MINERAL MINING AND TRADE IN UGANDA: WHAT YOU NEED TO KNOW BEFORE BUYING OR SELLING GOLD

Introduction

The available information from the geological investigations carried out over a period of time and the accessible mineral production statistics demonstrate that Uganda is endowed with favorable geological conditions with rich diverse mineral resource base and substantial economic potential. Uganda is endowed with both high value minerals such as gold, limestone, uranium, marble, graphite, gypsum, iron ore, wolfram, nickel, copper, cobalt, tin, earth elements and low value minerals such as construction materials, dimension stones and semi-precious stones.

Surprisingly, like many other developing countries, Uganda’s endowment of natural resources is not translated into equipment levels of prosperity, broad based development and resource based industrialization. It is because of this that countries have come up with legal rules, policies and institutional framework to specify the natural resources,  their ownership, basic terms of use rights, facilitate resource-related transactions, to provide mechanism to coordinate uses and to resolve inevitable disputes. This body of rules is called the natural resource law which, together with the Institutional Framework, is discussed hereunder.

The Legal and Institutional Framework Regulating Gold in Uganda

The laws regulating mining and trading of minerals include the 1995 constitution of Uganda as amended, Mining and Minerals Act Cap 159, herein after referred to as MMA, Minerals (Prohibition of Exportation) Act Cap 15 and Regulations made thereunder.   The relevant provisions in the above mentioned laws shall be referred to later in this article.  

Institutional Framework

1. The Ministry

The Ministry responsible for minerals, is the Ministry of Energy and Mineral Development led by the Minister.  The functions of the Minister for Energy and Mineral Development is among others to mobilize financial and other resources for the management and development of the mineral sector, provide policy guidance, oversight and adherence to standards, be responsible for granting mineral rights, licenses, permits and other authorizations under the    law.            

Directorate of Geological Surveys and Mines

The directorate of Geological Surveys and Mines is responsible for the regulation and management of minerals and Mining activities through the department of geological surveys, department of mines and department of geothermal resources.

The Department of Geological Survey

This department is responsible for the following;

1. The establishment and promoting the mineral potential of Uganda through reconnaissance, exploration, geological mapping, geochemical surveys, geophysical surveys and any other method.

• Collection, management and provision of access to geological data and information from mineral exploration and development operations

• To promote mineral beneficiation and value addition.

• Establish and maintain an accredited mineral laboratory for analyzing mineral samples, rocks, mineral concentrates, tailings or minerals.

• Promote and conduct research and development in the mineral sector.

The Mining Cadastre Department

This Department is established within the Department of Directorate of Geological Surveys and Mines by the Minister   purposely to administer mineral rights and maintain the cadastral registers

Department of Mines

This department is responsible     for;

1. Regulation of mineral rights, monitor implementation of programs, plans and reports, inspect, monitor and audit mining regulations.

• Enforce the provisions of the law to implement the certification of designated minerals.

• Assess and verify mineral royalty and other payments prescribed by the law.

• Mainstream and organize artisanal mining.

• Regulate and manage the impact of mineral activities on the economy, environment and social economic life.

• Facilitate the development of skills and capacity among Ugandans and promote technological development in the mineral subsector.

• Encourage private sector participation in the exploration and exploitation of mineral resources.

• Recommend to the Minister the suspension or revocation of mineral rights as a result of inspections and monitoring.

1. Develop and observe internationally accepted standards of health, safety, environmental protection and the protection of human rights in the mineral subsector.

Uganda National Mining Company

The Mining and Mineral Act establishes Uganda National Mining Company herein after referred to as UNMC registered under the Companies Act but wholly owned by the State to manage Uganda’s commercial holding and participating interests of the State in mineral agreements. See Section 20 of the MMA.

The functions of UNMC are;

To manage the state’s strategic commercial interests in the mineral subsector, to optimize value to its shareholders, to participate in accordance with the terms of mineral agreement in joint ventures in which it holds an interest on behalf of the state, to participate in meetings of the operating committees in furtherance of its participation in the respective joint operating agreements, study and propose new mining ventures locally and internationally and to undertake the exploration and mining operations in the best interest of the state where private entities are unwilling to do.  

