Mining 2020

Last Updated January 22, 2020

Botswana

Law and Practice

Authors



Armstrongs provides services to the majority of multi-national and domestic companies operating in the resources sector, and with a thorough knowledge of the Mines and Minerals Act and related legislation, frequently liaises with the Ministry of Minerals, Energy and Water Resources, and the departments thereof on behalf of clients. Established in 1983, Armstrongs comprises four partners and 12 lawyers, and expertly handles all aspects of corporate and commercial law, including M&A, regulatory and compliance, banking and finance, and litigation and arbitration.

The mineral industry of Botswana has dominated the national economy since the late 1960s.

The mining of diamonds has been the leading part of the mineral sector since large-scale diamond production began in 1972.

Botswana is currently the world's leading producer of diamonds by value.

Botswana also mines the following minerals: copper, gold, nickel, and sodaash production, which has played a significant role in the economy of Botswana.

The most notable mines in Botswana are:

  • Damtshaa diamond mine;
  • Jwaneng diamond mine;
  • Letlhakane diamond mine;
  • Lerala diamond mine;
  • Karowe diamond mine;
  • Orapa diamond mine;
  • Mupane gold mine; and
  • Morupule coal mine.

The legal system of Botswana is a mixture of Roman-Dutch and English common-law principles. There are also local systems of tribal law and custom in rural districts, which govern everyday disputes and property relations, but which are subordinate to statutory law. 

The superior courts in Botswana are the Court of Appeal, the High Court and the Industrial Court.

The following regulations govern mining legislation in Botswana:

  • the Mines and Minerals Act Chapter 66:01;
  • the Mines and Minerals (Prospecting and Leasing Charges) Regulations;
  • the Mines and Minerals (Health, Mortality and Labour Returns) Regulations;
  • the Mines and Minerals (Demarcation of Mining Lease Areas) Regulations;
  • the Mines and Minerals (Restriction of Prospecting Activity for Coal) Order;
  • the Mines, Quarries, Works and Machinery Act Cap 44:02;
  • the Mines, Quarries, Works and Machinery Act Regulations;
  • the Mineral Rights in Tribal Territories Cap 66:02;
  • the Diamond Cutting Act Cap 66:04;
  • the Export and Import of rough diamonds Regulations;
  • the Precious and Semi-Precious Stones (Protection) Act Cap 66:03; and
  • the Unwrought Precious Metals Act Cap 20:03.

In Botswana, all mineral rights are vested in the State.

The role of the State in mining in Botswana is of both grantor/regulator and owner/operator.

There is no mandatory national or governmental joint venture; however, Debswana is a mining company located in Botswana, and is the world's leading producer of diamonds by value. Debswana is a joint venture between the government of Botswana and the South African diamond company De Beers; each party owns 50% of the company. Debswana operates four diamond mines in central Botswana, as well as a coal mine.

Mineral rights do have a constitutional basis, derived from law in the form of legislation and common law.

In terms of section 8 of the Constitution of Botswana, no property of any description shall be compulsorily taken possession of, and no interest in or right over property of any description shall be compulsorily acquired, except where the following condition is satisfied, that is, in order to secure the development or utilisation of the mineral resources of Botswana.

In addition, section 9 of the Constitution of Botswana provides that:

  • except with his or her own consent, no person shall be subjected to the search of his or her person or his or her property or the entry by others on to his or her premises;
  • nothing contained in or done under the authority of any law shall be held to be inconsistent with or in contravention of this section to the extent that the law in question makes provision that is reasonably required in the interests of the development and utilisation of mineral resources.

Mining rights have the status of property.

Mineral rights are granted by the Minister of Mineral Resources, Green Technology and Energy Security (the Minister) through the department of mines.

Mineral rights are granted in terms of the Mines and Minerals Act.

The Minister has the power in terms of the Mines and Minerals Act to grant and issue mineral concessions which includes a prospecting licence, a retention licence, a mining licence, or a minerals permit.

Prospecting Licence

In terms of the Mines and Minerals Act, a prospecting licence shall be valid for whatever period the applicant has applied for, which shall not exceed three years.

