Global Mining Guide2015

Global Mining Guide 2015

Baker & McKenzie i

Table of Contents Asia Pacific

Australia .................................................................................................................... 1 China ....................................................................................................................... 14 Indonesia ................................................................................................................. 22 Laos ........................................................................................................................ 35 Myanmar ................................................................................................................. 43 New Caledonia ........................................................................................................ 48 Philippines ............................................................................................................... 59 Thailand .................................................................................................................. 68 Vietnam ................................................................................................................... 79

Central Asia

Azerbaijan ............................................................................................................... 89 Kazakhstan ............................................................................................................. 99 Mongolia ................................................................................................................ 106 Uzbekistan ............................................................................................................ 123

EMEA

Egypt ..................................................................................................................... 131 Morocco ................................................................................................................ 137 Poland ................................................................................................................... 141 Russia ................................................................................................................... 155 Saudi Arabia .......................................................................................................... 163 South Africa ........................................................................................................... 173 Spain ..................................................................................................................... 188 Sweden ................................................................................................................. 198 Turkey ................................................................................................................... 206 Ukraine .................................................................................................................. 218

Latin America

Argentina ............................................................................................................... 229 Brazil ..................................................................................................................... 235 Chile ...................................................................................................................... 245 Colombia ............................................................................................................... 254 Mexico ................................................................................................................... 265 Peru ...................................................................................................................... 275 Venezuela ............................................................................................................. 288

North America

Canada .................................................................................................................. 296 United States ......................................................................................................... 319

Asia Pacific

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Australia Author’s Summary Author(s) John Mollard

Summary Resource rich Australia has a relatively small population but has become a dominant player in the global mineral export market. It has a well-established and transparent legal system that encourages foreign investment.

The mining industry continues to be a strong contributor to gross national product, although it has been impacted by changes in Government regulation and by a number of externalities in recent years. For example, challenges have arisen due to the volatility in commodity prices and relatively high labour and project development costs.

Within Australia, environmental protection considerations continue to have an impact on new project development timelines. In addition, the Federal Government and some State Governments have introduced laws regulating competing land use, such as dealing with the priority of mining versus agriculture/viticulture and regulating the impact on water resources and geology from the “fracking” techniques used in coal seam gas extraction. The Federal carbon tax and mining tax were repealed during 2014.

As the existing mines close to the ports become depleted, new projects are being developed further inland. These new projects bring technological challenges and create a need for further rail and port infrastructure, such as the Galilee Basin. How industry and sponsors deal with these challenges is shaping the future growth of the Australian mining industry.

Local Landscape Legal framework for mining Australia is a Federation of six States: Western Australia, South Australia, New South Wales, Victoria, Tasmania and Queensland. In addition, there are various Federal Government-administered territories, with the primary ones being the Northern Territory and the Australian Capital Territory.

Australia is a common law jurisdiction, based on promulgated legislation and case law. Australian law primarily operates on two levels, Federal and State/Territory:

(a) exploration and mining activities are primarily regulated at the State and Territory level. There is no Federal mining law;

(b) certain Federal laws affect mining activities (in addition to other industries), including those relating to taxation and native title rights, and some laws relating to environmental protection, employment and occupational health and safety.

Each of the State mining regimes are based on similar concepts and approaches, but may vary in detail. Each recognises at least two distinct stages of mining: exploration licenses and exploitation/mining leases. Exploration licenses tend to be for a shorter duration and, in some States, include obligations to regularly surrender sub-blocks to ensure that holders progress to exploration (a “use it or lose it” principle).

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The holder of an exploration license may apply for the grant of a mining lease once a mineral resource has been identified within the tenement and professionally confirmed (e.g., by a Joint Ore Reserves Committee-compliant resources statement). The grant of a mining lease is in all cases subject to the discretion of the relevant State mining minister. A mining lease will generally be granted where the tenement holder can demonstrate:

(a) it will proceed with commercial development of the project in the short term;

(b) it possesses all necessary financial capability and technical skills to undertake the development; and

(c) it has carried out necessary community, environmental and native title consultation and negotiation.

Some State legislation also recognises an intermediate licensing stage (often termed a “retention” lease), that allows the holder to retain but not develop a mining project (e.g., pending commercial feasibility or the development of required transportation infrastructure).

All minerals located within the State boundaries are the property of the relevant State until the mineral is extracted. The mining legislation creates a system of mining tenure separate from land tenure. Therefore landholders, be they freehold, leasehold or native title, do not have any ownership right to minerals, although they may be entitled to compensation for the loss of the use of land due to the mining activities.

State mining legislation generally applies equally to any type of mineral deposit found in the relevant jurisdiction, although there are some examples of separate/special treatment for iron ore and coal, depending on the State. The exploration and mining of uranium has historically been restricted in Australia due to political sensitivity. Following recent changes in State governments and a shift in public attitude, uranium mining is now permitted in most jurisdictions in Australia, but is dependant on current political views.

A separate legislative regime exists in each State for petroleum (oil and gas, including coal seam gas) exploration and production within the State boundaries (which includes the three-nautical-mile limit from each State’s coastline). Within the Territories and areas outside the States’ territorial limits, petroleum is owned and regulated by the Federal government.

Queensland mining and petroleum legislation expressly addresses overlapping petroleum and mining tenements, and associated priority issues. However, the other States and territories do not have specific arrangements for managing tenement overlap to date.

Restrictions on foreign investment in mining Foreign investment in Australia is generally regulated by the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA). Under the FATA, certain investments by a “foreign person” require the approval of the Australian Treasurer, who is advised on the proposed investment by the Foreign Investment Review Board (FIRB). A foreign person includes a natural person not ordinarily a resident in Australia, a foreign corporation or trust, or an Australian corporation or trust in which a foreign person holds a substantial interest.