Local governments

The local governments are required to integrate publicly available mineral deposit information provided by the Directorate into their development plan and participate in the implementation of mining policies, laws and mineral related activities in collaboration with the directorate. Monitor and regulate the exploitation of minerals in collaboration with the Directorate, create awareness of mining activities within their areas of jurisdiction, facilitate dialogue between the local communities or project affected persons and mineral right holders, participate in the resolution of disputes arising from mineral related operations in collaboration with the directorate and to receive reports and plans of the companies operating in their jurisdictions every six months.

The local authorities also serves as facilitators for negotiation and implementation of community development agreements with mineral right holders.

Ownership of Minerals

The entire property in and control of all minerals in or under any land or waters in Uganda are vested in the government of Uganda notwithstanding any right of ownership of or by any person in relation to any land in, on, or under which such minerals are found. The government of Uganda holds mineral rights on behalf of and for the benefit of the people of Uganda.See Section 8 of MMA.

Thus while under article 237 of the 1995 Constitution land in Uganda belongs to the citizens of Uganda, the government may through laws made by parliament and policies made from time to time regulate the use of land. See Article 242 of the Constitution.

According to article 244, the parliament required to make laws regulating the exploitation of minerals arising from mineral exploitation and it is on this background that the Mining and Mineral Act was enacted vesting all minerals in the government of Uganda.

Prohibition of Unauthorized Activities

The law prohibits any person from prospecting, exploration, mining, processing, refining or other beneficiation operation without an authorization, license, lease, permit or approval granted in accordance with Mineral and Mining Act, National Environment Act or any other written law.

Acquisition of a Mineral Right

A mineral right means a right to prospect, explore or mine for minerals, under a prospective license, an exploration license, a retention, a large scale mining license, an exploration license, a medium scale mining license, a small scale mining license, or an artisanal license. Thus a person who wishes to do any of the above has to apply and acquire a mineral right if he or she wants to prospect, explore, retain mine and dispose of any mineral in Uganda.

Mineral Agreement

The MMA gives power to the Minister to enter into an agreement with any person with respect to any matter relating to or connected to with operations or activities under an exploration license or a large scale mining license in respect of highly capitalized and complex projects.

An Application for exploration license is received by the Director who then submits the same to the Minister for consideration and grant and shall be considered on a ‘first come first serve’ basis.

Prospecting license

To prospect means to intentionally search for minerals and mineral deposits. An application for prospective license is made to the Minister and must be accompanied by;

Name and nationality of each individual making the application, the registered name and place of incorporation in respect of the company, a certified copy of the certificate of incorporation, memorandum and articles of association, names and nationalities of the company directors and the name of every shareholder who is a beneficial owner of five percent or more of the issued share capital, profile of the company and history of prospecting, statement giving particulars of the technical and financial resources available to the Applicant, details of any mineral right held within Uganda by the applicant or by any person controlling, controlled by or under joint or common control with the applicant and proof of payment of prescribed fees.

Grant of the prospecting license by the Minister

The Minister may grant the prospecting license or reject the application. Where the Minister rejects the Application, he or she must give the Applicant a statement in writing of the reasons for the rejection. A prospecting license is valid for a period of one year and is not renewable.

Rights of a prospecting license holder

The holder of a prospecting license, the employees, servants or agents of the holder of prospecting license have a non-exclusive right to carry on prospecting operations for any mineral.

Obligations of holder of a prospecting license

• To carry on prospecting operations in accordance with the license.
• Conduct prospecting operations in an environmentally and socially responsible manner.
• Submit to the Minister quarterly, or at such other intervals as may be prescribed by the Regulations, geological and financial reports and any other information.
• Report any mineral discovery to the Minister
• Remove or before expiration of the prospecting license, any camps, temporary buildings or installations which may have been erected.
• Repair or make good any damage caused to the surface of the land to the satisfaction of the Minister and the National Environment Management Authority
• Compensate users of land for damage to the land and property, where applicable and
• Pay the fees prescribed by the law.

Minerals obtained during prospecting

The minerals obtained during prospecting under a prospecting license shall be the property of the government except for such reasonable quantities as may be prescribed by law stating the kind and quantity of minerals in respect of which the application was made.