The holder of a prospecting licence may, at any time not later than three months before the expiry of that licence, apply to the Minister by completing the prescribed form for renewal thereof, stating the period for which the renewal is sought and submitting, together with the application:

  • a report on prospecting operations so far carried out and the direct costs incurred thereby; and
  • a proposed programme of prospecting operations to be carried out during the period of renewal and the estimated cost thereof.

Retention Licence

The holder of a prospecting licence may, by submitting to the Minister an application as set out in Form III of the First Schedule, apply for a retention licence in relation to an area and a mineral covered by his or her licence.

An application made for a retention licence shall be made not less than three months prior to the expiry of the prospecting licence concerned.

A retention licence shall be valid for the period for which the applicant has applied, which shall not exceed three years.

A retention licence may be renewed once only, for a period not exceeding three years.

The holder of a retention licence may apply to the Minister for the renewal of his or her licence at any time not later than three months before the expiry of the licence, and provided that he or she has complied properly with the obligations in terms of the Mines and Minerals Act and the deposit cannot o therwisebe mined on a profitable basis, the Minister shall grant renewal of a retention licence.

Mining Licence

A person wishing to obtain a mining licence shall apply to the Minister by submitting an application in a prescribed form.

The Minister shall grant a mining licence if satisfied that:

  • the proposed programme of mining operations will ensure the most efficient and beneficial use of the mineral resources in the proposed mining area;
  • the proposed mining area is not the same as nor does it overlap an existing mining area or retention area, unless the holder of that area consents to the grant of a mining licence, or in the case of a retention licence, has failed to make application;
  • the proposed mining area extends to cover only that area reasonably required for surface mining and treatment facilities and also to cover the proved, indicated and inferred reserves;
  • the applicant has or has secured access to adequate financial resources, technical competence and experience to carry on effective mining operations;
  • the proposed financing plan submitted as part of the feasibility study is in accordance with good financial practice, and provides for a debt-to-equity ratio of no more than 3:1, unless the Minister otherwise agrees;
  • the parent company guarantee in the prescribed form has been furnished;
  • the applicant is not in default; and
  • in the case of an application to mine diamonds, agreement has been reached following a negotiation under section 51 of the Mines and Minerals Act.

A mining licence shall be valid for whatever period, not exceeding 25 years, that is reasonably required to carry out the mining programme.

The holder of a mining licence may apply to the Minister for the renewal of his or her licence at any time not later than one year before the expiry of such licence.

The Minister shall grant an application for renewal if satisfied that:

  • the applicant is not in default;
  • development of the mining area has proceeded with reasonable diligence;
  • the proposed programme of mining operations will ensure the most efficient and beneficial use of the mineral resources in the mining area.

Minerals Permit

A person wishing to conduct small-scale mining operations may apply for a minerals permit to conduct such operations for any mineral other than diamonds over an area not exceeding 0.5 sq km per permit.

A person wishing to obtain a minerals permit shall apply to the Minister by completing a prescribed form.

The Minister shall grant a minerals permit if satisfied that:

  • the proposed programme of working will ensure the efficient and beneficial use of the mineral resource;
  • consent has been obtained:
    1. under any written law where such consent is required in respect of the area applied for;
    2. from the owner of the area applied for; and
    3. from the holder of any existing mineral concession over the land applied for.

A minerals permit shall be valid for whatever period, not exceeding five years, that the Minister may determine and may, on application made to the Minister, be renewed for further periods not exceeding five years at a time.

Cancellation or Suspension of a Mineral Concession

The Minister may suspend or cancel a mineral concession if the holder thereof:

  • fails to make any of the payments required by or under this Act on the due date;
  • contravenes any provision of this Act or the conditions of his or her mineral concession or the provisions of any other written law relating to mines and minerals;
  • dies, becomes of unsound mind, becomes insolvent, commits any act of bankruptcy, enters into any agreement or scheme of composition with his or her creditors, takes advantage of any written law for the benefit of debtors, or, in the case of a company, goes into liquidation, except as part of a scheme for its reconstruction or amalgamation;
  • makes any statement to the government in connection with his or her mineral concession which he or she knows or ought to have known was false; or
  • for any reason is or becomes ineligible to hold a mineral concession under the restriction provisions of the Mines and Minerals Act.