FIRB approval is required for the following investment proposals by foreign persons:

(a) acquisition of a substantial interest (15% ownership by an individual foreign person or 40% in aggregate for foreign persons) in an Australian company or business with assets or shares valued above AUD252 million (higher thresholds apply for US, Chilean, New Zealand, Japanese and Korean foreign persons, and shortly Chinese, once its free trade agreement is concluded;

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(b) making an investment in a prescribed “sensitive” sector (e.g., uranium, media, banking), regardless of value; and

(c) acquiring an interest in “urban land” or an Australian “urban land corporation” (a company with greater than 50% of its assets comprising urban land), regardless of value. For these purposes, “urban land” includes some forms of mining tenements (those that amount to an interest in land).

An investment in the mining industry may be through the acquisition of shares or a direct investment at the project level. If mining tenements are being directly acquired, FIRB approval may or may not be required, depending on the nature of the tenement being acquired and the state of development of any mining operations.

An application to FIRB must be made on-line and include certain information concerning the target, the investor, and a description of the investor’s intended plans for the investment. Under the FATA, a decision must be made by FIRB within 30 days of receipt of an application and notified within 40 days. However, FIRB reserves the right to extend this time frame by a further 90 days if a matter is particularly complex or sensitive.

Under the Federal government’s foreign investment policy, any direct investment by a “foreign government investor” regardless of value requires FIRB approval. The term “foreign government investor” includes companies or other entities in which foreign governments have an interest of 15% , or companies or entities that are otherwise controlled by foreign governments. This includes State-owned enterprises and sovereign wealth funds. Investments by foreign governments are scrutinised closely by FIRB, and potentially may have separate conditions or undertakings imposed as part of any approval process.

Environmental considerations

In Australia, mining exploration and production activities are subject to significant Federal and State environmental laws as well as local council planning regulations. For example, at the Federal level, the Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act) establishes a regime for protecting the environment, flora and fauna biodiversity and Australian national heritage. It requires any person taking an action which would have a significant impact on matters of national environmental or heritage significance (e.g., matters impacting on a world heritage site, certain wetlands, threatened species and marine areas and material impacts on water) to refer it to the Federal Minister for the Environment for consideration and potential assessment. Changes in 2013 have also brought projects which affect water resources within the Federal Minister’s jurisdiction.

Governmental authorities have the power to enforce compliance with environmental laws, regulations and permits, and violations may result in the issuance of injunctions limiting or prohibiting operations, as well as administrative, civil and even criminal penalties.

Environmental laws may:

(a) restrict the types, quantities and concentrations of various substances that can be released into the air, land and water as a result of drilling, production and processing activities;

(b) regulate the manner in which certain substances, including waste, is transported;

(c) suspend, limit or prohibit construction, drilling and other activities in certain lands lying within wilderness, wetlands and other protected areas;

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(d) require remedial measures to mitigate pollution from historical and ongoing operations such as the use of tailings damns.

Mining projects in each State require an environmental approval from the State (and sometimes Federal) government. Legislation provides for the integrated assessment of these issues and the Federal Government has taken steps to empower some State Governments to exercise delegated review power. Approval may be given subject to certain conditions, including as to rehabilitation, protection of flora and fauna and the acquisition of environmental offsets.

The environmental regulators have the ability to require a project operator to prepare and implement a plan to improve the environmental performance of a project, and may also amend the conditions on an existing environmental approval. The environmental regulation of a project should not be assumed to remain static following approval, and may become more onerous over time.

Indigenous people considerations

Native Title is the term used to describe certain rights held by indigenous Australians in respect of traditional access to and use of land and water. The Native Title Act 1993 (Cth) and State legislation implement a national scheme governing the validity of land dealings affecting native title and establishing a process for indigenous Australians to make native title claims. A register of native title claims and granted interests is maintained and is publicly accessible.

If recognised, native title rights may include the right to possess, access, occupy, use and enjoy an area; visit and protect important places; hunt, fish and gather food and bush medicines; take water, wood, stone and other traditional resources; and conduct social, religious and cultural activities and ceremonies. There are no native title rights to minerals. However, if native title rights exist over an area that is the subject of a mining lease application, the right must be taken into account and certain procedures must be complied with before a tenement will be issued.

If the proposed grant of a mining tenement is affected by native title rights or claims, there are two ways to deal with this:

(a) an Indigenous Land Use Agreement (ILUA) can be negotiated and entered into bilaterally. The advantage of an ILUA is that it can be tailored to provide benefits to the native title parties such as employment, compensation and recognition of their native title rights whilst providing certainty to the mining investor in the form of protocols and agreements for future mine development; or

(b) if an ILUA cannot be negotiated, the parties must comply with the “right to negotiate” process set out in the Native Title Act 1993 (Cth) and negotiate in good faith regarding the conditions of the grant of the mining tenement. Some States provide an expedited mechanism where the proposed activities involve minimal disturbance to the water and land.

Generally, protection of indigenous cultural heritage sites and objects in Australia is regulated under the laws of the State in which they are located. Depending on the jurisdiction, the protection requirements may include an investor being required to conduct a survey of potential cultural heritage sites on the tenement area and take all reasonable and practical measures to ensure the activity does not harm any protected heritage sites or objects. Acts which disturb or remove heritage sites or objects can typically only be undertaken with specific approvals and consents. The relevant State legislation sets out the

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remedies and penalties for non-compliance, which in some cases may enable specific remedies such as injunctions or stop work orders.

