The Mining Act, 2016 and the new Regulations prescribe that the Government shall be entitled to a 10% free carried interest in all mining and prospecting licences over large-scale mining operations. In addition, companies making capital expenditures above a yet-to-be prescribed threshold shall be required to list 20% of their shares on a local stock exchange within three years of beginning production activities. Below we examine the immediate impact of the carried interest Regulations.
a) Free carried interest:
The Mining Act entitles the Government of Kenya to 10% free carried interest in large scale mining licencees. The free carry does not apply to persons who held mining licences, special mining leases or mining leases prior to the new Act coming into effect. However, the requirements would apply to companies who now require a mining licence to mine what were previously “common minerals” under the previous regulatory regime.
The free carried shares are to be held through the National Mining Corporation (NMC) which is yet to be established. The requirement to issue the shares shall be notified by the Cabinet Secretary (CS) and the licencee and CS shall agree on the time period within which the shares shall be issued, which shall be no longer than 12 months from the date of the notice. The CS may appoint any person or statutory body to act as its agent for exercise of any of the state’s rights as a shareholder. These rights include the rights to transfer, assign or sell its stake in a licence holder. As shareholder, the government will be entitled to receive notice of, attend, vote and speak at general meetings and to participate in any dividends that are declared. The government will not, however, have rights to manage or participate in the day to day operations of the holder of the mining licence.
Large scale mining operators should consider their governance structures and decision making rights to ensure an optimum structure with respect to quorum, director appointment rights, and other vital provisions of the licencee’s decision making framework.
b) Local listing requirements:
Companies whose mining operations incur capital expenditures above certain capex thresholds will be required to list up to 20% of their shares on a local stock exchange within three years of commencing production. The capex thresholds have not yet been published. The dilutive impact of this requirement should be factored into any market analysis prior to entry into the Kenyan mining sector. How the listing requirements will mesh with the existing requirements for listing on the Nairobi Securities Exchange and the potential lack of liquidity in the Kenyan market is yet to be seen.
If you have any questions regarding this legal alert or require more information on the impact of these new laws, please contact Dominic Rebelo.
The content of this alert is intended to be of general use only and should not be relied upon without seeking specific legal advice on any matter.