Nationalization, expropriation of assets and requirements to increase local ownership of a project are among the highest risks facing Australians investing in African mining ventures, according to MiningAustralia.

Australian miners and explorers looking to increase their footprint in Africa should work together to push for stabilization clauses in all new contracts, a stakeholder said at the annual Africa Downunder Conference which began Wednesday in Perth, according to a report in MiningAustralia.

Australian stakeholders talked at the conference about huge gas discoveries off the coast of Tanzania and Mozambique, and significant onshore oil finds in Uganda and Kenya.

“Expectations for the hydrocarbons industry across East Africa are high and there is a real hope that discoveries will be commercialized, but there are still many challenges that need to be overcome,” said Gary Gray, a former minister for resources.

Gray said he encouraged Australian businesses to engage with the Extractive
Industries Transparency Initiative — a global coalition of companies, governments and civil society working together to improve accountable management of revenue and openness from natural resources.

“Good governance, transparency and goodwill eventually overcome the maleficent few who may seek to defraud,” Gray said, according to MiningAustralia. “Importantly our combined efforts can do most to ensure efficient and effective resource development for the good of all citizens; it is essential in order to encourage foreign direct investment in African hydrocarbons.”

One of the conference speakers was Rob Edel, head of mining for DLA Piper, a global law firm with 4,200 lawyers in the Americas, Asia Pacific, Europe and the Middle
East.

Australian explorers and miners looking to increase their footprint in Africa’s resource wealth should increasingly push for stabilization clauses in all new contracts, Edel said. Such clauses are fundamental to attracting increased investment in African mining projects.

“Australian miners have to manage the risk of investing in Africa and the optimal way to achieve that is to help contribute to a stable investment regime,” he said.

The main risks to a stable investment environment include changing company ownership requirements, increase in taxes after a project enters the development phase, a licence review which revokes or requires a renegotiation of a mining licence, changed environmental regulations or minimum wage laws, Edel said.

“This could be at two levels,” he said. “Increased state participation or requirements to increase the local ownership content of a project. Nationalisation or expropriation for assets remains the other outstanding top investment risk.”