Before the Minister suspends or cancels a mineral concession under on the basis of failure to make payment required under the Mines and Minerals Act and contravention of any written law relating to mines and minerals, the Minister shall give the holder thereof notice in writing, specifying the particular failure or contravention and calling upon the holder to remedy that failure or contravention within the period, which must not be less than 30 days, that may be specified in the notice.

If the holder of a mineral concession fails to remedy any failure or contravention specified in paragraphs (a) and (b) of subsection (1)of the Mines and Minerals Act within the period specified in a notice issued under subsection (2), the Minister may, by notice to the holder thereof, suspend or cancel the mineral concession forthwith.

On cancellation of a mineral concession under the provisions of this section, the rights of the holder thereof shall be extinguished but without prejudice to any liabilities or obligations incurred in relation thereto prior to the date of cancellation.

The relevant legislation pertinent to the environmental regulation in respect of mining in Botswana are:

  • the Mines and Minerals Act Cap 66:01;
  • the Mines, Quarries, Works and Machinery, Cap 44:02;
  • the Environmental Impact Assessment Act, Cap 65:07;
  • the Waste Management Act, CAP 65:06;
  • the Atmospheric Pollution (Prevention) Act, Cap 65:03; and
  • the Monuments and Relics Act, Cap 59:03.

The Environment Impact Assessment Act (EIA) is a piece of legislation that provides for an environmental impact assessment to be used to assess the potential effects of planned developmental activities.

In terms of Section 4 of the EIA, no person can undertake or implement a mining and prospecting activity unless the environmental impact of the proposed activity is fully taken into account in accordance with the EIA and authorisation has been issued by the Department of Environmental Affairs.

An environmental impact assessment has to identify and evaluate the environmental impact of an activity with particular reference to the:

  • health, safety or quality of life of people;
  • archaeological, aesthetic, cultural or sanitary conditions of the environment; and
  • configuration, quality and diversity of natural resources.

The application made to obtain authorisation for a proposed activity should contain or be accompanied by:

  • a preliminary environmental impact assessment, which shall include a description of the activity; and
  • the formulation of a policy or programme, containing or being accompanied by an approved strategic environmental assessment, which shall contain a description of the proposed policy or programme.

In terms of Section 65 of the Mines and Minerals Act, the applicant for a mineral concession, that is, a prospecting, mining and retention licence or a minerals permit, has to prepare and submit a comprehensive Environmental Impact Assessment as part of the Project Feasibility Study Report in accordance with good international mining industry standards.

The holder of a mineral concession should, in accordance with the law in force from time to time in Botswana and in accordance with good mining industry practice, conduct his or her operations in such a manner as to preserve (as far as is possible) the natural environment, minimise and control waste or undue loss of or damage to natural and biological resources, to prevent and where unavoidable, promptly treat pollution and contamination of the environment and shall take no steps which may unnecessarily or unreasonably restrict or limit further development of the natural resources of the concession area or adjacent areas.

The Department of Mines, under the Ministry of Mineral Resources and Green Technology and the Department of Environmental Affairs, in addition to the Department of Environmental Affairs, are the competent bodies with regard to the protection of the environment.

Environmental officials or authorities are considered to be very strong and efficient in Botswana. The government of Botswana has put in place strong legislation to monitor the effects of mining projects on the environment as well as on surrounding areas.

Wildlife Conservation and National Parks Cap 38:01 (Wildlife Act)

There are environmentally protected areas in the form of National Parks and conservation areas.

Generally, mining and exploration are not permitted in protected areas; however, written permission or consent may be obtained from the Minister of Environment, Natural Resources Conservation and Tourism as well as the Minister of Mineral Resources, Green Technology and Energy Security.

Section 10 of the Wildlife Act provides that:

“subject to any mining rights lawfully acquired in any area by any person before the date on which such area became a national park, any prospecting or mining in the area or the acquisition of any prospecting or mining rights in the area in terms of the Mines and Minerals Act shall be prohibited except with the written permission of the Minister of Environment, Natural Resources Conservation and Tourism”

Contravention of the above provision is an offence, which attracts a fine of BWP2000, or two years' imprisonment, or both.

