Mining Institutions


2. Key issues for governments

Implementing national economic policy through institutionsKansanshi Mine, Zambia -- 20% owned by ZCCM-IH

Government chooses a type of mining institution that reflects its economic policy direction. If a country has nationalised its mineral resource development, it has a high degree of involvement in the mining sector. In this type of jurisdiction, there is usually a state-owned mining company established. This company is often structured very much as a private sector mining company would be, but the government is the single shareholder. In some cases, the mining company may partner with the private sector to operate the mining project jointly. However, in these instances (such as ZCCM, the former Zambia Consolidated Copper Mine), the majority share is owned by the government.

When the Zambian government chose to shift its nationalisation policy to one of private-sector led growth, ZCCM privatised in 2000. The company changed its structure to become an investment holding company that ceased direct involvement in mining operations. However, the corporation still holds shares of government equity in the country’s mines. It is now incorporated as ZCCM-IH, and provides a number of services to mining companies. These services include assistance with environmental impact assessments and other regulatory functions. Therefore, although it is not a regulatory institution, it supports government agencies charged with regulating the copper mining industry in Zambia.

South Africa is another country that has shifted its economic policy and has refocused its mining institutions to implement this policy. When the government decided to vest the ownership of minerals in the state after decades of mostly private ownership under the former National Party, it had to re-design its institutions to meet this policy objective.

When companies owned land and the minerals underneath, they had considerable freedom to develop these resources in the way that suited their corporate objectives. Hence, the mining regulator was quite modest in size and scale. It was mostly only in charge of licensing and inspecting mining operations.  Following the election of the new African National Congress government, new mining legislation was promulgated in 2004 to vest minerals in the state. The new Petroleum and Mineral Resources Development Act (PMRDA, 2002) also included significantly new requirements for employment equity, community development, and management of social and environmental impacts. The mining institution had to expand and add new skills to its former licensing and inspecting responsibilities to meet the socio-economic development objectives of the African National Congress government.

Attracting investment by good governance

Many developing country governments would prefer to develop their mineral resources through domestic, locally owned exploration and mining companies. These governments may believe that international mining companies may be able to structure their mining agreements in such a way as to minimize the tax revenue that governments receive from the extraction of mineral resources. Or the way a country develops its mineral resources can become a political issue, with advocates of foreign direct investment into large scale mining ventures on one side of the argument, and proponents of domestically owned, smaller scale mining development on the other.

Most developing countries that have mineral resources want to develop them as quickly as possible, and at as large a scale as possible, despite undercurrents of “resource nationalism” that may exist in the political economy of the country. Governments know that developing strong institutions is part of a country’s good governance strategy and is critical to investment attraction.

Independence in institutions

If governments do pursue a policy of FDI into the mining sector, they know that companies will do country risk evaluations of different jurisdictions competing for mineral investment. The key area of concern is fairness in the licensing process. Companies spend significant funding and preparation applying for exploration or mining licenses. They need to know that government will award licences according to the law, and not according to political economy influences. As noted earlier, one way to attract foreign companies is to provide a degree of arm’s length between the licensing body and the rest of the mining department.  Separating out the licensing function into an authority or an agency is one way to do this.

Another way that institutions can fortify their good governance is to create multi-stakeholder mining advisory boards. These boards have government and non-government members and as a group decide on the allocation of exploration and mining licenses. The recommendation of the group is then forwarded to the minister responsible for mining. It should be difficult for the minister to reject the recommendation of his board. A process must be put in place to ensure that these recommendations are not easily reversed. The Minerals Advisory Board requirement and decision-making conditions contained in the Sierra Leone Mines and Minerals Act (2009) is an example of this model.

Coordinated institutions

A country that has mineral resources needs an institution that can identify these resources in a format that can be easily understood by exploration and mining investors. A Geological Survey is usually responsible for the production of geological data. Some countries, such as Botswana and South Africa, structure their geological surveys like parastatals. This means that they are still government agencies, but they have a cost-recovery component to their work. Along with contracting their services to other levels of governments, such as municipal planners, they can offer geoscience support to other countries. These activities assist these institutions to be self-funded. As a scientific research council, the South African Council for Geoscience promotes geoscience research and knowledge, and provides specialised geoscientific services all over Africa.

