Egypt’s economy is the most varied of the Middle East economies, where sectors of agriculture, industry, tourism, and services contribute at almost equal rates in the National Egyptian Economy.
The Egyptian economy is an outcome of successive stages that targeted comprehensive structural economic reforms, especially during the last 25 years, to move towards a market -oriented economy, to liberalise stock market and to encourage the private sector which contributes by more than 70 % in the Gross Domestic Product.
As for investment, Egypt possesses many investment-attracting factors. These factors are: a strong infrastructure of transportation and communication, cheap energy sources, skilled manpower, eligible industrial cities, a strong and secure banking system, and an active stock market, in addition to a climate of political, legislation and economic stability.
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Egypt has a rich mining history dating to the pre-dynastic period 3100 BC. It is reported that 1700 tonnes of Gold were mined between 3900BC - 1977 AD. Egyptian civilization is therefore one of the most ancient civilization which practiced mining and processing of metallic and non-metallic ores. Ancient Egyptians are reported to have quarried the dimensional stones in a very orderly manner to obtain geometrically shaped blocks with exact dimensions to build tombs, temples and even pyramids. (Abouzeid and Khalid (2011)). In 2014, Egypt was Africa’s second-ranked producer of natural gas after Algeria and the fourth-ranked producer of crude oil after Nigeria, Angola, and Algeria. Egypt was also Africa’s leading producer of direct-reduced iron (DRI) and the second-ranked crude steel producer after South Africa. Additionally, Egypt was an important producer of cement, nitrogen fertilizer, and phosphate rock. Metal and mineral based commodities produced by companies in Egypt included aluminum, ferroalloys, gold, iron ore, manganese, secondary copper, and tin. Egypt also produced such industrial minerals as barite, basalt, bentonite, dolomite, feldspar, fluorspar, granite, gypsum, ilmenite, kaolin, limestone, marble, quartz, salt, sand and gravel, sandstone, silica sand, soda ash, sulfur, and talc. The country’s production of fuel minerals included coal, crude oil and condensate, and refined petroleum products (Mowafa Taib (2017)). With respect to Egypt's estimated resources the Egyptian Mineral Resources Authority (EMRA) (See data tab for detailed review) estimates Egypt’s major mineral resources to include 5.0 billion metric tons (gt) of silica sand, 1.25 gt of phosphate rock, 1.0 gt of feldspar, 900 million metric tons (Mt) of iron ore, 224 Mt of nonferrous metals, and 150 Mt of bentonite. With regards to Industrial minerals The EMRA also identified large quantities of limestone (587 Gt), clay (200 Gt), dimension stone (4.2 gt), dolomite (1.2 gt), and gypsum (1.0 gt). Other mineral resources included quartz (60 Mt), ilmenite (40 Mt), nepheline syenite (26 Mt), coal (21 Mt), molybdenum (8 Mt), tin (2.5 Mt), strontium (2.2 Mt), and barite [162,000 metric tons (t)] (Egyptian Mineral Resources Authority, 2014, p. 10, 11). Egypt is a country abound with mineral potential seeking more investment into its natural resource sector and is attracting interest from major mining companies particularly after the country reviewed its mining regulations in 2019. In February 2020 Canada-based Aton Resources (TSXV: AAN) received a mining licence for its Hamama deposit. Another major mine in Egypt is the Sukari Mine which is operated by Centamin (LSE:CEY) this mine is reported to have produced 480, 529 ounces of gold in 2019 according to Centamin.
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Laws and Regulations
On 7th July 2019, the Egyptian Parliament passed law No. 145 of 2019 (The Amendment) amending law No. 198 of 2014 on Mineral Resources (the Existing Law). Amendments to the executive regulation were to follow. The Prime Minister has issued a new executive regulation (ER) officially published in January 2020 (Prime Minister Decree No. 108 of 2020, Gazetted on 14th January 2020, and published 22nd January 2020).