The Minister may if satisfied that it is reasonably necessary to enable the holder of a prospecting license to test the mineral bearing qualities of the land on which the license holder is prospecting, authorize in writing, the license holder to retain any such minerals upon payment of prescribed royalties.

Exploration License

To explore means to define the extent and determine the economic value of the minerals.  An application for an exploration license is made is made to the Minister. The Application must comply with the National Environment Authority Act in as far as protection of environment is concerned.

The Mining Cadastre Department is required to process an application for an exploration license expeditiously and in any case, not later than 30 days upon receipt of the Application and submit to the Minister recommendations for a decision.

Grant of an exploration license

The Minister may grant an exploration license with or without a conditions and the approved program of exploration operations must be attached to the license. Where a Minister refuses to grant an exploration license, a statement in writing of the reasons for the refusal must be given to the Applicant.

Duration and renewal of an exploration license

An exploration license shall be valid for a period not exceeding four years from the date of grant of the exploration license.  The holder may three months  before the expiration of the license, apply for renewal of the license in respect of the exploration area which may be renewed for a single period not exceeding three years.

Rights of a holder of exploration license

An exploration license confers on the holder the exclusive right to carry on exploration operations in the area of land and for the mineral to which the license relates.

Exploration area

The area of land in respect of which an exploration license may be granted must not exceed two hundred fifty square kilo meters though a person may hold more than one exploration license, in which case there shall be no amalgamation. 

Retention license

It is only a holder of an exploration license that can apply to the Minister for a retention license on the grounds that the holder of an exploration license has identified a mineral deposit within the exploration area which is potentially of commercial significance and that the mineral deposit cannot be developed immediately due to adverse market conditions, economic factors or other factors beyond reasonable control of the holder of an exploration license, which are of a temporary nature.

A holder of an exploration license can apply for a retention license at least three months before the expiry of the exploration license.  

Upon the Minister’s satisfaction that commercial development of a mineral deposit is not possible for reasons stated in the application for a retention license but may be possible within a period of three years from the date of application, can grant a retention license to the Applicant over that part of the exploration area.

Rights conferred by the retention license

A holder of a retention license has an exclusive right to apply for a mining license over the area in respect of which the retention license has been granted.

Mining License

The holder of an exploration license or retention license can apply for small scale, medium scale or large scale mining license at least 60 days before the expiry of the exploration license or retention license.

Large Scale Mining

An application for large scale mining is made to the Minister. The application has to be advertised in the gazette, newspaper of nationwide circulation and electronic media.

In addition to other accompanying documents, an applicant has to submit together with the Application, written proof that he or she has obtained surface rights from the land owner of the area he intends to mine.   

Upon receipt of the Application, the Minister is enjoined to forward the Application and the accompanying documents to the Mining Cadastre Department for review and verification that the Application meets the requirements of the law and that the Applicant has secured the surface rights of the Mining area applied for.

Upon reviewing the application, the Mining and Cadastre Department is enjoined to make recommendations to the Minister whether to grant or reject the Application.

Upon receipt of the recommendations, the Minister may grant the large scale mining license on such terms and conditions as may be prescribed by law or reject to grant the license and inform the Applicant in writing the reasons for refusal.

Duration of a large scale mining license

The duration for a large scale mining license has to be stated in the license and must not exceed 21 years or the estimated life of the mineral body proposed to be mined whichever is shorter.

Large scale mining license may be renewed in respect of all or part of the mining area provided that the application is made fifteen months before the expiry of the license.

Medium Scale Mining License

A person who wishes to carry on medium scale mining operations has to apply to the Minister. The Applicant must be a joint venture or partnership duly registered in Uganda and consisting of Ugandan citizens and foreigners or a company incorporated in Uganda.

Upon receipt of the application, the Mining Cadastre Department reviews and makes recommendations for grant or rejection of the application to the Minister who may then grant the medium scale mining license applied for on such terms and conditions as the Minister may determine or refuse to grant the application in which case, the Minister informs the Applicant in writing giving reasons for refusal. 

Size of area covered by medium scale mining license

The surface area covered by a medium scale mining license has to be demarcated by the shape of the ore body not exceeding fifty square kilometers and must be located entirely within the area for the exploration licenses or retention license or licenses which belong to the same holder, from which it derives.  