Monuments and Relics Act, Cap 59:03 (MRA)

The MRA stipulates that an archaeological pre-development impact assessment study is to be done by any person wishing to undertake major development which will physically disturb the earth’s surface.

In the MRA a pre-development archaeological impact assessment study is defined as:

  • “the study, by an archaeologist, of an area in which development or any ground disturbing activity is to be carried out, to determine the likelihood of the development or the activity impacting negatively on any cultural material or evidence that may be present in the area to be disturbed; and
  • any recommendation made by the archaeologist on how to prevent or mitigate any negative impact to the cultural material or evidence referred to [above]”.

A report of the study is to be submitted to the Commissioner of Monuments and Relics (the Commissioner) within 60 days of completion, together with a written application for the development of the area in respect of which the studies have been conducted. Until that permission has been granted, no development in respect of the areas to which the studies refer shall be commenced.

Any discovery of an archaeological nature shall be notified to the Commissioner without delay by the discoverer and by the owner/occupier of the land upon which the discovery is made.

In the event that the discovery is made during excavation or construction, the excavation or construction shall be immediately suspended until the Commissioner has directed that the excavation or construction may resume and on what conditions.

Further, no person shall excavate or expose relics or artifacts under the soils or map, trace or touch rock paintings without the Minister’s consent. In granting such consent, the Minister of Environment for Wildlife and Tourism shall consult the Commissioner or embark on such other enquiries, as he or she deems necessary.

It is also permissible to remove or allow to be removed from the original site any national monument, relic or recent artefact or any part thereof from a site but the Minister’s consent is a prerequisite. An application for any such removal shall state the exact locality of the national monument, relic or recent artefact and shall be accompanied by a drawing or photograph of the national monument, relic or recent artefact. Where the national monument, relic or recent artefact has been removed, it shall be removed to the National Museum and Art Gallery or any other place as the Commissioner may direct.

Contravention of the above provisions is an offence, which attracts a fine of BWP10,000, or a year’s imprisonment, or both. 

The government of Botswana, as well as the mining companies will normally convene meetings with the community before a mining project commences.

If a mining project requires a community to relocate, discussions are held which include the issue of adequate compensation to the affected communities.

In terms of section 7 of the Environmental Impact Assessment Act (EIA Act), an applicant shall, before undertaking or implementing an activity, engage a practitioner to do a scoping exercise.

Scoping is defined as consultations with concerned government departments, local authorities, non-governmental organisations, members of the public and any other interested persons, to determine the extent of the likely environmental impact of a proposed activity.

During a scoping exercise, a party shall:

  • publicise once the intended activity, its effects and benefits in the mass media using the official languages for a period of not less than 21 days; and
  • hold meetings with the affected people or communities to explain the nature of the activity and its effects.

In terms of section 10 of the EIA Act, the Department of Environmental Affairs shall, within 60 days of receiving a statement from a developer, examine the statement to determine whether that statement complies with the requirements prescribed by the Minister of Environment, Natural Resources Conservation and Tourism.

Furthermore, in terms of section 11 of the EIA Act, the Department of Environmental Affairs may hold a public hearing if:

  • after examining the statement, the competent authority is of the opinion that the activity is of such a nature that the public should have the opportunity to make submissions or comments at a public hearing; or
  • the public concern over the activity is that the activity may have a significant adverse impact on the environment.

The Minister of Environment, Natural Resources Conservation and Tourism may, in consultation with the Department of Environmental Affairs, prescribe the procedure for conducting a public hearing.

Prior consultations are normally done by the State or the investor.

There are no specially protected communities.

However, in Botswana, there exists an indigenous tribe called the Khoisan who are protected by the Constitution of Botswana, like all people in Botswana.

There are no specific regulations or legislation in relation to the Khoisan.

It is not usual to have community development agreements in Botswana, nor are they mandatory.

A good example of environmental and community relations/consultation around mining projects in Botswana is that the community has an opportunity to voice their concerns. The community will also have an opportunity to discuss possibilities of employment in the mining projects and how the mining project will contribute into the economic development of the community.

A bad example of environmental and community relations/consultation around mining projects in Botswana is that there may be disagreements as to what amounts to adequate compensation, as well as relocation issues, in the event that a certain piece of land where the community lives has to be compulsorily acquired (expropriation) by the government of Botswana for the purposes of  the mining project.