Certain Federal legislation also impacts on activities affecting indigenous heritage, including the Aboriginal and Torres Strait Islander Heritage Protection Act 1984 (Cth), the Protection of Moveable Cultural Heritage Act 1986 (Cth) and the EPBC Act. Under the EPBC Act, there are penalties for any person who takes an action that has or will have a significant impact on the national heritage values of a place recognised for its national heritage value. The Aboriginal and Torres Strait Islander Heritage Protection Act 1984 (Cth) enables the Federal Government to respond to requests to protect important indigenous areas and objects that are under threat, if it appears that State laws have not provided effective protection. This is generally viewed as a power of last resort, after the relevant State processes have been exhausted.

Restricted mining areas

Generally, mining activities are not permitted in areas designated as State or national parks without special approval. At the State level, ministers have the power under the relevant mining laws to classify forests or wilderness areas as protected areas, with restrictions or prohibitions on mining activities. At the Federal level, the EPBC Act restricts mining activities in both:

(a) the territories over which the Federal government has direct control; and

(b) other land which the Commonwealth has jurisdiction over under the Constitution, such as land designated as national heritage or world heritage under international treaties.

In addition, a substantial part of South Australia has been classified as the Woomera Prohibited Area (WPA), which is administered by the Federal Department of Defence and used for military purposes. Mining and exploration access to the WPA is restricted and is divided into two regions being:

(a) the “core area of operation” where mining is not permitted; and

(b) the “non-core area” where exploration and mining may be permitted, subject to approvals and possible restrictions.

Projects located in this area must apply to the Federal government for an access agreement, in consultation with the South Australian State Government. In determining whether to grant an application for access in the “non-core area,” the Federal Government will take into account safety, national security issues and compatibility of the proposed mining activities with the activities of the Department of Defence. An access application can take up to 120 days for approval. Where FIRB approval is required, the application to the Department of Defence must be made before the FIRB application.

Exploration Tenements In all States and Territories, a party may apply for an exploration license, which generally allows the holder to carry out activities to determine the existence, quality and quantity of minerals within an area by low-impact methods, such as prospecting, geophysical surveys, drilling and sampling.

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Different licenses may be required for different minerals, and an endorsement may be required for iron ore, depending on the jurisdiction.

Terms

In each State, an exploration license is originally issued for a term of up to five years, which may be renewed for further terms of two to five years each (depending on the jurisdiction) subject to certain restrictions (such as compliance with its terms of issue and, potentially, surrender of a part of the area). Under Federal law, an exploration permit for the Territories is issued for an original term of up to six years and is renewable.

Exploration areas are usually divided into sub-blocks and different States impose a different maximum number of sub-blocks that may be included within one permit. Statutory fees apply per annum, per sub-block, and for renewals.

Steps to acquire an exploration right In most jurisdictions, the applicant applying for an exploration license needs to fulfil the following requirements:

(a) submit a work program which sets out the details of the proposed exploration methods and expected expenditure;

(b) meet a number of conditions under other environmental, cultural and/or heritage legislation; and

(c) notify the public of the application.

Following the satisfaction of the relevant filing requirements, an application for an exploration license may result in an issued license within six to 12 months.

Relationship with landowners - Exploration

All jurisdictions have provisions requiring negotiation of compensation with the landowners and occupiers. Compensation heads include deprivation of use of land, loss of earnings and social disruption. In addition, security deposits or private property bonds may be required.

Generally, for exploration on unoccupied and undeveloped land, minimal compensation for low-impact exploration is required other than to ensure rehabilitation of disturbed sites.

Obligations of holder - Exploration

An exploration license will be issued with standard terms. These may include:

(a) payment of an application fee and rental;

(b) provision of rehabilitation security (or bond);

(c) at the end of certain years of its term, surrender of part of the license area;

(d) requirements not to extract or disturb more than a specified tonnage of materials, including overburden, during activities;

(e) incur minimum expenditure amounts (based on the agreed work program); and

(f) file annual reports to the authorities.

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Holding tenements Rights to hold In most jurisdictions where the holder of an exploration license has located a mineral deposit but it is not certain of the economic potential and commercial feasibility of that deposit, they may apply to extend the exploration license or apply for a retention lease (or mineral development license).

Other conditions Other conditions may apply.

Terms of rights - Holding tenements A retention lease is typically issued for a term of up to five years and is renewable for further five-year terms.

The holder of a retention lease may carry out further geoscientific programs and feasibility studies.

It can be issued over all or part of the area within an exploration license, but typically only over the area identified as having mineral potential.

Statutory fees apply per annum, per square kilometer and for renewals.

Development / Production tenements Tenements / rights available In each jurisdiction, once a mineral deposit has been located and assessed, a holder of an exploration license (or retention lease) may apply for a mining lease. Depending on the jurisdiction, a mining lease generally provides the holder with the exclusive right to conduct mining operations and authorises the holder to sell or dispose of minerals recovered in the course of mining operations or to utilise those minerals for commercial and industrial purposes.

Minerals will become the property of the holders of the mining lease on extraction.

Terms of rights

A mining lease will generally be issued for an initial 20 to 25 year term depending on the jurisdiction, and may be renewed for further periods.

Generally, a mining lease application may be over an area as large as the identified ore body.

Statutory fees apply per annum, per square kilometer and for renewals.

Transition from exploration / holding right to mining right - Development / Production tenements

A holder of an exploration license generally has an exclusive right to apply for a mining lease with respect to mineral deposits within the exploration license area.

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Foreign ownership restrictions and government participation

Subject to compliance with the FATA and government policy, there are no further foreign ownership restrictions. In fact, the issue of a mining right directly from a State Government authority (as opposed to transfer) does not require FIRB approval.

