Mining Licence Agreement (Kenya)

A Mining Licence Agreement in Kenya sets out the rights, duties and consideration binding the parties to it.

Section 35 of the Mining Act No. 12 of 2016 provides that a holder of a mining licence may enter into agreements related to the conduct of mining operations with third parties, subject to the terms and conditions of the licence. The Mining Cadastre Office within the Ministry of Mining and Blue Economy (now the State Department for Mining) administers mining licences and maintains the National Mining Cadastre System, which records all licensed areas, licence conditions, and transfers.

The Mining Act No. 12 of 2016 establishes a tiered licensing system: prospecting licences for exploration, retention licences for discovered but uncommercialised deposits, mining licences for full-scale production, and small-scale mining licences for artisanal operators. A Mining Licence Agreement under Section 35 is distinct from the mining licence itself — the licence is a statutory right granted by the Cabinet Secretary, while the agreement is a private commercial arrangement between the licence holder and an operator governing how that right is exercised.

Royalties on mineral production in Kenya are governed by Section 183 of the Mining Act No. 12 of 2016 and the Mining (Royalties) Regulations. The national government receives a royalty — calculated as a percentage of gross revenue from mineral sales — which is shared between the national government (70%), county government (20%), and local community (10%) under the Mining Act. A Mining Licence Agreement must separately address the commercial royalty payable by the operator to the licence holder, which is in addition to the statutory royalty payable to the national government.

Environmental obligations are central to mining operations in Kenya. The Environmental Management and Co-ordination Act No. 8 of 1999 (EMCA) administered by the National Environment Management Authority (NEMA) requires an Environmental and Social Impact Assessment (ESIA) before mining operations commence under the Environmental (Impact Assessment and Audit) Regulations 2003 (Legal Notice No. 101 of 2003). NEMA issues an ESIA licence that forms part of the mining approval package. An environmental bond or restoration fund must be established under the Mining Act to cover rehabilitation costs upon cessation of mining.

Community Development Agreements (CDAs) between mining companies and local communities are required under Section 220 of the Mining Act No. 12 of 2016 for mining licences covering areas with resident communities. The CDA must be negotiated in good faith with the community and sets out social investment obligations, employment targets for community members, and grievance mechanisms.

A Mining Licence Agreement in Kenya is required whenever a mining licence holder wishes to engage an operator, joint venture partner, or sub-contractor to conduct mining operations on the licensed area rather than operating directly.

A Mining Licence Agreement is needed when a large mining company that holds a mining licence under the Mining Act No. 12 of 2016 engages a mining contractor to extract minerals using the contractor's equipment and personnel. The agreement defines the scope of extraction, the production targets, the royalties payable to the licence holder, and the compliance obligations each party owes to the Mining Cadastre Office, the National Environment Management Authority (NEMA), and the relevant county government.

A Mining Licence Agreement is required when an individual holder of a small-scale mining licence granted by the Cabinet Secretary wishes to bring in a more capitalised investor to fund and operate the mining works in exchange for a share of production revenue. Without a written agreement, the parties have no clear framework for profit sharing, cost allocation, or exit, and the licence holder remains solely liable to the national government for licence compliance under the Mining Act No. 12 of 2016.

A Mining Licence Agreement is needed when a foreign mining investor that has incorporated a Kenya subsidiary under the Companies Act No. 17 of 2015 and obtained a mining licence wishes to appoint a local operating company to manage day-to-day extraction operations, community relations, and NEMA compliance. The agreement allocates operational, environmental, and community development obligations clearly between the foreign parent and the Kenyan operating entity.

A Mining Licence Agreement is required when a mining licence holder enters a joint venture with another company and needs to document the respective rights to the licensed area, the capital contributions, the production entitlements, the decision-making authority over operations, and the consequences of a party's withdrawal or default — matters that go beyond what the Mining Act No. 12 of 2016 licence document itself covers.

A Mining Licence Agreement is needed when artisanal and small-scale miners (ASM) operating under small-scale mining licences under the Mining Act wish to formalise their relationship with a mineral buyer or aggregator who provides equipment and advances against future production, confirming that the financial arrangements and supply terms are documented and enforceable under the Law of Contract Act Cap. 23.

A Kenya Mining Licence Agreement under the Mining Act No. 12 of 2016 s.35 and the Mining Regulations 2017 must contain the following essential elements to be enforceable and compliant with Kenya's extractive sector regulatory framework.

Licence Details and Licensed Area: The mining licence number, issue date, expiry date, and renewal status as recorded in the National Mining Cadastre System; the minerals covered by the licence; and the geographic description of the licensed area by coordinates, block numbers, and area in hectares. The Mining Cadastre Office issues a licence document that must be referenced in the agreement.

Parties and Authorisation: Full legal name, Companies Act No. 17 of 2015 registration number, and registered office of the licence holder and the operator; the names and titles of the authorised signatories; and where the operator is a foreign company, the local subsidiary details and Capital Markets Authority or Kenya Investment Authority approvals if applicable.

Scope of Permitted Operations: The specific mining activities authorised (extraction, processing, beneficiation, or sale of minerals), the equipment and methods permitted, the production targets, and the areas within the licensed block where operations may be conducted. The agreement must not purport to authorise activities beyond the scope of the mining licence itself.

Royalties, Revenue Sharing, and Payments: The commercial royalty rate payable by the operator to the licence holder expressed as a percentage of gross revenue or net smelter return, the payment frequency, the audit rights of the licence holder over the operator's production records, and the treatment of statutory royalties payable to the national government under Section 183 of the Mining Act No. 12 of 2016 and the Mining (Royalties) Regulations.

Environmental Compliance and Restoration Bond: The operator's obligation to maintain NEMA ESIA approval under the Environmental Management and Co-ordination Act No. 8 of 1999 and to contribute to the environmental restoration bond or closure fund required under the Mining Act. The party responsible for environmental rehabilitation upon cessation of operations must be expressly identified.

Community Development Agreement (CDA) Obligations: Compliance with Section 220 of the Mining Act No. 12 of 2016 regarding Community Development Agreements, specifying the operator's social investment commitments, local employment targets, and community grievance procedures.

Health and Safety Compliance: Adherence to the Occupational Safety and Health Act No. 15 of 2007 (OSHA), the Factories Act Cap. 514, and the Mining Regulations 2017 on mine safety, personal protective equipment, accident reporting to the Directorate of Occupational Safety and Health Services (DOSHS), and minimum staffing ratios for qualified mine supervisors.

Term, Renewal, and Termination: The duration of the Mining Licence Agreement (which must not exceed the remaining term of the mining licence), conditions for renewal, and events of termination — including licence revocation by the Cabinet Secretary under Section 97 of the Mining Act, material breach, insolvency of either party, or abandonment of operations.

Dispute Resolution and Governing Law: The agreement is governed by the laws of Kenya, including the Mining Act No. 12 of 2016. Disputes between the parties may be referred to the Mining and Geological Survey Institute or to arbitration under the Arbitration Act No. 4 of 1995 before the Nairobi Centre for International Arbitration (NCIA). The forms-legal.com Kenya Mining Licence Agreement template covers all mandatory elements required under the Mining Act No. 12 of 2016, the EMCA, and the Mining Regulations 2017.