September 27, 2023
Over the past decade, the government of Ghana has passed local content laws covering various sectors of the Ghanaian economy. The aim of the various local content legislation is to promote local content and participation through local equity, expertise, goods and services, businesses and financing: thereby ensuring the retention of economic benefits arising from these industries to the country and its citizens. Although the mining sector has always had local content requirements in various legislation, the government recently consolidated these requirements and introduced new local content and participation requirements for the mining sector by the passage of the Minerals and Mining (Local Content and Local Participation) Regulations, 2020 (L.I. 2431) (LI 2431). LI 2431 aims to encourage the involvement of Ghanaian citizens and companies in the mining industry. This briefing will focus on the listing requirement introduced for mining companies in Ghana.
LI 2431 requires mineral rights holders (Mining Companies) to list at least 20% of their equity on the Ghana Stock Exchange (GSE).[1] This requirement applies to Mining Companies whose planned expenditure exceeds a determined limit within five years after the commencement of mining operations.[2] Further to this requirement, the Minerals Commission (MinCom) and the GSE have developed draft guidelines (the Draft Guidelines) to, among other things, prescribe the limits of capital expenditure, which when met, would trigger the listing requirement under LI 2431.
Under the Draft Guidelines, the listing requirement would apply to Mining Companies that have been in operation for over 5 years. The Draft Guidelines set the threshold of capital expenditure at US$ 100,000,000.
Accordingly, any Mining Company that has been operating for more than 5 years and whose planned capital expenditure for ensuing years matches or exceeds the US$ 100,000,000 threshold would be required to list at least 20% of its shares on the GSE in accordance with LI 2431.
To determine the capital expenditure of Mining Companies, Mining Companies are required to annually assess a forecast of their planned capital expenditure over a period of 5 years with a prescribed start date of 1 January of the ensuing year. The assessment must be submitted to Mincom by March each year. Once a Mining Company’s planned capital expenditure meets the prescribed threshold, the Mining Company must submit to MinCom a plan for listing on the GSE (the Listing Plan).
The Draft Guidelines propose two methods for achieving the listing requirement. The options are to either
- list the shares of a local Mining Company or;
- list the shares of the parent company of the Mining Company which is already listed on an approved stock exchange i.e., through a dual listing or a cross-listing.
A Listing Plan must, therefore, indicate the proposed method the Mining Company chooses to satisfy the listing requirement.
Following submission of the Listing Plan to MinCom, the Mining Company must complete the listing within 24 months or obtain an extension from the sector minister with the prior approval of MinCom and supported by reference letters from the GSE and the Securities and Exchange Commission (SEC). If a listing is completed but the 20% share subscription is not met, the Mining Company may seek a waiver from the GSE and provide a roadmap to meet the 20% requirement within 3 years.
Comments
From our review, we note that the Draft Guidelines depart from LI 2431 on the applicability of the listing requirement. Under LI 2431, the listing requirement is stated to apply “within five years of commencement of mining operations”.[3] This means that the requirement to list is only applicable within the first five years after a Mining Company has commenced operations – implying that mining companies that have been operating beyond five years are not required to list. In our view, however, this interpretation does not seem to reflect the legislative intention behind LI 2431 considering that the country's most significant Mining Companies would be excluded from the listing requirement. A purposive interpretation of LI 2431 that applies the listing requirement to all Mining Companies operating in Ghana as long as the set threshold is met is, therefore reasonable. To this end, the Draft Guidelines construe the listing requirement as applying to mining companies that have been in existence for more than 5 years. Thus, under the Draft Guidelines, Mining Companies that have been in operation for more than 5 years will be required to list whenever they meet the threshold of capital expenditure. It is likely, however, that the industry would oppose the application of the listing requirement to all Mining Companies (i.e., to cover Mining Companies that have been operating for more than 5 years) on the basis that the Draft Guidelines’ purported expansive application of the Listing Requirement contravenes the express language of LI 2431. It may, therefore, be necessary to amend the Listing Requirement under LI 2431 to make its scope of application clearer.
Secondly, the Draft Guidelines require that the minimum 20% shares are issued to “Ghanaian Investors”. LI 2431 does not expressly limit participation in the listing of shares in Mining Companies to Ghanaian investors. Though the limitation of participation to Ghanaians seems justifiable on policy grounds, it will be difficult to implement. While this limitation could work at the level of the primary market (i.e., at the listing stage), it is not clear to us how it would be implemented in the secondary market. Holders of the listed shares are not restricted as regards the nationality of persons they may trade with on the stock exchange. Limiting trading in the secondary market in this manner, will significantly undermine the liquidity of the shares and ultimately the value of the shares held by Ghanaian investors. We hope that MinCom will revise the Draft Guidelines to make it clear that trading in the secondary market will not be limited to Ghanaian investors.
[1] Minerals and Mining (Local Content and Local Participation) Regulations, 2020 (L.I. 2431), regulation 13
[2] ibid
[3] Id, regulation 13(2)