Rights of holder of a medium scale mining license

The holder has a right to enter the mining area to which the medium scale mining license relates and has an exclusive right to explore and mine in that area and has a right to remove and dispose of the mineral in respect of which the license was issued. A holder of a medium scale mining license also has a right to sell minerals won in a manner prescribed by the law.

Small Scale Mining License

An application for small scale mining license is made to the Minister by an individual who is a Ugandan citizen, a cooperative society or associations registered under the laws of Uganda comprising of Ugandan citizens only, a partnership registered in accordance Partnership Act comprising of Ugandan citizens holding 100% of the shares or a company registered and incorporated under the Companies Act and having 100% of its shares held by Ugandan citizens.

The duration of a small scale mining license is a period not exceeding five years renewable on an application made to the Minister for such further period not three years at a time.

Artisanal mining

Artisanal mining is the rudimentally mineral extraction and processing that is continuous or seasonal, carried out by individuals or groups of individual, primarily and exclusively using manual labour and manual tools carried out at a single site or multiple sites and focused on producing mineral products that are primarily delivered or sold to traders in those mineral products, local artists and craftsmen or builders acting within the national economy.

Establishment of artisanal mining area

The law allows the Minister, in consultation with the Directorate to establish artisanal mining area, if due to the features of certain deposits of gold, diamonds or any other mineral substance, technical and economic factors do not allow large scale, medium scale, and small scale mining but allow artisanal operations.

An application for artisanal mining license is made to the Minister by an individual who is a Ugandan citizen, a cooperative society, trustee or association registered or incorporated under the laws of Uganda comprising of Ugandan citizens exclusively, a joint venture or partnership registered in accordance with the partnership Act and comprising of Ugandan citizens, a business registered under the Business Names  Registration Act and exclusively owned by Ugandan citizens or by a company registered or incorporated in Uganda and having 100% of its shares held by Ugandan citizens.

General Prohibition for value addition and beneficiation of minerals

The law prohibits any person from processing, smelting, refining, cutting, blasting, polishing or trading in minerals or possessing commercial quantities of mineral without a license issued by the Minister. Section 120 and 121 of the MMA.

License for Beneficiation

The Minister may license integrated projects to process, smelt, refine, cut, blast, polish and trade in minerals or grant a license for a combination of two or more of the projects.

The Application for a license for beneficiation must be made by a person who is at least 18 years, citizen of Uganda and whose principal place of residence is Uganda or an entity registered or incorporated under the laws of Uganda.

Mineral Processing License

According to the Section 3 of the MMA, mineral processing means procedure, such as dry and wet crushing, leaching, grinding and separation of minerals or other products containing minerals, to raise the concentration of the substance mined and includes beneficiation. Any person who wants to do any of the aforesaid activities has to apply for a mineral processing license to the Minister.

The duration for a mineral processing license is for a period not exceeding five years, renewable for three years at a time.

Mineral Smelting Licence

Smelting involves the extraction of metal from its ore by a process involving heating and smelting.

An application for mineral smelting is made to the Minister who may grant the license for a period not exceeding fifteen years which is renewable for a further period of 10 years at a time.

Mineral refining license

An application for a mineral refining license is made to the Minister and the applicant must demonstrate technical capacity to operate a mineral refinery facility including having at least five years’ experience in the operation of a mineral refining plant or an agreement with a technology provider to install, test and commission a refining plant and train technicians to operate the mineral refining plant.

Buying, selling and dealing in minerals (gold) in Uganda

The law prohibits anyperson from selling either as principal or as agent any mineral unless he or she is a licensed mineral dealer. A licensed mineral dealer must buy mineral in the course of his or her business from a person who acquired his or her minerals lawfully and in accordance with the law.

The Application for a mineral dealer’s license is made to the Minister and must contain information pertaining to the type of minerals to be traded, storage facilities for the minerals, office location, the proposed plan or arrangement for the marketing, buying and selling of the minerals and financial and technical resources available to the Applicant.

Every mineral dealer’s license expires on the 31^st day of December in the year it was granted.

Goldsmith license

The law prohibits any person from manufacturing any article from any precious mineral or from any substance containing any precious mineral unless such person has obtained a goldsmith’s license. 

