Joint venture proposed to end mining dispute in Sierra Leone

Gerald Group settled its two-year mining dispute with the government of Sierra Leone this week (10 May). Both parties agreed to end all arbitration and create a new company in June, which will succeed Gerald’s SL Mining as operator of the Marampa iron ore mine in Lunsar.

The government will get a 10% stake in this joint venture and Gerald has accepted to begin talks with the government for a new mining lease agreement. These agreements present a new template for mining firms to engage the country’s authorities and mitigate political risks related to a change in government.

Significance – Evolving political risk

Parliament ratified the mining lease agreement for SL Mining under unusual circumstances in December 2017. The deal was hurriedly ratified on the same day that it was tabled in parliament, and on the legislators’ last day in office before general elections would be held three months later. All People’s Congress (APC) had the presidency and parliamentary majority at this time, but it lost both after those general elections. This marked the onset of SL Mining’s regulatory trouble in the country.

In 2019, the new Sierra Leone People’s Party (SLPP) government began taking steps to undo that lease agreement. First it blocked SL Mining from further exporting its output – this was only two months after the company had begun production. Then the government cancelled its mining licenses altogether and attempted to seize the mine.

While SL Mining and the government challenged each other through international arbitration in 2020, unfolding domestic events hampered conciliation. There was political unrest in the country following electoral disputes between SLPP and APC and the probe of opposition figures for alleged corruption. Under tension, President Maada Bio removed the mining and justice ministers in cabinet shakeups.

Meanwhile, this unrest was localised in Lunsar where the opposition APC is popular and SL Mining’s host community was struggling to recover from the economic impact of the mine shutdown. The government accused the company of fomenting violence in the host community and police arrested the company’s officials.

The government now seems willing to accept a compromise given SL Mining has gained the upper hand in arbitration. In 2020 the government unsuccessfully challenged the International Chamber of Commerce’s (ICC) jurisdiction to arbitrate the dispute. In the UK, it also lost a Section 67 challenge against ICC’s jurisdiction this year and has withdrawn another one by which it wanted to invoke the foreign act of state doctrine.

Outlook – Litmus test

This settlement with Gerald Group sets a positive example that the government may seek to emulate in future mining disputes – although disruptive action may continue to precede such settlements in the absence of a strong domestic justice system. The eventual formation of this joint venture will also be an important test of the government’s cooperativeness.

Meanwhile, the legislature’s capacity to check the executive remains as weak as it was in 2017 when the current SL Mining deal was approved through a flawed process. There continues to be inadequate oversight for approving legislation and contracts, and political transitions will continue to be a source of risk given the lopsided balance of power between the executive and legislature.

Earlier this year the Mining Minsiter Timothy Kabba said a new “simple, competitive and progressive” mining code would soon be ready for parliamentary review.

—

image credit: patrick hendry, worldbetweenlines

—

We are an African-owned and managed firm delivering local knowledge supporting transformative and sustainable strategic decision-making. Do get in touch if you require assistance: advisory@songhaidvisory.com