There are currently no initiatives to deal with climate change affecting the mining industry in Botswana.

There is no climate change legislation related to mining in Botswana.

However, the Government of Botswana is in the process of developing a policy for climate change to help the country mitigate the effects of climate change.

There are sustainable development initiatives in Botswana.

In September 2015, UN member states, including Botswana, adopted a landmark agreement on a universal transformative agenda entitled Transforming our World: the 2030 Agenda for Sustainable Development.

Botswana has therefore adopted Vision 2036, to align itself with the global agenda for sustainable development to ensure that the country pursues the national aspirations in a way that enables Botswana to meet the global and regional goals.

The following are the objectives, called ‘pillars’ of Vision 2036.

Pillar 1 - Sustainable Economic Development

By 2036, Botswana will be a high-income country, with an export-led economy underpinned by diversified, exclusive and sustainable growth driven by high levels of productivity. This pillar encompasses a knowledge-based economy, human capital, doing business and competitiveness, infrastructure development, the informal sector and the micro and small enterprises, the mineral sector, the agricultural sector, the manufacturing sector, tourism, services, information technology, financial and business services, transport and logistics, creative industries and sport.

Pillar 2 - Human Social Development

By 2036, Botswana will be a moral, tolerant and inclusive society that provides opportunities for all. For easy execution, the pillar will be looking into different sectors which includes spiritual wellbeing, culture, strong family institutions, health and wellness, social inclusion and equality, education and skills' development, gender equality, youth and children’s wellbeing.

Pillar 3 - Sustainable Environment

By 2036, sustainable and optimal use of natural resources will have transformed the economy and uplifted people’s livelihoods. This pillar includes the ecosystem functions and services, sustainable utilisation of natural resources, water security, energy security, sustainable land use and management, sustainable human settlements, climate resilience and disaster risk reduction and pollution and waste.

Pillar 4 - Governance, Peace and Security

By 2036, Botswana will be a land of peace, freedom and progressive governance. This fourth pillar will be based on the constitution and human rights, the institutional framework, separation of powers and effective oversight, Bogosi and the Kgotla system, decentralisation, civil society participation, religion and society, transparency, accountability and implementation, electoral system and political representation, crime, peace and security, foreign relations and freedom of expression and association.

In Botswana, the taxable income from mining operations is determined in accordance with special rules contained in the main provisions and the Twelfth Schedule of the Income Tax Act, whereas companies engaged in diamond mining are taxed in accordance with the terms of agreements negotiated between the government and the company concerned.

Section 43, as read with the 12th schedule to the Income Tax Act, deals with income tax for companies involved in mining, and provides the following:

  • in ascertaining the business-chargeable income of any person for any tax derived from the business of mining, there shall be deducted an allowance computed in accordance with 100% of the Mining Capital Expenditure made in the year in which that expenditure was incurred, with unlimited carrying forward of losses;
  • where separate and distinct mining operations are carried on in mines which are not contiguous, the deduction to be allowed shall be calculated separately and shall not be transferable between those operations, except for expenditure on a licence or lease which has been relinquished by the mining company;
  • the deductions allowed from the chargeable income of any person carrying on mining operations also include any amounts contributed to a mine-rehabilitation fund, approved by the Minister responsible for finance, and set up for the rehabilitation of a mine owned by the taxpayer. The payment of any surplus from the mine-rehabilitation fund to a person who has contributed to that fund will be subjected to a final withholding tax charge of 10%. The investment income of a mine-rehabilitation fund will be exempt from tax.

The annual tax rate imposed on mining profits (other than profits from diamond mining) is determined according to a specified formula but may in no case be less than the current rate of 22% applicable to companies.

Mining profits, other than profits from diamond mining, are taxed according to the following formula:

Annual tax rate = 70 minus (1,500/x), where x is taxable income as a percentage of gross income.

In terms of Section 66 of the Mines and Minerals Act, the holder of a mineral concession shall be liable to pay royalties to the Government on any mineral obtained by him or her in the course of the exercise of his or her rights.

