A democratic government with a mining friendly regime
Located in West Africa, Senegal has an estimated population of 13 million people and a total area of approximately 197,000 km2. Of the country’s population, 94 percent are Muslim and 5 percent are Christian (mostly Roman Catholic). While French is the official language, the Wolof, Pulaar, Jola and Mandinka dialects are also spoken. The capital, Dakar, is on the most westerly point of the coastline of Africa.
Senegal gained its independence in 1960, following about 75 years of French rule. It is a democratic republic governed under multiparty rule based on the French civil law system, making the country a location of choice for many foreign embassies and international banks as the headquarters for the West African region.
Senegal lies within the Sahel, the semi-desert, or savannah region that forms a broad band across Africa between the Sahara desert to the north and the forested countries to the south. The landscape is generally low, rolling plains rising to foothills in the southeast. The climate is tropical, with a hot and humid wet season (May-October) and a dry season (November April) dominated by hot Harmattan winds.
Senegal’s economy is based on agriculture, primarily groundnuts, cotton, grain crops, livestock and fishing; industry, primarily food processing, gold, iron ore and phosphate mining, fertilizer and cement production and downstream petroleum products; and services, which are the main contributor to Senegal’s GDP.
The estimated 2011 GDP breakdown by sector is: agriculture 15.9%; industry 21.7% (minerals industry approximately 20%) and services 62.3%. The minerals industry is responsible for approximately 20% of Senegal’s export earnings. Foreign exchange is also derived from tourism. Agriculture supports over three quarters of the labour force.
Mineral Policy and Legislation
The government is generally pro-mining and passed a new Mining Code in November 2003. Under the Mining Code, appropriate governmental authorization is required to undertake any form of mining activity. In this regard, the right to explore minerals is conferred only by a permit of exploitation or a mining concession.
An exploration permit for mineral exploration activities is granted for a period not exceeding three years, and is renewable. During the exploration phase, the permit holder is exempt from sales tax and duties on imported equipment and supplies necessary for exploration activities, as well as on fuel used for operation of stationary installations.
Following exploration success, the permit holder may enter into a mining contract agreement with the State, which provides the State a free carried interest of 10% of the project. Under the Senegalese Mining Code, numerous fiscal incentives are offered to mining license holders, including a minimum seven-year exemption from income tax, amongst other tax exemptions, and the opportunity to secure a lease of up to 25 years for a major project. All mining activities are subject to a royalty of 5% of the value of the mine site payable to the Government.
Foreign mining companies are allowed to expatriate profits.
Agreement with the Republic of Senegal
The Company signed a definitive global agreement (“Agreement”) with the Republic of Senegal in late May 2013, which was the execution of the long-term comprehensive Agreement in Principle signed in April with the Republic of Senegal. The Agreement includes amendments to the Company's 90 percent held Sabodala Mining Convention, certain of its exploration permits, and also includes a financial settlement agreement that addresses most of the outstanding tax assessments (associated with the years 2007 through 2010) as well as future royalty and other payments to the Republic of Senegal as outlined previously. Collectively, the definitive documentation constitutes a global agreement that sets out a predictable and stable fiscal operating environment for the Company's future investment in exploration, acquisitions and development to increase reserves and production in Senegal.
The Republic of Senegal has agreed to support the Company in its plan for further development, notably:
• Setting a price and formula to allow for the acquisition of the Republic's additional participation option on deposits not on the Company's Mine License and to incorporate these into the Company's existing Mining Convention and fiscal regime;
• Supporting drilling of the Niakafiri deposit on the Mine License;
• Extending the term of our renewable Mine License by five years to 2022 and extending five key exploration licences by a further 18 months beyond current expiry periods;
• Working with the Company to ensure full access to exploration targets currently occupied by artisanal miners; and
• Resolving the Special Contribution Tax of 5% by increasing the royalty rate from 3 to 5%, and prepaying dividends, that are otherwise payable under our mining convention, based on expected performance over the period 2013 to 2015.
The Company has agreed to the following:
• To increase the royalty rate on sales from 3% to 5% effective January 1, 2013;
• During the second quarter of 2013, the Company made a payment of $2.7 million related to accrued dividends to the Republic of Senegal in respect of its existing 10% minority interest. A payment of $2.7 million will be required once drilling activities recommence at Niakafiri. The Company has also agreed to advance a further $8.0 million of accrued dividends to be paid in 2014 and 2015, based on a gold price of $1,600 per ounce.
• The Company is required to make a payment of approximately $4.2 million related to the waiver of the right for the Republic of Senegal to acquire an additional interest in the Gora project. The payment is expected to be made upon receipt of all required approvals authorizing the processing of all ore through the Sabodala plant.
• The Company has agreed to establish a social development fund targeted at $15.0 million, payable to the Republic of Senegal at the end of the mine life.