The new regulation appears to eliminate the need for mining companies to form joint ventures with the Egyptian government and to limit state royalties to a maximum 20%. Egypt is hoping that this change in rules will boost investment into the mineral resource sector and has announced plans launch new bidding rounds in 2020. Below are the HIGHLIGHTS OF CHANGES MADE BY THE NEW AMENDMENT
Royalties and Other Economic Aspects:
Under the Existing Law the royalty applied in respect of mines, quarries, and saltworks was a minimum of 5% of the annual ore production, without a cap. Under the new regulations certainty is provided on the maximum amount of royalty by introducing a 20% cap. The executive regulation also provides for royal schedules; for instance the royalty for gold is 5%, phosphate is 10%, zinc is 6%, copper is 8%, iron is 9% and white sand is 18%. Royalty is paid in cash in local currency, by cheque, or e-payment quarterly. Royalty is valued as per the local market prices of the ore at the location of each ore and is determined by a committee formed by the Ministry of Petroleum.
A mining licensee is also required to pay a social responsibility contribution of 1% of the royalty to the governorate in which the mine is located. Under the Amendment such 1% is now to be deducted from the royalty amount. Similarly, for quarries and saltworks the new regulation increases the social contribution to 6% of the royalty, as opposed to the current 1%, which will be deducted from the royalty amount instead of being paid in addition to it.
Under the Existing Law the rental value could only be reviewed every four years but the Amendment allows it to be reviewed every three years by a decree from the Prime Minister upon recommendations from the newly introduced "consultation committee." Article 14 of the Executive Regulation provides that the Ministry of Petroleum will form a consultative committee. The committee will include representatives from EMRA, New Urban Communities Authority (NUCA), Ministries of Petroleum and Natural Resources, Defence, Trade and Industry, Finance and Urban Development, as well as the Egyptian Industries Union, among others. The committee will also be tasked with considering necessary amendments to the Executive Regulation, hearing disputes with licensees, settling the method of measuring the amount and value of extracted production as well as determining resources that may not be exported.
The executive regulation sets out the annual rental value per km². Article 21 of the executive regulation provides for the rental value for mines to be as follows: EGP 5,000 for the first exploration period, EGP 10,000 for the second exploration period, EGP 15,000 for the 3rd exploration period, and EGP 20,000 for the fourth exploration period. The rental value for mines under exploration is EGP 25,000 per km² and for white sand it is EGP 9 per km². The rental value is paid annually, in advance and in local currency.
For mining, a licensee is required to commit to a minimum exploration expenditure equivalent to four times the rent value per each km². Applicants for exploitation licences for mines, quarries, or saltworks are required to provide financial security as a guarantee of their execution of the terms of the exploitation licence as well as to guarantee any sums due to EMRA/Competent Authority, and site restoration obligations. Such security is required at the time of being granted an exploitation licence. The value of the security to be provided will be the equivalent to that of the rent, which for mines (for instance) is set by the Executive Regulation as EGP 25,000 per km². Payment method may be cash, cheque, e-payment, or even a bank letter of guarantee. Letters of guarantee will be returned to the licensee at the end of the exploitation licence and only after final settlement with EMRA/Competent Authority takes place.
Investment Law Incentives:
The Amendment also offers investors within the mining sector the opportunity to benefit from the investment incentives provided by Law 72 of 2017. Investors may choose to set up their licence holding company within the investment areas established by Law 72 of 2017, i.e. the investment law, such as the Golden Triangle Area. By doing so these companies will be entitled to benefit from financial and logistical incentives under the investment law.
The Amendment and the Existing law both provide for the operation of public bodies, which between them have varying regulatory roles in the granting of exploration and exploitation licences for mines, quarries, and saltworks. Under the Existing Law the Egyptian Mineral Resources Authority (EMRA) is defined as the entity responsible for operating and managing mineral resource activities. The Governorate enjoyed the same rights as EMRA in respect of quarries and saltworks within their respective borders. Under the amendment a more streamlined approach is taken by introducing two new terms; a 'Competent Entity' and 'Competent Authority'. A 'Competent Entity' is a public body responsible for operating and managing quarries and saltworks. There are two competent entities in this regard, depending on the location of a quarry or salt work area, the competent entity could be the Governorate or the New Urban Communities Authority (NUCA). This happens to be the first time the NUCA has been entrusted with a role within the regulatory framework of mineral resources. However, the technical supervision of the project is delegated to EMRA. The Amendment provides that with regards to the issue of exploration and exploitation licences the ministry of petroleum is the 'Competent Authority' for mining. The Governor or the Chairman of NUCA is the 'Competent Authority' for quarries and saltworks, depending on the location of the quarry or the saltworks.
