Could a new mining code spark investment in the Dominican Republic?

Wednesday, January 3, 2018

A bill that will overhaul the Dominican Republic's mining code was last month sent to the government for review.

The document sets out a new framework for concessions, taxes and environmental regulations, replacing the current mining code (law 146), which came into force in 1971.

The overall goal of the bill is making sure that both the state and the mining companies receive a fair share of the benefits from future operations.

The bill was drawn up by the energy and mines ministry and has been amended following a three-month consultation period during which 1,150 comments and proposals were registered.

Changes following the consultation include the scrapping of a rule that the state must receive 60% of the benefits from mining operations during times of higher metals prices. The minimum 40% requirement remains in place.

To find out how the bill may affect the mining sector, BNamericas spoke with Fabio Guzmán Saladín, a partner at Dominican law firm Guzmán Ariza.

While the proposed royalty and tax structure may still be a concern, Guzmán believes the bill offers improved legal certainty to potential investors.

BNamericas: Will the contents of the bill apply to existing miners in the Dominican Republic, like Barrick Gold?

Guzmán: Barrick has acquired rights according to the contract that they have already signed with the government, and any changes will require their consent.

BNamericas: What are the most important changes to the tax and royalty structure in the bill?

Guzmán: Before this bill the tax structure has been discretionary. Should an interested party be interested in mining they would offer the government x, y or z percentage, and discuss it and negotiate with the government without a proper [legal] framework.

BNamericas: With companies paying 40% of mining income to the state, will the Dominican Republic be an attractive place for companies to invest?

Guzmán: Economically the viability of any project will depend on the mineral that will be mined. I wouldn't say that now is the appropriate market for exploring for oil or offshore energy because of the low oil prices.

The bill would essentially grant more legal certainty for the investor. We see that as a plus, considering that interested parties in the past, in our experience with past clients, came with an interest in exploring a certain mineral and had to open the table for discussion and negotiation with the government without any benchmark.

With the bill in force you would have a benchmark that at least would allow potential investors to perform a viability analysis before sitting down with the government for negotiations, or taking part in a bidding process.

BNamericas: Do you see the bill as stimulating interest in exploration?

Guzmán: Yes. Right now the two big players we have are Barrick and Falconbridge [owned by American Nickel]. Falconbridge has been investing in the country for about 40-50 years and Barrick for about 10. It has been a while since a big company has gotten interested in the Dominican Republic.

If oil prices go up, exploration and exploitation could be of interest. That could be the next sub-market within mining to develop.

BNamericas: How has feedback been from your clients in regards to the bill?

Guzmán: We did release the information to our clients and we have yet to receive feedback regarding potential interest.

Most of them don't see the oil market developing anytime soon as long as prices don't go up. In other sectors they haven't yet expressed an appetite.

BNamericas: The bill sets out the establishment of strategic mineral reserves (SMRs), where the government will control project development and hand out exploration contracts through a bidding process.

Is there a risk companies could invest in new areas of exploration, only to have their concessions taken away if the government declares the area a SMR?

Guzmán: No one would invest in exploration without access to exploitation afterwards.

The first agreement is yet to be negotiated after this bill, but common sense and legal practice would conclude that that would be the way of executing this in the future.

We have several investment agreements with different companies. To [declare the zone a SMR], those agreements would be in default and the government would be subject to arbitration procedures which would come at a cost. The government would never open itself to these contingencies.

About the company

Guzmán Ariza is a law and business consulting firm. Founded in 1927, the company has seven offices in the Dominican Republic.