Insight: How mining companies can mitigate risks arising from a coup d’état 

Coups d’états are on the rise in Sub-Saharan Africa. Since 2020, military coups (attempted or successful) have occurred in Mali, Chad, Burkina Faso, Guinea, Sudan, and most recently, Niger. The increased political instability can have significant adverse impacts on projects operated by mining companies.  

Unstable political environments can be extremely challenging for mining companies who face a myriad of risks that could potentially deprive them of their ability to operate, control and reap the benefits of their investments.  

This article proposes to explore the legal rules of engagement available to mining companies by outlining the various types of risks that arise from a sudden regime change, and by offering strategies to anticipate and mitigate impacts on their investment.  

Risks arising

Security risk. The most immediate threat to a mining project during a coup d’état is the security of the mine. The physical security of the mining camp, the employees, materials on site, and the transport of minerals to the point of export are potential targets of fighting between the existing regime and the perpetrators of the coup. 

Sanctions Risk. In times of instability and in an effort to apply maximum pressure on the perpetrators of the coup, the international community and the surrounding states could also decide to impose sanctions not only on the new regime but also on the host state as a whole. The most common type of sanctions in these situations includes the closure of borders by surrounding states, a halt to financial transactions, and a freeze of assets of the host state. These sanctions can have an indirect but significant impact on the ability of mining companies to operate in the host state. Consequences could range from the restrained ability of mining companies to import equipment and materials necessary for mineral extraction, the inability to export the minerals abroad, or the mining company being unable to access its own assets or even repatriating foreign currency abroad. 

Adverse regulatory measures by the new political leadership. During or after a coup, a mining company operating in the host state could be targeted with a variety of measures from the new regime, which could directly hinder its ability to operate and enjoy the benefits of its investment. For example, if the mining company’s home state is not a supporter of the new political leadership, adverse measures by the new regime could include withdrawal or cancellation of the mining concession; frivolous judicial actions targeting the mining company’s employees in the host state (e.g. exorbitant tax demands; harassment and arrest of the management on the ground); seizure of the mining company’s assets (such as the equipment on the mining site, the minerals extracted or even the foreign currency in local banks). 

Risk mitigation strategies

Governments change, all the time and everywhere. That is their nature. However, in states with a history of political instability and where mining revenues account for an overwhelming share of the state revenue, mining companies investing and operating should always: anticipate, adapt and lobby.  

Once a coup happens, it is most likely too late to take meaningful action. When the time of making a final investment decision or even during the operation of the project, it is crucial to carry out a regular horizon scanning of the political developments and economic landscape in the host state. This strategy can provide the mining company with enough time to assess and weigh its options and, if necessary, to manoeuvre.  

One of the legal strategies available for mining companies is seeking the protection of a bilateral investment treaty (BIT). Under a BIT, investments made by foreign mining companies are provided with various kinds of substantive protections against a host state’s wrongful conduct.  

The protections that are typically accorded to foreign investors under a BIT include the guarantee of treating the investor fairly and equitably; not discriminating against the investor; allowing the investor to freely repatriate funds abroad; guaranteeing the full protection and security of the investment; to provide adequate and prompt compensation in the event the investment is expropriated; and to resolve any disputes that arise between the investor and the host state before a neutral arbitral tribunal. If any of these protections are breached by the host state, the mining company is entitled to seek damages.  

If there is no treaty between the host state and the mining company’s home state, it may be possible to route the investment through a state that does have a treaty in place with the host state. Mining companies can do so by introducing in the chain of ownership of the investment, a company incorporated in a country which has signed an investment treaty with the host state. This type of restructuring provides investors with a gateway to international legal protection of their rights. 

Another option to consider is to seek political risk insurance for the mining project. Political risk insurance could be helpful as it can provide additional cover for political violence or war, which would not come under the scope of a BIT. This type of insurance is provided by both government-backed agencies and private insurance companies and it is important to note that the vast majority of BITs allow political risk insurers to “subrogate” insured investors’ claims against host states, thereby providing a legal basis for the insurance agency to recover benefits paid out to investors. 

Finally, mining companies’ recourse to legal remedies against host governments can sometimes lead to undesirable outcomes and could be inflammatory. Thus, commercial interests could sometimes be protected through intensive lobbying and dialogue with the new political regime. For example, a mining company may consider offering a number of incentives to the new government (without endangering its own commercial viability) in order to secure and maintain a presence in the host state. A mining company may also be prepared to slightly decrease its shareholding in a mining project for the benefit of the host state, and offer to build mining infrastructure that could benefit the country (e.g. a copper smelter) in return for security and clarity over its mining permit for another 20 years.  

There is no one-size-fits-all solution to deal with coups d’état. However, mining companies have a number of legal strategies available to them under international law in order to mitigate the adverse consequences of a coup. To implement these strategies effectively, timing is key and it is important to seek appropriate legal advice from public international law specialists from the early days of the investment.  

Ahmed Abdel-Hakam is a London based Partner at Volterra Fietta.  He is an English Solicitor-Advocate and a French Avocat.  Ahmed has experience in representing private companies, state-owned entities and governments in cases which raise complex questions of international law such as the impact of civil unrest/war on natural resources projects, the operation of critical infrastructure in contested territorial and maritime areas (e.g., rare earth minerals, cross-border pipelines and submarine cables), and the status of private and public property following state dislocation.