A key change introduced by the Amendment and the Executive Regulation relates to the way exploration and exploitation licences will be granted.
Exploration licences are granted as follows:
- exploration licences for precious metals and precious stones will be licenced by the MOP, without the need to issue a law; and
- exploration licences for small mines (less than 1 km²) will be licenced by EMRA's board without the need to issue a law.
Exploitation licences are granted as follows:
- exploitation licences for quarries, mines and saltworks up to 16km² will be issued by the Competent Entity
- exploitation of precious metals, precious stones, as well as mines, quarries and saltworks exceeding 16km² must be licensed by a special law.
The Amendment thus grants some freedom to EMRA (subject to Ministry of Petroleum approval) as to the tendering and contracting terms in a way that is less restricted by public tender laws. It appears that direct awards for mining plots could be used, as long as a special law is issued authorising the Ministry of Petroleum to conclude an agreement with the private mining company.
The 2019 Amendment adds a third optional exploration period for mining exploration licences exceeding 1 km², in contrast to the single renewal period under the Existing Law. Under the new rules, the term of each of the second and third periods is the same as the initial exploration period (two years) with the possibility of having a fourth period, subject to technical justifications that are acceptable to EMRA.
Exploitation licences may be granted for up to a combined total period of 15 years. The Amendment also empowers EMRA with the right to re-offer a mining area with proven economic reserves to a third-party investor, in case the original licensee fails to exploit it. EMRA can also decide to exploit such areas itself or through one of its companies rather than re-offering them to a third-party investor.
Exception to Single Ore Licence
In previous rules the scope of a mining exploration licence would cover only one ore. The Executive Regulation provides for the possibility to obtain an expanded scope, subject to EMRA's approval, in cases where the licensed ore is mixed with another unlicensed ore and it is not possible to extract the licensed ore without the unlicensed one with it. Under such circumstances the licensee must notify EMRA within thirty days of such discovery to discuss an Amendment to the scope of the licence.
Ban on Quarry Licences for Agricultural Lands Relaxed
Under the Existing Law the issuance of exploitation licences for quarries on agricultural lands was prohibited, however the Amendment provides an exception to this prohibition where the approval of the Ministry of Agriculture is obtained. The amendment also expands the scope of the existing law to apply to reclaimed lands.
Under the Executive Regulation full or partial direct assignment is permitted subject to the pre-approval of the Ministry of Petroleum and EMRA.
Certain conditions must be satisfied in order to obtain regulatory approval to an assignment:
For the licensee(assignor):
- fulfilment of all obligations up to the date of submitting the request to assign the licence; and
- payment to EMRA/Competent Authority of an amount equal to twice the amount of the rental value, when submitting the assignment request. This amount appears to effectively be an assignment bonus paid in exchange for the approval to the assignment by EMRA/Competent Authority (Similar to that found in oil & gas concessions)
For Prospective licensee (assignee):
- they must be registered in EMRA's pre-qualified investor registry (the criteria for registration are not provided)
- they must have the required technical and financial capability, subject to EMRA/Competent Authority's discretion;
- they must pay the security determined by EMRA/Competent Authority. This appears to be different to the security amount paid when the exploitation licence is initially granted.
- it must submit a work programme for the remaining period of the licence.
Indirect assignment in the form of a change of control of the shares of the licensee must be notified to EMRA/ the Competent Authority.
Several terms have had their definitions broadened by the Amendment. For instance, the Existing Law defined quarry ores as material used in construction whereas the Amendment provides a precise definition of quarry ores stating that they are construction sand, dolomite, basalt, clay, limestone, granite, and marble of various types. Further forms of mine ores can be added by a decree from the Ministry of Petroleum and Natural Resources.
Source: Sharkawy & Sarhan (sector -focused leading Egyptian law firm)
No information has been provided.