The Assembly of the Republic has recently approved the new Mining Law, introducing significant changes to the legal framework governing the mining sector in Mozambique.

The reform is essentially based on three pillars: (i) greater State intervention in mining projects; (ii) promotion of local processing and value addition; and (iii) strengthening of local content requirements.

Although the public policy objectives underlying the reform are understandable, particularly in the context of maximizing the value of natural resources and developing national industry, some of the measures introduced may have a significant impact on the structuring, bankability and attractiveness of mining investments in the country.

Among the key changes of relevance to investors and operators are the following:

• Minimum 15% State free-carried interest – The new Mining Law establishes a mandatory minimum State participation of 15%, on a free-carried, non-dilutable basis, across all stages of the mining value chain. This measure may have implications for the structuring, bankability and attractiveness of mining investments in the country.

This change may directly affect project economics profitability, risk allocation and financing structures, particularly in capital-intensive projects with long payback periods.

• Renegotiation of mining agreements - the new Law introduces the possibility for the State to request the renegotiation of mining agreements during their term, namely on the basis of substantial changes in economic, financial, environmental, technological or legal circumstances, as well as in cases of windfall gains or reasons of public interest.

Although contractual rebalancing mechanisms are not uncommon in extractive industries, the breadth of the grounds provided, and the absence of sufficiently detailed objective criteria may give rise to concerns regarding contractual predictability and stability.

• Local processing obligation - the new Law introduces a mandatory requirement for the local processing of mineral resources and restricts the export of unprocessed strategic minerals.

The practical implementation of this measure may prove particularly challenging in certain industry segments, taking into account the significant CAPEX requirements, energy availability, logistics infrastructure and economic viability of certain mining operations.

• Strengthened local content requirements - the new regime adopts a more restrictive approach to local content, establishing that the supply of goods and provision of services to mining operations must be carried out by Mozambican individuals or legal entities.

Although the promotion of national participation is a legitimate objective, the practical application of these measures will depend on the actual capacity of the local market to meet the technical, operational and financial requirements of the mining industry.

• Strategic Minerals – the new Law introduces the concept of “strategic minerals”, leaving the definition of the minerals covered and the applicable regime to future regulations. The creation of this category may result in increased State intervention, additional restrictions on the transfer of mining rights, specific local processing requirements and the potential mandatory participation of public or national entities in certain projects.

From an investor perspective, the absence of substantive criteria already set out in the Law itself may create uncertainty as to the legal framework applicable to certain mining assets and reduce regulatory predictability in future investment and financing processes.

• Creation of the National Mining Company – the new Law establishes the National Mining Company, to which mining rights over minerals considered strategic may be reserved. This measure confirms a trend towards greater direct State participation in the mining sector, particularly in segments considered strategic for the national economy.

Overall Assessment

Although the new Law, in principle, safeguards contracts and concessions currently in force, any renewals, extensions or material amendments may become subject to the new legal regime.

Overall, the reform represents a clear strengthening of State intervention in the mining sector and a significant shift in the balance between investment attractiveness and national industrial and economic policy objectives.

The practical impact of these changes will depend not only on the final version of the Law as published, but also on the future regulations and on how the new regime is implemented by the competent authorities.

Final Note

This News Flash is based on the text of the legislative proposal submitted to the Assembly of the Republic and on publicly available information as at the date hereof. Although the proposal has been approved, the final version will only produce legal effects following its official publication, at which point it will be possible to confirm the definitive wording and any potential adjustments.