Mining in Senegal: New Leadership Brings New Changes

Will Senegal’s new president bring about positive change for the industry?

Amelia Salutz

Senegal-BLOGFlickr: Serigne Diagne

DAKAR, SENEGAL – The election of Macky Sall as president of Senegal brought a new administration into the country for the first time since 2000, when his predecessor Abdoulaye Wade assumed office. Under Wade’s presidency, Senegal saw its first commercial gold mine go into production at Sabodala and the sector’s contribution from GDP rise from 1.5% to 3%. In spite of this growth, Sall, now approaching his second year in office, has decried the sector’s low contribution to the national economy. To this end, he has vowed to introduce new measures to stimulate industries like mining that can drive economic growth, particularly with a focus on ensuring shared benefits and increasing local capacity and participation in the sector.

Sall has served as the Minister of Mines, Energy and Water in the past, and is a geological engineer by education. He is arguably a leader with more understanding of natural resource sectors than most. This has informed a more realistic government outlook on the sector’s viability, however nonetheless he has criticized the current mining code for being too favorable to business and called for more benefits to the state. Ranked 178 of 189 countries on the World Bank’s Doing Business 2014 report, however, the country has a far way to go to convince mining investors to set up shop.

As far as geological potential goes, gold has dominated sector interest although the country’s over 50-year history of phosphate mining and high-quality phosphate continues to attract investors. Gold exploration has been concentrated in the southeastern region of Kedougou, where there is also potential for iron, uranium, copper and chrome. A heavy mineral sands project, Grande Cote, a joint venture between ERAMET and the Australian company Mineral Deposits Limited, is expected to enter into production in 2014. The Faleme iron ore project, which was brought back under government ownership after disagreements with the develop ArcelorMittal, is now open for new partners. Its mineral diversity and near-term projects in the pipeline offer a stronger outlook for the sector’s performance. Nonetheless, it is a small country without much demonstrated geological potential as of yet. Working in Senegal’s favor is its reputation for political stability.

Since coming into office, Sall has yet to bring about significant changes in mining sector policy; however motions are now to rejig policies as of next year. Not long into his term, Sall announced a renegotiation of mining conventions in the end of 2012, a move to which most mine owners have agreed. In the case of Teranga Gold, owner of the Sabodala mine, they rehashed a new agreement with the government that benefits both parties in spring of this year. The agreement raised the royalty rate on sales of its gold from 3% to 5% as of January 2013 and includes the prepayment of dividends, while the government for its part has renewed the mining license to 2022 and extended exploration licenses. Teranga will also be able to acquire the government’s additional participation option on several deposits that are not a part of their mine license.

Sall has also initiated an audit of the sector. Senegal received a grant from the World Bank of $475,550 to finance a diagnostic study of the legal and fiscal framework of the mining sector and the ministry of mining. An outcome of this review will be a new mining code. The government is hoping to have a draft legislation proposed by the start of 2014, aimed at ensuring a fair share of mining benefits.

Sall has also spoken publicly about the administration’s plans to develop more contracting within the mining sector to create more opportunities for local businesses. To encourage the growth of small enterprises in Senegal, and their potential role as service providers to the mining industry, the government is establishing the National Economic Development Bank. The bank will start operations in January 2014 and will focus on offering financing to small and medium enterprises (SMEs). It is difficult for SMEs to receive credit in the current climate and companies who do succeed are often faced with high interest rates. In partnership with the National Guarantee Fund for Priority Investments (FONGIP), the National Economic Development Bank will make guarantees more accessible to these businesses. The Ministry of Mines is hopeful such measures will help create more local companies that can service the mining sector and further incentivize the industry’s growth.

Another recent initiative to enhance the country’s attractiveness as a mining investment destination was carried out on an international level with Senegal’s bid for entry into EITI, the Extractive Industries Transparency Initiative. Senegal submitted its application in August and was accepted as a candidate in October. As a member of EITI, Senegal will publish all mining contracts, as well as all revenue received as a result of these contracts.

While Senegal has political stability and attractive government policies on its side, its geological potential thus far does not compare to that of neighboring Mali or Guinea. Its territory remains underexplored; therefore more research needs to be done to fully examine what the country has to offer mining investors. It is clear that for the meantime, the best carrot Senegal has to offer is its investment framework. After 18 months in office, Sall should be prepared to lead his administration in the direction of viable and sustainable reforms.

This article was written as part of the research conducted on African mining jurisdictions by Global Business Reports (GBR) as part of our partnership with African Mining Indaba LLC. The aim of this partnership is the production of the single most comprehensive intelligence report on the continent’s mineral sector. The Official Mining in Africa Country Investment Guide, will be launched next February 2014, as the only official publication providing country-specific information at Africa’s top mining event, the 2014 Investing in Africa Mining Indaba™ held in Cape Town, South Africa.

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