Managing legal risk in mining partnerships: Strategies for success
Managing legal risk in mining partnerships: Strategies for success
NAMATIRAI RUZVIDZO
In the small town of Shurugwi, Zimbabwe, two ambitious entrepreneurs, Mr. Danda and Mr. Museyamwa, set out to build a profitable mining venture.
Their vision was clear: to extract gold from the region’s rich deposits and amass a fortune. However, in their excitement, they hastily entered into a verbal agreement—one that lacked clarity on roles, responsibilities, and dispute resolution mechanisms.
At first, the venture showed promise, but cracks soon began to form.
Mr. Danda, who had invested more capital, believed that Museyamwa was not contributing enough in terms of labor and expertise.
Museyamwa, meanwhile, felt sidelined, arguing that Mr. Danda was attempting to dominate decision-making. As tensions grew, disagreements over mine management, profit distribution, and strategic direction intensified.
With no formal contract to guide them, their partnership unraveled.
The tensions escalated, and the two partners found themselves at odds over the management of the mine, the distribution of profits, and the direction of the business. Despite their best efforts, they were unable to resolve their differences amicably. The partnership began to crumble, and the mine’s operations ground to a halt. The two partners engaged in a bitter dispute, with each side accusing the other of breach of contract and mismanagement. The dispute ended up in court, where a lengthy and costly legal battle ensued. The court ultimately ruled that the partnership agreement was invalid due to its vagueness and lack of clear provisions. As a result, the partnership was dissolved, and the mine was forced to close. Mr. Danda and Museyamwa were left with significant financial losses and a damaged reputation.
Ends////
Mining partnerships can be complex and high-risk, with multiple stakeholders, jurisdictions, and regulatory frameworks involved. Effective management of legal risk is crucial to ensure the success and sustainability of these partnerships. In this article, we explore the key legal risks associated with mining partnerships and provide strategies for mitigating and managing these risks.
Over the past 5 years Zimbabwe’s mining industry has been experiencing a significant growth spurt which has seen significant growth. Zimbabwe’s minerals production reached 4,917,558 metric tons in 2022, up from 3,956,845 metric tons in 2021. The mining sector accounts for about 12% of Zimbabwe gross domestic product (GDP) and 80% of national exports. Gold output reached an all-time high of 37.3 tons in 2022, up from 31.5 tons in 2021. This impressive growth has led to individuals as well as companies coming together to form mining syndicates or mining partnerships. These partnerships however, have their fair share of problems and often times parties realise when its too late. In this article we will focus on the key legal risks in mining partnerships, how to navigate them and ultimately scale up the business for success.
KEY LEGAL RISKS IN MINING PARTNERSHIPS
Mining partnerships like any other enterprises are prone to risk. Notwithstanding the inherent risks, these partnerships must comply with a range of regulations, including environmental, health and safety and labor laws. Non-compliance can result in fines, penalties, and reputational damage. Below are the key legislative pieces which bind the mining industry:
- Mines and Minerals Act (Chapter 21:05)
- Mining (General) Regulations (SI 109 of 1990)
iii. Environmental Management Act (Chapter 20:27)
- Occupational Safety and Health Act (Chapter 28:01)
As we have learnt at the onset of this article, mining partnerships are often beset with disputes and disagreements. Chief amongst the disputes we come across in legal practice involve unrealistic expectations. Mining partnerships often involve on one hand, a party who has ownership of the mine or claim and another party who will pour in funds or bring equipment. All these contributions and developments are seldom reduced into writing which leads to speculation and disgruntlement. Mining partnerships involve complex contracts, including joint venture agreements, offtake agreements, and supply contracts. Disputes can arise over contractual interpretation, performance, and termination.
Mining operations can have significant environmental and social impacts, including pollution, displacement of communities, and human rights abuses. Partnerships must ensure that they are meeting their environmental and social responsibilities. Further, mining partnerships can be prone to disputes, including disputes over contractual interpretation, performance, and termination. Effective dispute resolution mechanisms are essential to prevent disputes from escalating.
STRATEGIES FOR MANAGING LEGAL RISK IN MINING PARTNERSHIPS
- CONDUCT THOROUGH DUE DILIGENCE
Partners should conduct thorough due diligence on each other, including reviewing contractual agreements, assessing regulatory compliance, and evaluating environmental and social impacts. Due diligence should often include financial status and capacity of a fellow partner as this has a bearing on their individual contract performance.
- NEGOTIATE CLEAR AND COMPREHENSIVE CONTRACTS
First and foremost, as legal practitioners we urge our clients to reduce all contracts into writing to avoid ambiguities and interpretation. Contracts should be clear, comprehensive, and unambiguous, including provisions for dispute resolution, termination, and intellectual property protection.
iii. ESTABLISH EFFECTIVE GOVERNANCE AND DECISION-MAKING PROCESSES
In as much as partnerships may have equal shareholding it is important that there be an effective governance and decision-making processes, including clear roles and responsibilities, decision-making protocols, and conflict resolution mechanisms. In legal practice we often see partners being allocated different roles for instance in middle to large law firms there is often a managing partner who manages the day-to-day activities of the practice. This ensures that each partner performs a specific role for the advancement of the partnership’s objectives.
- DEVELOP A COMPREHENSIVE RISK MANAGEMENT PLAN
Partnerships should develop a comprehensive risk management plan, including identifying, assessing, and mitigating legal risks.
- ESTABLISH A DISPUTE RESOLUTION MECHANISM
Partnerships should establish a dispute resolution mechanism, including arbitration, mediation, or negotiation. Often partners in mining enterprises are seized with disputes and disagreements and without a proper channel of solving them, this will lead to time and resource wastage.
- MONITOR AND REVIEW REGULATORY COMPLIANCE
Partnerships should regularly monitor and review regulatory compliance, including updating policies and procedures to reflect changes in laws and regulations. The mining landscape in Zimbabwe is undergoing rapid transformation, driven by evolving regulatory requirements, shifting global market trends, and increasing stakeholder expectations. As the industry continues to navigate this complex and ever-changing environment, it is imperative that mining companies quickly adapt and comply with laws and regulations to ensure sustainability, minimize risk, and maximize benefits for all stakeholders.
CONCLUSION
Investing in the development of proactive approaches to risk management can not only prevent many legal risks from materializing, but can also mitigate the costs and damage when they do. Proactive risk management not only ensures technical legal compliance, but in the event of disputes will enhance credibility, prevent escalation and preserve key evidence. Managing legal risk in mining partnerships requires a comprehensive and proactive approach. By conducting thorough due diligence, negotiating clear and comprehensive contracts, establishing effective governance and decision-making processes, developing a comprehensive risk management plan, fostering open and transparent communication, and establishing a dispute resolution mechanism, partnerships can mitigate and manage legal risks and ensure the success and sustainability of their operations.
Namatirai Ruzvidzo is a registered Legal Practitioner, Conveyancer and Notary Public with the law firm, Ruzvidzo Legal Counsel. She can be reached on +263 784 228 534 or email namaruzvidzo@gmail.com, copying hello@rlcounsel.co.zw