There are no State or Federal Government participation rights in a license or a project.

Steps to acquire a right - Development / Production tenements In most jurisdictions, the applicant applying for a mining lease needs to fulfil the following requirements:

(a) submit a mine operations plan which sets out the details of the proposed mining methods and expected expenditure;

(b) provide evidence of meeting any environmental assessment requirements under relevant legislation;

(c) provide evidence of compliance with the provisions of the Native Title Act 1993 (Cth) if any native title claims affect the area;

(d) provide copies of land compensation agreements; and

(e) notify the public of the application.

Following the satisfaction of the relevant filing requirements, an application for a mining lease may result in an issued lease within 12 - 24 months, but it may take longer depending on the size of the project and environmental and community considerations.

Relationship with landowners - Development / Production tenements

With respect to landowners, all jurisdictions have provisions requiring negotiation of compensation with the landowners and occupiers. Compensation heads include deprivation of use of land, loss of earnings and social disruption. In addition, security deposits or private property bonds may be required. Compensation will be based on market rates for the loss suffered by the landholder. The amount of compensation will depend on whether the land is held freehold or leasehold (such as under a pastoral lease).

With respect to native title, generally, a mining lease will not be issued until the government is satisfied that the steps required by the Native Title Act 1993 (Cth) have been complied with.

Obligations of holder - Development / Production tenements

The holder of a mining lease must comply with the general and specific terms and conditions under the legislation and/or on the lease instrument. These may include the following:

(a) comply with the mine operations plan as submitted to the government at the time of application;

(b) pay the rents and royalties due under the lease;

(c) use the lease only for mining purposes;

(d) arrange for a survey of the lease;

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(e) comply with the prescribed expenditure conditions applicable unless exemption is granted;

(f) not use ground-disturbing equipment when mining on the land unless with prior government approval of the relevant work program;

(g) not transfer or mortgage a legal interest in any part of the lease without the prior written consent of the Minister;

(h) lodge, in the prescribed manner, periodical reports and returns;

(i) furnish to the Minister geological samples obtained in the course of operations;

(j) promptly report in writing to the Minister with details of all minerals of economic significance discovered;

(k) provide a rehabilitation bond in accordance with law; and

(l) submit and obtain written approval for a mine closure plan.

There are generally no local employment requirements or local processing or domestic supply obligations, but local community employment and service contract considerations are important for project proponents to take into account.

Key Issues Export

Other than State and Federal Government policy in relation to the export of uranium, and Federal Government policy on the transport of hazardous and radioactive products (such as some rare earths), there are no government licenses or quotas required for the export of minerals.

Taxes

Entities carrying on mining activities will be subject to the usual income and corporate taxes, together with payroll tax and goods and services tax (GST).

Transfers of mining leases and shares in companies with significant land assets may also attract State stamp duty, being ad valorem taxes of up to 5% to 6% of the gross asset value.

Royalties

On the grant of a mining lease, the license holder is entitled to mine the minerals and retain the economic benefit of the minerals that have been mined, subject to payment of a royalty to the relevant government.

The amount of the royalty varies from State to State and will depend on the type of mineral being mined and the form or product sold. For example, most States impose a 4% to 5% royalty on the value of base metal concentrates sold, while coal may in some cases be taxed at 6% to 10% of the value exported (but up to 15% in Queensland — different rates may apply for different grades of coal).

Overlapping tenements Mining tenements may not always grant exclusive use of or access to an area. It is possible that a mining tenement may overlap with another use of land right or tenure. Examples of the

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multiple rights that may exist include a petroleum lease, a coal seam gas tenement, rights to different minerals, a geothermal tenement or a pipeline or other infrastructure right.

In most instances, complementary use of land may be possible, but the widespread commercialisation of coal seam gas and other nonconventional gas and oil resources (particularly in Queensland) have caused tensions regarding which holders have priority to develop resources.

In most States, the rights to coal seam gas are covered by a petroleum production lease while the rights to coal are covered by a mining lease. Queensland has implemented legislation which creates a specific priority arrangement, giving priority to the party who first applies for a development (mining/production) permit. If parties hold overlapping tenements, then they must try and agree a co-development agreement for the development of both interests.

Strategic cropping land

Queensland, New South Wales and Western Australia have legislation which protects areas of land that are classified as “strategic” cropping land or premium agricultural land from the environmental impacts of mineral, gas and petroleum exploration and mining activities. In the case of Western Australia, the area protected to-date is specifically limited to the Margaret River wine region.

The relevant legislation typically provides that operators wishing to conduct exploration or mining activities in an area that is determined to be strategic cropping land will not be granted an environmental authority for a project until the relevant department has assessed the impact of the project against certain criteria. If the proposed activities are high impact, the project may be prohibited or restrictive conditions imposed in the environmental authority.

The Regional Planning Interests Act 2014 (Qld) seeks to manage the impact of resources and other regulated activities on areas of “regional interest”. Under the legislation, a person is required to apply for a “regional interests development approval” if they intend to undertake a resource activity (defined as an activity which requires one of a list of specified permits) or a regulated activity in a regional interest area, unless one of the limited exemptions apply. Failure to obtain a regional interests development approval prior to carrying out a resource activity in a regional interest area is an offence under the legislation.

Mineral reporting and classification

The Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code) is a mandatory system for classification of resource estimates prepared for the purposes of protecting investors in mining and exploration companies in Australia. The JORC Code classifies mineral quantities into “mineral resources” and “ore reserves”. The JORC Code requires public mineral statements or reports to be based on work undertaken by a competent person and provides extensive guidelines on the criteria to be considered when preparing reports. The Listing Rules of the Australian Securities Exchange expressly require reports prepared by listed mining companies or their subsidiaries regarding resources and reserves entitlements to be prepared in accordance with the JORC Code. For further information, see the Australasian Joint Ore Reserves Committee’s website at http://www.jorc.org/.