Section 66 (1) of the Mines and Minerals Act therefore provides that:

  • subject to the provisions of this Part of the Act, the holder of a mineral concession shall be liable to pay royalties to the Government on any mineral obtained by him or her in the course of the exercise of his or her rights thereunder at the rates and in the manner prescribed under this section.

Therefore, the obligation to pay royalties is in respect of any mineral obtained by a mining licence-holder in the course of the exercise of mining rights. There does not appear to be an intention to extend that obligation to pay royalties on anything other than on a value of minerals.

The royalties payable shall be the following percentages of gross market value as set out below:

  • Precious stones – 10%.
  • Precious metals – 5%.
  • Other minerals or mineral products – 3%.

The term "gross market value" shall for the purposes of calculation of royalties be defined as the sale value receivable at the mine gate in an arm’s-length transaction without discounts, commissions or deductions for the mineral or mineral product on disposal in terms of section 66 (3) of the Mines and Minerals Act.

The term “mine gate” is, however, not defined in the Mines and Minerals Act and it must therefore also be construed using the normal canons of construction of statutes.

The term mine gate has a recognised technical meaning in the mining industry. In Australia the term has been used to determine the value of a mineral when it leaves the mine or area where it was recovered or extracted.

In the case of Lonrho Ltd v Salisbury Municipality, it was held that:

“It is trite law that the first and most elementary rule of construction is that it is to be assumed that the words and phrases of technical legislation are used in their technical meaning if they have acquired one, and, otherwise, in their ordinary meaning.” (MAXWELL on Interpretation of Statutes, 10th ed., p. 3, and cases there cited). When, in a technical statute like a patent statute, the Legislature uses words which for some 300 years have been recognised as having a specialised technical meaning, it must be assumed that the Legislature intended to use the words in their recognised technical sense and not in their popular sense, unless, of course, it appears from the context in which the words are used that the Legislature intended to depart from the proper technical meaning.”

In this regard, on the basis that the term “mine gate” has a technical meaning, and in the context in which it is used, it should be construed to mean the value of a mineral when it leaves the mine or area where it was recovered or extracted.

Royalties are paid on a mineral or mineral product on receipt of each payment or other consideration for such mineral or mineral product, and each royalty payment shall be accompanied by full particulars of the mineral or mineral product sold or disposed of and the terms of payment provided that any disposal for other than monetary consideration or consideration deferred for a period beyond industry practice shall be referred to the Minister Mineral Resources, Green Technology and Energy Technology for determination of royalty.

Where it appears to the Minister for Mineral Resources, Green Technology and Energy Technology that minerals have been disposed of otherwise than in an arm's-length transaction, the Minister for Mineral Resources, Green Technology and Energy Technology shall determine the royalty payable on the basis of prices ruling in the industry, and the royalty so determined shall be payable on demand, provided that the royalty so determined and paid may be varied by court review or arbitration and the sum of any such variation shall thereupon become payable or repayable as the case may be.

The expression "arm's-length transaction," as used in the Mines and Minerals Act, means a transaction between a willing buyer and willing seller in the open market where the purchase price for the sale is not influenced by any special relationship or other arrangement between the parties to the transaction and is not affected by any non-commercial considerations and specifically excludes any barter, swap, exchange, or transfer-price arrangements, restricted or distress transaction which is associated with special financial, commercial or other considerations.

In terms of the Twelfth Schedule of the Income tax Act, a 15% withholding tax applies to royalties paid to a non-resident.

Possible Penalties and Interest for Failure To Pay Royalties

In terms of Section 10 of the Mines and Minerals Act, any royalty due in respect of a mineral concession is a debt due to the government and revocable in count of competent jurisdiction.

In terms of Section 72 of the Mines and Minerals Act, all overdue amounts bear interest at a commercial bank prime lending rate ruling from time to time plus a premium of 5% points.

Furthermore, Section 69 provides that:

  • if the holder of a mineral concession fails to pay any royalty due in respect of that concession on or before the due date or any extension thereof, or if the Minister has reason to believe that minerals have been produced from any area and royalties have not been paid in respect thereof, the Minister may, by order served on the holder of the mineral concession concerned, prohibit the disposal of any mineral from that area, or from any other area held by that holder under a mineral concession until all outstanding royalties have been paid or until an arrangement has been made, acceptable to the Minister, for the payment of those royalties.
  • any holder of a mineral concession who contravenes or fails to comply with the provisions of an order given under subsection (1) and any person who, knowing of such an order and contrary thereto, receives any mineral from the area concerned, shall be guilty of an offence.

