Madagascar considers taking stakes in mining projects, increasing royalty fees

By Drazen Jorgic

NAIROBI, Sept 2 (Reuters) - Madagascar plans to increase royalty fees and claim 10 percent stakes in mining concessions, under proposed changes to its mining code, according to a draft document seen by Reuters on Wednesday.

One of Africa's poorest countries, Madagascar hopes to accelerate economic growth by developing natural resources but it has struggled to attract foreign investors in recent years due to political instability and falling commodity prices.

The draft, dated Aug. 27 and which could still be tweaked before parliament debates it in October, suggests the Indian Ocean island could take up to 10 percent stakes in concessions for free, and could acquire further shares at market rates.

The much-anticipated changes regarding concessions would apply to projects yet to be granted exploitation licences and are unlikely to affect the country's biggest projects, including the $7 billion Ambatovy nickel mine, operated and 40 percent-owned by Canada's Sherritt International, or the $1 billion ilmenite mine run by London-listed Rio Tinto (LSE: RIO.L - news) .

But most smaller mining firms seeking to renew permits or obtain fresh licences could be affected. Only a handful of licences have been granted since 2011, with a backlog of about 4,000 permit requests gathering dust at the mining ministry.

The draft bill also suggests lifting royalty fees to 4 percent for minerals and 5 percent for precious metals, while the fee for rough stones would be 7.5 percent.

Rates are now 2 percent of gross exports of raw commodities and 1 percent if minerals are processed locally before export.

The proposed changes are likely to rattle foreign investors and contradict comments by Mining Minister Joeli Lalaharisaina in July when he told Reuters there would be no substantive changes to the existing code.

"The mood among mining executives is between curious and despondent," said one Madagascar-based mining expert who has seen the draft bill, adding it would be "almost impossible" to attract foreign investors with terms outlined in the draft.

Lalaharisaina in July said the new bill was expected to be passed in early October, after consultation with mining companies.

The draft also suggests the government will create a national mining company and require mining firms to hand over research data to the government.

Madagascar hosts a global mining conference in the capital Antananarivo on Sept. 23-25, when the draft is likely to be a key topic for discussion. (Additional reporting by Lovasoa Rabary in Antananarivo; Editing by Edmund Blair and Susan Fenton)