Water licenses The ownership and use of water is governed by legislation issued by the State and Territory Governments. Water may be bundled with the land or unbundled, depending on the State

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and the nature of the water resource. A mining tenement does not include a right to the water necessary for mining and processing, which will need to be negotiated separately. Water rights include water allocations and water access entitlements.

Skilled labor and visas

Australian employment laws are derived from a number of sources, including contracts of employment, awards, collective workplace agreements, Australian Workplace Agreements, State and Federal legislation, common law and decisions of Federal and State tribunals. As such, employment law can be complex. Notwithstanding these various sources, there are a number of minimum standards that employers need to comply with, including minimum rates of pay, providing 20 days’ annual leave and 10 days’ sick/carer’s leave per year, parental leave for full-time employees, providing minimum levels of superannuation contributions for employees and certain minimum notice periods for termination.

Employees in the mining industry may be members of a trade union (e.g., the Colliers Union). State and Federal industrial relations legislation regulates the internal operations of trade unions and provides for a system of registration of unions. Each trade union also has its own detailed set of rules which, among other things, specify the eligibility requirements for employees to become members. These rules are regulated by statute. Industrial disputes are also heavily regulated by Federal and State legislation. The Federal legislation in particular sets out a framework for taking protected industrial action in the course of workplace bargaining, and recourse for employers in circumstances where industrial action is not protected or is unlawful.

Economic conditions in recent years have seen an escalation of costs, especially in relation to development capital and labour costs. The increase in labour costs has been argued in part to be due to an undersupply of relevant skilled labour. The Federal government has issued the Enterprise Migration Agreement (EMA) submission guidelines, which provide a framework and necessary information for the application for visas for the import of a workforce for mega projects under the terms of a negotiated EMA. The guidelines provide that an EMA is available for resource projects with capital expenditure of more than AUD2 billion and a peak workforce of more than 1,500 workers. In practice, an EMA is negotiated bilaterally between the project sponsor and the Federal government. To be granted an EMA, a project needs to set out a comprehensive training plan, demonstrating how the project will invest in the up-skilling of Australians to meet future skill needs in the resources sector. If an EMA is granted, the relevant workers will be granted a 457 visa and be subject to the Migration Legislation Amendment (Worker Protection) Act 2008 (Cth).

Infrastructure Given Australia’s large geographical size and the fact that mining tenements are often located in remote areas, access to infrastructure is a key investment consideration. Assessment of a mining project involves careful assessment of rail, road, water, electricity and port access and capacity.

Australia has private and shared-use rail and port infrastructure, although some capacity constraints can exist. Rail networks and some ports are subject to price/revenue regulation and formal access arrangements. A third-party access regime under Part III of the Competition and Consumer Act 2010 (Cth) also provides, in some cases, rights of access to private infrastructure.

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Useful websites

Australian Government Department of Industry and Science

http://www.industry.gov.au/Pages/default.aspx

QLD Department of Natural Resources and Mines

http://www.dnrm.qld.gov.au/

QLD Department of Energy and Water Supply

http://www.dews.qld.gov.au/

NSW Department of Trade and Investment, Regional Infrastructure and Services, Resources & Energy

http://www.resourcesandenergy.nsw.gov.au/

SA Department of State Development, Minerals

http://www.minerals.dmitre.sa.gov.au/home

TAS Department of State Growth, Mineral and Resources

http://www.mrt.tas.gov.au/portal/home

VIC Department of Environment, Land Water & Planning

http://delwp.vic.gov.au/

VIC Department of Economic Development, Jobs, Transport and Resources, Energy and Resources

http://www.energyandresources.vic.gov.au/home

WA Department of Mines & Petroleum http://www.dmp.wa.gov.au/

NT Department of Mines and Energy http://www.nt.gov.au/d/Minerals_Energy/

National Native Title Tribunal http://www.nntt.gov.au/Pages/Home-Page.aspx

Usual structure of venture Mining activities can be conducted in Australia independently, through contractors or by way of joint venture.

Common in Australia (and similar to what is found in the petroleum industry) is the unincorporated joint venture (UJV) structure. This comprises an association of persons which does not create a separate legal entity or a partnership. The relationship between the participants is both contractual (as set out in the joint venture agreement) and proprietary (property which is the subject of the venture is held by the participants as tenants in common in proportion to their ownership interests).

The UJV participants appoint an operator to manage the exploration or production assets and to enter into contracts with third parties. The operator may be the majority interest holder or an independent third party, and is responsible for meeting budgets, complying with the law and permit terms and delivering the mineral end product to each participant. Key decisions concerning exploration and development activities are subject to the supervision of a management committee representing the parties.

All joint venture costs are shared in proportion to the participants’ ownership interest. However, to avoid classification as a partnership (and the joint and several liability associated with that classification), there is no sharing of profit. Each participant is entitled to

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take their respective proportion of all minerals produced and is free to deal with those minerals separate from the other participants. In practice, each of the participants tends to appoint a common entity as the joint venture marketing company. The marketing company will acquire all minerals produced from each of the participants and sell those minerals to off-takers, or may act as the agent for each of the participants.

To acquire a stake in a UJV, an investor will often enter into a “farm-in” agreement, agreeing to spend a fixed amount of money (e.g., to fund exploration or development costs) to acquire an agreed ownership interest in the project.