In terms of Section 81 (1) of the MMA, if the Minister considers that the holder of a mineral concession is in breach of any of the provisions of the MMA, or of any of the terms or conditions of such concession, he may, in lieu of proceeding under any other provision of the MMA, notify the holder accordingly and require him or her to show cause, in writing, within any such reasonable time as the Minister shall specify in the notification, why he or she should not incur a penalty for such breach.

If, within the time specified in a notification, the holder of a mineral concession fails to satisfy the Minister that:

  • the alleged breach had not occurred;
  • the holder had taken all appropriate precautions, due care and reasonable alternative measures with the object of avoiding such breach; or
  • there was a reasonable excuse for the breach,

the Minister may order that there be imposed on the holder a penalty in such a sum, not exceeding P50,000, as the Minister may deem appropriate having regard to the nature of the breach, its seriousness and the other occasions, if any, upon which the holder has been in breach of the MMA or of the terms or conditions of his or her mineral concession.

Resident companies pay company tax at 22% of the taxable income and the general rate of withholding tax is 7.5% on all dividends distributed.

In Botswana there are no foreign exchange controls which therefore entail free repatriation of profits, dividends and capital.

Furthermore, there are operational double taxation avoidance agreements with, inter alia, South Africa, United Kingdom, Sweden, France, Mauritius, Namibia, Zimbabwe and Russia.

In addition, expenditure on mining exploration is deductible for income tax purposes in the tax year in which the expenditure is incurred.

Tax Agreements

Section 53 of the Income Tax Act Cap 52:01 (ITA) expressly provides for the Minister of Finance and Economic Development, on behalf of the Government, to enter into an Agreement (Tax Agreement), with any person, who is or may be liable to tax under the ITA.

The Tax Agreement, under the ITA does not extend to royalties simply because royalties are payable under a different legislation, which is the Mines and Minerals Act.

Under the Mines and Minerals Act, the only dispensation that may be granted for the payment of royalties is in terms of Section 67 of the Act provides that “the Minister may, in the public interest, remit all or any royalty payable in any minerals or mineral products for such period as he may determine”.

In terms of Section 69 of the Mines and Minerals Act, where the Minister has reason to believe that minerals have been produced from any area and royalties have not been paid in respect thereof, the Minister may, by order served on the holder of the mineral concession concerned, prohibit the disposal of any mineral from that area, or from any other area held by that holder under a mineral concession until all outstanding royalties have been paid or until an arrangement has been made, acceptable to the Minister, for the payment of those royalties.

Therefore, where royalties have not been paid (on the basis that there has not been a determination made by the Minister for the amount of royalties payable in terms of Section 66(5) of the Mines and Minerals Act), the Minister is entitled by order to prohibit the disposal of minerals from any mine until an arrangement has been made that is acceptable to the Minister for the payment of those royalties.

In Botswana, capital gains obtained by resident and non-resident mining companies from disposal of a mining project (in the form of immovable property) are generally subject to capital gains tax at 22%.

However, in terms of the provisions of the Income Tax Act, if the immovable property falls within the definition of mining capital expenditure the disposal gains are exempt from capital gains tax.

Section 2 of the Income Tax Act defines "mining capital expenditure" to mean expenditure incurred by any person in carrying on mining operations:

  • on the acquisition for the purposes of the carrying on of his or her mining operations, of a mineral, mining or prospecting right or mining or prospecting information from another person, and the expenditure incurred in that acquisition shall be deemed to be the amount for which that property was disposed of, or deemed to have been disposed of;
  • on the preparation of a site for his or her mining operations, including expenditure on exploratory work done on the site to determine the best means for the carrying on of his or her mining operations;
  • on buildings, structures, works of a permanent nature, other improvements, including plant, machinery or equipment, directly or primarily connected with the carrying on of the mining operations;
  • on providing, or by way of contribution to the cost of providing water, light or power for use on, access to or communication with, the site of mining operations carried on or to be carried on by that person;
  • on residential accommodation and welfare facilities for employees; and
  • on general administration and management, including any interest payable on any loan for the time being utilised to finance the mining operations, incurred prior to the commencement of carrying on a business of mining or during any period when the business of mining is not being carried on.

