contractual obligations;
Evidence of technical competence and sufficient experience in the field of mining;
Submit a certificate that the applicant is free from taxes and zakat;
Submit a certificate from the competent authorities that the area (that is the subject of the application) is free from any dispute;
Evidence that the relevant fees have been paid.
The significant growth in the mining sector in Sudan, coupled with the enhanced legislative apparatus, are positive indicators that forecast an investor-friendly landscape for the years to come. Sudan’s positioning as the 3rd largest producer of gold in Africa and 8th in the world, in addition to the fact that the majority of its mineral reserves remain under-explored and untapped, serve as further evidence to substantiate this forecast.
For further information, please contact Hassan El Tahir or Sara Omer Ali.
Published in September 2022