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China Author’s Summary Author(s) Scott Silverman

Summary The mining industry plays an important role in the Chinese economy. China is the world’s leading producer of coal, steel, aluminium, rare earths, lead, zinc, tin, magnesium, tungsten and other metallic minerals, in addition to being the world’s major consumer of a number of key mineral resources. China’s mining industry is highly regulated and the grant or acquisition of exploration and mining rights is subject to a number of governmental approvals and procedural requirements. There is no private land ownership under Chinese law. However, the operator may acquire or lease land use rights either directly from the State or from holders of land use rights for the purpose of mining activities, subject to the approval of the competent land authority and payment of any necessary land grant fee or land use compensation to the Government or holders of land use rights.

In addition to the primary laws governing exploration rights and mining rights, a comprehensive array of national and local laws, including foreign investment restrictions and environmental procedures and regulations, applies to mining-related activities in China. A separate regulatory regime applies in regard to the oil and gas sector.

Notwithstanding continuing market-oriented reforms and movement toward a “rule of law,” a top-down (“rule by law”) view of law as an instrument of government with citizens as the object of legal regulation, remains influential.

Most recently, the Chinese government has opened up mining of certain minerals to foreign investment in the Western and Central regions of China with the issuance in June 2013 of the revised Catalogue of Encouraged Foreign Investment Projects in Central and Western China to further stimulate foreign direct investment in the less-developed Central and Western regions of China. For example, tin mining, which is off limits to foreign investors in other regions and provinces, is now encouraged in Guangxi Province (through joint ventures with Chinese parties) under the revised Catalogue.

Local Landscape Legal framework for mining The legal system in China is civil-law based. The legal system has some similarities to the legal systems of Continental Europe but also contains substantial elements taken from the Soviet Union and some elements inherited from traditional Chinese law.

The mining industry in China is regulated by both national and local (including but not limited to provincial and municipal) laws, regulations and rules. The Ministry of Land and Resources (MOLAR) is the principal regulatory body that administers these laws and regulations.

Other bodies vested with authority for approving and registering aspects of a foreign investment project in mineral exploration or mining in China include:

• the National Development and Reform Commission (NDRC) which reviews contemplated investments from a policy perspective to ensure that proposed investments are in line with the State’s industrial policies and plans;

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• the Ministry of Commerce (MOFCOM) which is responsible for approving foreign investment in various industries and sectors, including the mining industry. MOFCOM oversees the establishment of foreign-invested enterprise (FIE) and reviews and approves the primary transaction documents; and

• the State Administration of Industry and Commerce (SAIC), which registers the establishment of FIEs and issues FIEs’ Business Licenses.

Under the Chinese law, all minerals in the subsoil belong to the State.

To be able to legally operate and engage in exploration and/or mining in China, an FIE will require all the required approvals or licenses from each of the above government bodies.

Restrictions on foreign investment in mining Foreign investment in China is subject to the Catalogue for the Guidance of Foreign Investment Industries (the Catalogue), which serves to guide and direct permissible forms of foreign investment in the different industry sectors. The Catalogue specifies whether investment in any given industry is “encouraged,” “restricted” or “prohibited.”

The Catalogue also prescribes the forms of investment available in each industry sector, whether as a wholly foreign-owned enterprise or as a Sino-foreign joint venture. For certain industry sectors, the Catalogue requires that the Chinese party must have a majority interest in the joint venture entity.

The Catalogue has been revised several times since it was first released in 1995. The most recent version of the Catalogue was released on 10 March 2015 and became effective on 4 April 2015.

Below is a brief outline of the mining sub-sectors which are categorized respectively as “prohibited,” “restricted” or “encouraged” under the March 2015 version of the Catalogue:

• Prohibited

Foreign parties are prohibited from engaging in the exploration and exploitation of tungsten, molybdenum, tin, antimony and fluorite and the exploration, exploitation and ore dressing of rare earths and radioactive minerals.

• Restricted

The exploration and exploitation of certain minerals including precious metals (e.g., gold, silver and platinum), graphite, special coal and precious coal (e.g., coking coal) and the exploitation and ore dressing of lithium mines fall within the scope of “restricted industry.” A Chinese party must hold a controlling interest in the Sino-foreign joint venture company to engage in exploration or mining of special coal and precious coal.

• Encouraged

The exploration, development and mining of unconventional energy resources such as oil shale, oil sands, coal-bed methane and shale gas fall under the category of “encouraged industry” reflecting China’s efforts to promote and encourage extraction and use of environment-friendly energy fuels.

In addition, the Catalogue of Encouraged Foreign Investment Projects in Central and Western China discussed above specifically guides and directs foreign direct investment in Western and Central China. Generally less restrictive foreign investment policies apply in

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regard to investment in the Western and Central regions of China, where social and economic conditions are less developed than in the Eastern regions.

Environmental considerations

Under Chinese law, exploration, construction, development and mining activities are each subject to environmental protection rules and requirements. Under relevant Chinese environmental regulations, an environmental impact assessment (EIA) must be conducted prior to the construction of a mining facility. The EIA must be in the form of a detailed report containing the following:

• analysis, pre-evaluation and assessment of the possible impact of the mining facility on the environment;

• feasibility study of the proposed environmental protection measures from technical and commercial perspectives; and

• economic cost-benefit analysis of the construction and proposals for environmental supervision and survey.

The EIA report must be approved by the competent environmental authority.

After the completion of construction and prior to the commencement of mining operations, the environmental authority will conduct an inspection to ensure that the relevant environmental conditions are satisfied.

If the operation of the mining facility will involve discharge of pollutants into the environment, the business operator must obtain a pollutant discharge permit from the local environmental authority.