Other countries mandate their geological survey to receive, manage and monitor exploration licences. This type of arrangement can work effectively if the jurisdiction’s mining department is not well resourced, or if the two institutions are located in the same building compound and communication between the two organisations is formalised. However, sometimes the geological survey is under the responsibility of another ministry such as in Cameroon. In that country, the Ministry of Scientific Research and Innovation is responsible for geological information. This arrangement means that coordination of support to the mining industry can be fragmented and uncoordinated. In other countries, the geological survey is located in a different city. In Tanzania, for example, the Geological Survey is located in Dodoma and the mining regulator is headquartered in Dar es Salaam. Governments that set up their institutions need to be mindful that ease of access to mineral related information and coordination between mining institutions are key to facilitating mining investment in the country.

Cutting edge institutions

Countries that have a mature and well-functioning mineral industry such as South Africa, sometimes create research institutions to support innovation in sectors across the economy, but also specifically in mining and mineral processing technology. South Africa has two such institutions. MINTEK, created in the 1930’s to support a fledgling mining sector provides mineral processing and metallurgical engineering products and services to industries world-wide. And the Centre for Scientific and Industrial Research (CSIR) is a scientific and technology research, development and implementation organisation that supports all industrial sectors in South Africa. It undertakes directed research and development for socio-economic growth.  

Innovation in science and engineering {CSIR, South Africa}The Centre for Mining Innovation, is a mining specific organisation under CSIR.  The mining industry is one of the economic sectors CSIR prioritises given the role of mining in the South African economy.

Some developing countries have not yet developed their economy to the extent that they can create research and development institutions. But these organisations can provide important technical information, laboratory and mineral assessment and processing services particularly to a domestic mining sector that may not have access to international expertise.

Institutions that support marketing

Some countries have created institutions that provide a market for mineral products. These products are often produced by artisanal or small scale miners since larger companies usually have well established markets and buyers already. For example, Ghana has created The Precious Minerals Marketing Company a state-owned mining company that has offices and agents located in all small scale gold and diamond mining areas of the country.  The mandate of the PMMC is to buy and sell precious minerals, to appoint licensed buyers for the purchase of precious minerals produced by small-scale miners, to export gold on behalf of third parties for a commission, and to promote the development of precious minerals and the jewellery industry in Ghana.

The creation of a state-owned company that supplies a buyer for artisanal and small scale mining products is an important good governance structure. The PMMC provides a formalisation mechanism that encourages artisanal and small scale miners to be part of the legal regulatory system that governs mining in Ghana. The country has had to cope with significant conflicts between ASM and large scale mining operations. The creation of this institution that provides a formal market for ASM products that are legally produced has been a way to achieve some control over the trade aspect of this sub-sector.

For more information on ASM, consult the Extractives Hub Artisanal and Small-scale Mining (ASM) topic.

Human resource capacity

The ability of different types of mining institutions to carry out their functions effectively depends on human resource capability.  Does the institution have enough staff? Do employees have the qualifications and experience to be able to carry out the mandate of the organisation? For many developing countries, human resource capacity can be the key issue in determining how strong the institution will be.

Many public services in the developing world are hampered by low salaries. In the mining industry, professional geologists and mining engineers are usually much better compensated in the mining industry as opposed to a governmental mining department. So, attracting and retaining professionals can be extremely challenging.  Some countries may not have the tertiary educational facilities to train geologists, economists and engineers.  These countries may have to send students overseas and provide financial assistance for this training. Botswana provides free education for students wishing to attend international mining universities. The country has had problems bringing some of these highly trained graduates back to the country, however. Sometimes the mining industry provides financial support to government to enable the creation of mining schools. The Engineering School at the University of Witwatersrand has had a long history of support from the Chamber of Mines.  

One of the major reasons that a government may decide to remove the licensing (and other regulatory functions) from a department of mines into an independent authority or agency relates to salary issues. The usual salary scales imposed by public services no longer apply to an institution that has a different status than a government institution.

