July 11, 2016

Mortgage of a Mineral Right and Mining in Wildlife Conservation Areas

In this month’s briefing, we look at the process to mortgage mineral rights and undertake mining operations in Wildlife Conservation Areas in Tanzania.

Legal Basis

The Mining Act of 2010 (the Mining Act) is the basic law which governs all mining and mineral activities in Tanzania. The Wildlife Conservation Act of 2009 (the Wildlife Conservation Act) is the principal act of parliament providing for all wildlife related activities.

A: Mortgage of a Mineral Right 

Holders of Mining Licences, SpecialMining Licences and Primary Mining Licences (Mineral Rights) may mortgage their Mineral Rights to a financial institution, bank or any other person as a security for funds advanced to the mineral rights holder. The Mining Act does not expressly use the word ‘mortgage’ however it uses the term ‘assign’ which includes the right to mortgage or charge mineral rights. A mortgage of Mineral Rights is subject to obtaining the prior written consent of the licensing authority, however no such prior written consent is required if:

  • the mortgage or charge is to a financial institution or bank as security for a loan or guarantee;
  • the assignment is to an affiliate where the obligations of the affiliate are guaranteed by the holder of the mineral rights or by the parent company of the holder of the mineral rights (an affiliate for this purpose means a company which directly or indirectly controls or is controlled by the holder of the mineral rights); or
  • the mortgage or charge or assignment is provided in favour of another person who is considered to be the holder of the Mineral Rights i.e. where a Mineral Right is jointly owned by more than one person.

The person applying for consent to mortgage or charge Mineral Rights is required to submit to the Ministry of Energy and Minerals (MEM) an application in the prescribed form as well as the following certified copies of documents:

  • application letter requesting for consent and giving summary of the transaction;
  • executed Mortgage Agreement;
  • executed Loan Agreement or letter of offer of a loan facility signed by the parties;
  • certificate of incorporation and memorandum and articles of association, if the holder of the Mineral Right is a corporate body;
  • copy of identification of the holder of the Mineral Right, if an individual;
  • incorporation documents or copy of identification card of the mortgagee;
  • copy of the Mineral Rights being mortgaged; and
  • payment of the relevant taxes including stamp duty at the Tanzania Revenue Authority (TRA) and the respective agreements being stamped by TRA.

The application should be submitted to MEM in case of Mining Licences and Special Mining Licences and to the Zonal Mines office in the case of Primary Mining Licences.

Points to note:

  • A Primary Mining Licence, cannot be mortgaged to a person who is not a Tanzanian, or to a company which is not owned 100% by Tanzanians.
  • If the Mineral Right being mortgaged is owned by a corporate body, the mortgage should also be registered at the Business Registrations and Licencing Agency (BRELA) and a certificate of creation of charge should be obtained. The application at BRELA should be submitted using BRELA Form No. 96 and should be accompanied by a copy of the mortgage agreement and the prescribed fee.
  • It is possible to engage a security trustee which can be a bank, a financial institution or any other person e.g. a law firm to hold the Mineral Right being charged/ mortgaged on behalf of the lender. If the security trustee is a bank or a financial institution, no consent will be required from a licensing authority. However if the security trustee is another person e.g. a law firm, prior consent from the licensing authority to mortgage/ charge the Mineral Right will be required.

Once the consent from the relevant authority has been obtained, the parties can proceed to lodge an application to mortgage the Mineral Right at the MEM or Zonal Mines Office by submitting certified copies of the following documents:

  • receipt as proof of payment of the prescribed fee
  • consent letter
  • form no. MRF 13
  • the mortgage agreement
  • letter of offer, loan agreement or any other agreement showing what the mortgage/charge is for
  • application letter stating in summary the nature of the transaction
  • incorporation documents of the mortgagor and mortgagee if corporate bodies
  • identification documents for the mortgagor or mortgagee if individuals
  • mineral rights licences which are being mortgaged/charged
  • valid business licence
  • proof of payment of the relevant taxes

B: Mining in Wildlife Conservation Areas

A wildlife conservation area includes national parks, game reserves, game controlled areas and the Ngorongoro Conservation Area. The Wildlife Conservation Act restricts any person from collecting sand, prospect or mine in any wildlife conservation area however the person may prospect or mine in a wildlife conservation area if the undertaking involves prospecting for or mining oil, gas or uranium. Hence mining or exploration in a wildlife conservation area is allowed if:

  • the mining or exploration is for uranium i.e. no other minerals will be mined in the wildlife conservation area;
  • the holder of the Mineral Rights has undertaken environmental impact assessment as required by the Environmental Management Act of 2004;
  • protection cost has been paid by the holder of the Mineral Rights as prescribed in the regulations made under the Wildlife Conservation Act;
  • concession fee has been paid to the Minister responsible for wildlife; and
  • the Government of Tanzania is the initiator of such undertaking.

In support of the Wildlife Conservation Act, the Mining Act provides that the holder of Mineral Rights shall not undertake mining activities in a wildlife conservation area without obtaining the prior written consent from the Ministry of Natural Resources and Tourism (MNRT).

However there is a lacuna in both laws because neither the Mining Act nor the Wildlife Conservation Act provides a clarity in the situation where Mineral Rights have been ranted by MEM within a wildlife conservation area yet the same area covers hunting blocks which have been granted to other persons by MNRT. The Wildlife Conservation Act allows a person to apply for hunting blocks for commercial purposes, while in some cases MEM may grant Mineral Rights over areas which fall within the hunting blocks granted by the MNRT.

Due to this lacuna, over the years Mineral Rights holders and the companies holding hunting blocks have entered into agreements in which Mineral Rights holders pay compensation to companies holding hunting blocks and in return the holders of hunting blocks do not undertake hunting activities in areas falling within the boundaries of the Mineral Rights holders. This has led to strong opposition in the Tanzanian parliament where it was argued that holders of hunting blocks have authorised mining companies to enter and mine within wildlife conservation areas without proper authorisation from the relevant government authorities. In response to this, MNRT imposed a restriction that no hunting block owners are allowed to enter into such agreements with owners of Mineral Rights unless such agreements have been submitted, reviewed and approved by the MNRT. This has been the practice to-date pending the implementation of the regulations which will clearly provide as to how such situations should be dealt with.

Mining Events in Tanzania

Tanzanian Explorers’ Club 

The Tanzanian Explorers’ Club (TEC) is for people working in, or affiliated with, the Tanzanian mineral exploration sector and provides an informal environment to facilitate networking within the industry and information sharing between key participants in the Tanzanian mining sector. If you are interested in joining the next TEC meeting please email Clyde & Co’s mining team to find out further details.