Indigenous people considerations PRC laws do not provide for special rights to ethnic minority groups or indigenous people affected by the acquisition or exercise of mining rights. However, if exploration or mining activities affect farmers residing or farming on the site, the mining rights holder is required to pay such persons compensation for their loss or damage.

Exploration Tenements

Mineral areas may only be explored pursuant to an exploration license granted by provincial authorities.

Terms An exploration license is generally valid for three years, but the validity of an exploration license for oil and gas could be as long as seven years. It is possible to apply for extension of the exploration license, subject to approval by the governmental authority. In general, each extension is valid for two years.

The exploration license holder has a priority right over third parties to acquire the mining license for the area covered by the existing exploration license. The law does not specify when the exploration license holder can exercise such priority right, but it appears that such right must be exercised during the validity period of the exploration license. No specific administrative fee is attached to the exercise of the priority right.

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Steps to acquire an exploration right

Before 2009, it was possible to acquire an exploration right on a first-come, first-served application basis by making an application to the local authority. Since 2009, the grant of exploration permits has been generally awarded through a competitive process, in the form of a public tender, auction or listing process.

Relationship with landowners - Exploration

In China, the land is owned by the State in urban areas and by rural collectives in rural areas. The holder of an exploration license may obtain the land use right on a temporary basis from the relevant land title holders for exploration activities, subject to the approval of the local land authority. If the exploration activities cause any loss to farmers who reside or farm on the site, the exploration license holder is required to enter into a compensation agreement with the farmers and pay compensation for their loss or damage.

Obligations of holder - Exploration An exploration license holder has obligations to:

• pay to the State an exploration-right use fee;

• pay to the State any State funding received prior to the grant of the exploration license;

• invest a minimum amount of funding as required;

• commence the exploration activities no later than six months after obtaining the exploration license and report the progress of the exploration activities to the governmental authorities; and

• comply with environmental, labor, safety and other relevant laws and regulations.

The exploration license holder is required to comply with all conditions and obligations which are generally applicable in regard to an application for a mining license.

Rights of exploration license holder

In China, an exploration license holder is entitled to:

• conduct exploration in accordance with the area, time limit and work object specified in the exploration license;

• erect pipes and cables for electricity and water supply and communication lines in the exploration area and neighboring areas, provided that the same does not affect or damage the existing electricity and water supply facilities and communication lines;

• pass through the exploration area and its neighboring areas;

• use land temporarily, as required for construction of mining facilities;

• a priority right to obtain a mineral exploration license for newly discovered minerals within the exploration area;

• a priority right to obtain a mining license for mineral resources within the exploration area;

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• transfer its exploration license, following the required legal procedures; and

• independently sell mineral products recovered in the course of exploration operations carried out in accordance with the approved engineering design, except for mineral products (such as gold and silver) which are to be purchased by designated units on a monopoly basis, as specified by the State Council.

Holding tenements Terms of rights - Holding Tenements Chinese mining law does not provide for holding tenements, to bridge the gap between when exploration is finished and development starts.

Development / Production tenements Tenements / rights available

A mineral deposit can only be legally exploited by the holder of a mining license, granted by relevant authorities.

Under Chinese law, the holder of a mining license has the rights to:

• engage in development and mining activities in accordance with the mining scope and time limit specified in the mining license;

• construct production and living facilities within the scope of the mining area, which are necessary in mining;

• obtain land use rights as required for the development, construction and mining production;

• independently sell mineral products, except for mineral products (for example, gold and silver) which are to be purchased by designated units on a monopoly basis, as specified by the State Council;

• transfer its mining license by following the required legal requirements and procedures; and

• enjoy other rights as specified in relevant Chinese laws and regulations.

Terms of rights In China, the period of validity of a mining license varies, depending on the size and scale of the relevant mining facilities. The maximum validity period is 30 years for a large mining facility; 20 years for a medium-sized mining facility, and 10 years for a small mining facility. It is possible to apply for extension of the mining license before its expiration, subject to approval by the relevant governmental authority.

Transition from exploration / holding right to mining right - Development / Production tenements

If the exploration activities have identified mineral deposits suitable for commercial development, the exploration license holder may apply to the local authority for the approval of an overall development plan. After the overall development plan is approved, the exploration license holder may submit the requested documents to the local authority for the mining license.

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An exploration license and mining license are separate licenses. Therefore, an existing exploration license holder will have to follow the rules and make a separate application to the relevant governmental authority for a mining license. An existing exploration license holder has a priority right over any third parties to obtain a mining license within the area covered by its existing exploration license, under the same terms and conditions.

Foreign ownership restrictions and government participation As discussed in section 2, foreign investors are subject to certain foreign ownership restrictions for exploration or mining production of certain types of minerals. For example, a foreign company can only hold up to 49% equity interest in a joint venture company engaging in exploration or mining of coking coal. Foreign investors cannot set up a 100% subsidiary in China to engage in exploration or mining of shale gas.

Under Chinese law, there is no express provision requiring government participation in mining facilities. But in practice, State-owned enterprises have a predominant position in China’s mining industry and the government can exert significant influence via those State-owned enterprises.

Steps to acquire a right - Development / Production tenements

Before 2009, it was possible to acquire a mining license on a first-come, first-served basis by making an application to the local authority. Since 2009, the grant of a mining license has generally been effected through a competitive process, in the form of a public tender, auction or listing process

Relationship with landowners - Development / Production tenements

Land in China is owned by the State in urban areas and by rural collectives in rural areas. There is no private landownership under Chinese law. However, private parties may acquire or lease land use rights either directly from the State or from holders of land use rights for the purpose of mining activities, subject to relevant procedures for obtaining land use rights. If the mining activities affect farmers residing or farming on the site, the mining license holder is required to enter into a compensation agreement with the farmers and pay compensation for their loss or damage.