Systems to support institutional mandates

Institutions need people and people need workable systems to do their jobs effectively. Modern mining organisations increasingly are relying on computerised systems to manage mining from “cradle-to-grave”:

  • The advent of computerised mining cadastres that record details of exploration and mining licenses using a GIS (Geographical Information System) approach has lessened the possibility of transactional irregularities or human error. These systems have improved the speed of licence approvals and renewals.  These cadastres are often available online to the public at all times, and allow for an interactive approach between licence holder and government. There is significantly greater transparency in the allocation of licenses when countries use these systems to support their licensing regime. This can result in a better international risk profile for mining investment.

  • Digitised geological databases add considerably to the country’s geological knowledge. These databases are created in part from the inputting of geological information included in exploration and mining company reports. When this type of information is compiled electronically, companies feel that their geological data is more secure than if paper files are passed from office to office, or worse, “lost”.

  • Environmental impact assessments that are available online can be distributed and available to a wide range of stakeholders. Even more importantly, the EIA can be an interactive document that is up-dated as mining progresses, and stakeholders can keep track of these evolving conditions over the life of mine. 
  • Computerised financial management systems have allowed Finance departments to receive and analyse mining company tax returns more efficiently. Debt collection is easier as information on tax payers becomes increasingly available online.

 However, the reliance on computerised systems also means that developing country governments must provide mining institutions with a consistent power source and reliable internet connectivity. The absence of this “soft infrastructure” can mean the difference between a strong institution and a weak one.

Physical infrastructure

Physical assets have a tremendous effect on institutional strength. This is an aspect of good governance that is often overlooked. Sometimes government will spend all their resources on developing a strong regulatory framework and even on in-depth training and development of staff.  But it is very difficult for employees to perform their duties if they are housed in inadequate buildings, with poor lighting, cramped office space, non-functioning elevators, unsafe staircases, no air conditioning and few or no computers.

Quite often the division in charge of inspection lacks sufficient vehicles or petrol to undertake field visits to mine sites for monitoring. Equally, the authorities responsible for monitoring environmental, social and labour compliance often lack the necessary vehicles or technical equipment.

The national capital of many developing countries usually receives considerably more funding and resources than do provincial, state or regional offices. Hence, the problem of inadequate physical infrastructure is often more acute in these outlying offices.

Governments need to ensure that their institutions are provided the necessary physical tools to fulfil their tasks, otherwise a well-constructed regulatory framework will be almost impossible to implement.

Clarity of roles and responsibilities

One of the key issues in building the strength of mining institutions is clarity of roles and responsibilities of all government agencies charged with some aspect of regulating the mining industry. Usually the divisions within the mining authority (licensing, inspection, policy and promotion, geological services) have clearly defined responsibilities, but not always. Sometimes, one of the divisions in a mining institution becomes splintered off somehow and starts to create its own mandate that may overlap with the formal organisational arrangements. Such was the case in Cameroon with CAPAM, a small scale mining project that grew to become a semi-autonomous institution that had its own geological mapping services, inspection team and other functions that duplicated the functions within the government’s mining department. The organisation has achieved considerable success in organising small scale gold miners, creating partnerships with them, and developing productive mining projects. However, CAPAM became very high profile and almost a department within itself.

It was difficult for the formal mining regulator to exert managerial control over the project and bring it in line with the mining institution’s formal organisational arrangement. There were complaints of environmental damage, illegal trading and other issues that resulted from artisanal mining. These impacts highlighted the sometimes contradictory roles of CAPAM and the mining regulator.

Most often, however, the issues around lack of clarity around mandates occur between the mining regulator and the environment regulator, the authority responsible for labour issues. These issues sometimes have to do with inspection responsibilities. Who is responsible for reporting an accident or a spill at the mine site? Sometimes these responsibilities are shared formally through a Memorandum of Understanding. Other times, they are “unwritten rules” and the officers in the various related departments end up sorting out the division of responsibilities between themselves.

Without formal decisions around the sometimes overlapping responsibilities, it is difficult for governments to fulfil their formal mandates clearly and through the correct institutions.