However, mining companies in Botswana are still subject to corporate tax at the tax rate determined by the corporate tax formula and at the agreed rate for diamond-mining companies.

Capital gains from the disposal of shares or interest in the capital of a company holding mineral rights over land situated in Botswana are exempt from capital gains tax, but are subject to corporate tax, as stated above.

Therefore, capital gains on the disposal of assets by mining companies are exempt from capital gains tax but are subject to corporate tax who have mineral rights or any mining or prospecting rights (ie, mining or prospecting licences) over land situated in Botswana.

The main features for attracting investment for mining in Botswana are the following:

  • sound mining policy and legal framework;
  • mining-sector institutions are equipped and staffed with trained, qualified people;
  • enactment and enforcement of sound environmental protection legislation; and
  • land-use issues regarding resettlement of communities are compensated adequately and are protected by the Constitution of Botswana.

There are no special rules in relation to foreign investments, nor are there any restrictions to foreign investment in the exploration and mining sectors.

Botswana’s model Bilateral Investment Treaty provides for non-discriminatory treatment of foreign investors.

Some of the investment opportunities that are actively promoted by Botswana include, but are not limited to, the minerals sector which includes mining and base metals, such as gold, uranium, copper, nickel, coal, manganese and mining services.

According to the WTO SACU Trade Policy Review, as well as the United Nations Conference on Trade and Development Investment Hub, Botswana has investment promotion and protection treaties with Belgium, Luxembourg, China, Germany, Ghana, Malaysia, Mauritius, and Switzerland.

The main sources of finance for exploration, development and mining in Botswana are government expenditure and private international mining companies.

The role of the domestic and international securities markets in the financing of exploration, development and mining in Botswana is to provide companies with an opportunity to raise capital and funds.

In terms of section 73 of the Mines and Minerals Act, the Minister may, from time to time, make reasonable arrangements to ensure that the holders of mineral concessions comply with the provisions of this Act, and, without prejudice to the generality of the foregoing, may require or accept guarantees, whether from shareholders or otherwise, in respect of such compliance. The other forms of security over mineral concessions are, inter alia:

  • mortgage bonds;
  • deed of hypothecation;
  • surface rights bond;
  • pledge of shares;
  • security cession agreement.

In light of the decreased global demand for diamonds, mining for diamonds is unlikely to provide economic growth in the future for Botswana.

Botswana therefore seeks to diversify its economy from one based on minerals (in particular diamonds) to other sectors of the economy, including financial services, for its future economy.

According to the State of the Nation Address by His Excellency President Mokgweetse E. Masisi, the execution of the Jwaneng Mine Cut 9 commenced in April 2019 and will extend the life of the mine from 2028 to 2035. The project is envisaged to employ 1,153 people at peak production, of which 98% percent will be citizens.

Khoemacau Copper Mining, situated in the North West of Botswana has started the construction of the boxcuts at Zone 5 mining concession with anticipation to start concentrate exportation during the first quarter of 2021.

Minergy Limited, a coal mining and trading company, has completed the boxcut and exposed the coal bed. The plant is operational and the mine has started to export coal to the Republic of South Africa.

Armstrongs

2nd Floor Acacia House
Plot 74538
Cnr Khama Crescent
Ext & PG Matante Road
New CBD
Gaborone
Botswana

+267 395 3481

+267 395 2757

ada@armstrongs.bw www.armstrongs.bw
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Law and Practice

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Armstrongs provides services to the majority of multi-national and domestic companies operating in the resources sector, and with a thorough knowledge of the Mines and Minerals Act and related legislation, frequently liaises with the Ministry of Minerals, Energy and Water Resources, and the departments thereof on behalf of clients. Established in 1983, Armstrongs comprises four partners and 12 lawyers, and expertly handles all aspects of corporate and commercial law, including M&A, regulatory and compliance, banking and finance, and litigation and arbitration.

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