A goldsmith’s license shall continue in force until December 31^st of the year in which it is granted or renewed.

Retail Shopkeeper

The Minister may authorize any retail shopkeeper to sell articles partly manufactured from precious minerals without being licensed as a goldsmith if the shopkeeper satisfies the Minister that the selling of such articles shall not constitute the sole or principle portion of his or her business.

Export and Import of Minerals

The law prohibits any person from exporting or importing any mineral in Uganda without an export or import license respectively and the person who exports or imports without a license commits an offence.

Protection of the Environment

The Mining and Minerals Act under Section 4 enjoins every person involved in mining and minerals operations to take into account and give effect to the principles and safeguards of environmental management as prescribed by the National Environment Act and other written law relevant to the protection and preservation of the environment.

Therefore, the 1995 Constitution of Uganda, the Mining and Minerals Act and National Environment Act require holders of mineral dealers’ license to carry out their work and or operations in compliance with the National Environment Act.

National Content

Uganda has come up with legislations that impose local content obligations on a person or entity utilizing Uganda’s natural resources, minerals inclusive. The Mining and Mineral Act has provisions relating to recruitment and training of Ugandan Citizens, employment of Ugandans, transfer of technology and priority to goods and services available in Uganda.

Recruitment and training of Ugandan citizens

Any mineral right, license or permit issued or granted to the holder must include a commitment by the holder to maximize knowledge transfer to Ugandan citizens and to establish in the country, management and technical capabilities and any necessary facilities for technical work.

Employment of Ugandan citizens

A mineral holder, license, contractor or subcontractor is required to employ ad train Ugandan citizen and implement a succession plan for the replacement of expatriate employees.

Priority of goods and services available in Uganda, EAC and the African Union.

The holder of a mineral right, licensee, contractor and subcontractor must give preference to goods which are produced or availed in Uganda and services which are rendered by Ugandan citizens and companies owned by Ugandan citizens.

Where the goods and services are not available in Uganda, the mineral rights holder, licensee, contractors and subcontractors may source the goods and services from within the East African Community or a member state of the African Union.

Technology transfer

A large scale, medium scale, or small scale mining license, other licenses or permits shall include a commitment by the holder to maximize technology transfer to Ugandans and to establish in Uganda, management and technical capabilities and any necessary facilities for technical work.

Conducting due diligence before buying gold

Being endowed with minerals including gold, there has been a growing interest from foreign parties desirous of investing in gold and other mineral transactions. Most of the foreign people are not well conversant not only with the market dynamics of Uganda but also the legal requirements. It is because of this that the majority of fraudulent gold transactions in Uganda involve foreign parties causing loss of significant sums of money. This discourages the-would be investors in the mineral sector in the country.

The ordinary principles of contract law apply to gold and other mineral transactions in Uganda. Therefore, principles such as ‘buyer be aware’ equally apply to mineral/gold transactions in Uganda. In addition, Uganda also has laws peculiar to mineral transactions in Uganda which among others include, the Mining and Minerals Act Cap 159, Minerals (Prohibition of Exportation) Act Cap 158 and Regulations made there under.

Given that mineral transactions involves huge sums of money and several legal requirements, it is prudent that buyers and sellers conduct thorough due diligence especially with the assistance of a lawyer. Unfortunately, buyers normally seek legal assistance after the transactions have hit a snag and most of the times, it is too late to remedy the transactions.

Nature of due diligence

The Mining and Mineral Act, which is the law regulating mineral transactions in Uganda sets down several requirements for one to deal in minerals in Uganda. It is therefore important to seek legal assistance to ascertain whether such requirements have been met.  Due diligence ought to be conducted to verify the seller’s credibility, whether the seller is a licensed mineral dealer, whether the gold was acquired lawfully, whether the relevant seller is an individual or legal entity, whether the entity is lawfully incorporated in Uganda, the composition or shareholding of such legal entity and whether the relevant royalties and taxes have been paid.

As an attorney specializing in mineral transactions, I am always hesitant to advise prospective buyers to part with their money before conducting thorough due diligence.

Contributor: KASINGYE STUART

Stuart is an Energy & Natural                                       Resources’Lawyer  

Tel:              +256785348742

                    0200946889

Email:          skasingye@gmail.com