Insights
Restrictions on grant of exploration licences under the Mining and Minerals Act: Considerations for directorship in multiple companies.
Article By Denis Kusaasira, Grace W. Nsaawa & Percy Christopher Mpindi
It is common for same persons to serve as director across several companies within the mining sector. Mining companies, especially smaller or exploration-focused companies, often operate with a lean budget. Appointing the same directors to several companies helps to reduce overhead costs, ensures consistent decision making and strategy across related companies. The prevalence is also driven by the mining sector’s project-based structure, the need for specialized expertise, common ownership arrangements and regulatory demands.
A recurring question, in the context of Ugandan law, is whether such directorships can create legal risks under Section 42(5) of Uganda’s Mining and Minerals Act, Cap 159 (the “Act”), which limits the number of exploration licences a person may directly or indirectly hold.
Section 42(5) of the Act restricts any person from holding more than five exploration licences at any one time, whether directly or indirectly through beneficial ownership, except in special circumstances provided for in the Mining and Minerals (Licensing Regulations), 2023.
The rationale for this restriction on ownership of more than five exploration licenses is rooted in several public interest considerations, including the prevention of hoarding of mineral reserves, whereby exploration rights are concentrated in the hands of a few individuals or entities.
Regulation 20 of the Regulations outlines the “special circumstances” referred to in section 43(5) of the Act. These include situations where: (a) it is necessary to promote state participation in mineral exploration; (b) a person already held more than five licences at the time the Act commenced; or (c) where an integrated project requires more than five exploration licences to operate effectively.
Section 42(6) of the Act defines “beneficial ownership” as a situation where a person, either directly or indirectly, has control, possession, custody, or enjoyment of a significant economic interest in a legal entity, or receives substantial economic benefit from it, regardless of whether the formal ownership or title is held by another person or entity.
Additionally, section 42(7) of the Act automatically deems a person a beneficial owner if they hold five percent or more of a legal entity in question.
Therefore, a director will be considered a beneficial owner of a holder of an exploration licence if:
(a) The director controls, possesses, keeps, or enjoys (directly or indirectly) a reasonably significant economic interest in the company;
(b) The director receives significant economic benefit from the company (such as profit-sharing, dividends, or performance-based remuneration); or
(c) The director directly or indirectly owns five percent or more of the company’s shares.
If none of these criteria applies, a director will not be considered a beneficial owner of exploration licences held by the company under Section 42(5).
Practical Implications for Companies and Directors
To mitigate potential risks under Section 42(5):
(a) Companies should conduct a detailed review of each director’s shareholding, financial arrangements, and other interests in each company to determine if they qualify as a beneficial owner.
(b) Companies should ensure that the director’s role is limited to governance and oversight, and that a director does not receive significant economic benefits tied to company performance.
(c) Companies should regularly monitor the director’s ownership interests and the number of licences held by all companies in which the director is involved.
Key take-aways
Serving as a director in multiple companies does not, by itself, create a risk under Section 42(5) of Uganda’s Mining and Minerals Act. The key risk arises only where a director is also a beneficial owner in those companies. By carefully structuring directorships and regularly reviewing beneficial ownership interests, companies can confidently navigate the exploration licence limitations under the Act.
Caveat: This article is not legal advice. For advice tailored to your specific situation, please consult a qualified legal professional.