Obligations of holder - Development / Production tenements

A holder of mining license is obliged to:

• pay to the State a mining-right use fee;

• repay to the State any State funding prior to the grant of thee mining license, if applicable;

• report its mining activities annually to the relevant governmental authorities; and

• comply with the construction, environmental, labor, safety and other relevant laws and regulations.

In general, a mining license holder must commence the construction or mining activities within six months after obtaining the mining license. Some local governments may revoke the mining license if no construction or mining activities are started within the prescribed period.

The mining license holder is required to comply with all employment laws and rules which are generally applicable to businesses in China. In addition to the general employment

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obligations, employers in the mining sector have the obligation to ensure sufficient health and safety-related training for, and the protection of, the employees engaged in mining activities.

Key Issues Taxes A holder of mining rights in China is subject to the following charges:

• exploration-right use fee and mining-right use fee

• mining resources compensation fee

• resource tax

• value-added tax (VAT) for sale of minerals

• business tax for provision of mining services

• enterprise income tax for the profit earned

China has adopted certain incentive measures to attract investment in mining industries. Subject to the requirements specified under the relevant laws and regulations, private parties investing in mining activities may enjoy lower enterprise income tax rate, duty-free importation of equipment, exemption from or reduction in resources, compensation fees and use fees for exploration and mining rights, etc. Some incentives are available in specific areas only.

Overlapping tenements

Under Chinese law, holders of mining rights are required to take precautionary measures such that the mining activities will not damage other facilities or utilities above, beneath or neighboring the mining site.

Usual structure of venture A foreign investor may acquire mineral rights in China in the following ways:

• by entering into a joint venture with a Chinese domestic entity that contributes the exploration or mining rights for an interest in the joint venture;

• by purchasing the exploration or mining licenses from a qualified Chinese enterprise;

• by obtaining exploration or mining licenses through a tender, auction or bid process;

• by obtaining approval from the government to explore and, after discovery of a viable deposit, by applying for the right to mine;

• by acquiring an existing company holding mining rights.

The acquisition of an exploration or mining license from a Chinese seller will be subject to the approval of the Ministry of Land and Resources and its local counterparts. The establishment of a joint venture company or the share acquisition of an existing Chinese exploration or mining holder is subject to the approval of the Ministry of Commerce or its local counterparts and also possibly by the National Development and Reform Commission or its local counterparts.

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Security of tenure

Lawful exploration and mining rights are protected by PRC law. As discussed above, an exploration license holder has a priority right to apply for the mining license within the area covered by the existing exploration license. The judicial system in China has been making progress toward greater adherence to the rule of law and due process.

Protection for foreign investors

The Chinese government maintains a policy of encouraging foreign direct investment but the focus has been changed in recent years to give preference to foreign investors able and willing to provide advanced technology and management skills. In the mining industry, China promotes foreign investment in high technology and green mining, and the development of unconventional natural resources. Chinese law provides for a legal structure to give appropriate compensation to foreign investors in case of nationalization of mining assets held by foreign investors.

At the same time, it is prudent for foreign investors to note the following risks:

• the approval process for issuing exploration and mining licenses lacks transparency (each province tends to have its own internal mineral planning, which ultimately determines how exploration and mining rights are granted and to whom);

• an exploration license holder has priority right to obtain a mining license for expected mineral resources in the exploration area. In practice, however, the factors taken into account in consideration of a mining license application remain unclear;

• where a mineral license is transferred by one party to another (including by way of contribution to a joint venture) a valuation process is usually required. Where the assets had received any funding or investment, including any work done, by any State apparatus, the valuation process can be very onerous and tightly controlled.

The Chinese government imposes export restrictions on certain metallic minerals. For example, certain minerals such as rare earth, tungsten, antimony, gold and silver may only be exported by designated State-owned export trading companies. Some other metallic minerals such as rare earth, coking coal, barite, and molybdenum are subject to export quotas or export licenses.

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Indonesia Author’s Summary Author(s) Luke Devine, Milan Radman and Andika Mendrofa

Summary Indonesia has significant coal and mineral deposits, with the majority of Indonesia’s mining exports being thermal coal. Indonesia’s close proximity to the large energy-consumption nations of China, India, Japan and Korea, coupled with low-cost production, have resulted in Indonesia becoming the world’s largest exporter of thermal coal. The country scores very highly for its prospectivity. However, this attractiveness is tempered somewhat by Indonesia’s regulatory uncertainty.

The investment climate in the mining sector has been challenging due to a major regulatory overhaul which commenced in 2009 with the passing of a new Mining Law to replace its 1967 predecessor. Since the passing of this general framework law by the Indonesian Parliament in January 2009, the Indonesian Government has over the past few years continued to develop the detail of the new mining regulatory regime, and continues to issue new regulations to implement the Mining Law. This has had the inevitable effect of causing uncertainty for investors — as making investment decisions in a changing regulatory landscape is fraught with risk. However as things currently stand, the vast majority of the implementing regulations have been issued, and the focus around regulatory uncertainty has now shifted to the issue of whether the Government plans to go back and re-visit and amend some of these implementing regulations despite their relatively short life.

Indonesia, like a number of other jurisdictions around the world, is struggling to draw the correct balance in respect of the interests of mining companies vis-a-vis the interests of the Indonesian Government and Indonesia’s people. Recent reforms in respect of imposition of obligations on mining companies to supply the domestic market, bans on the export of ore in order to have mining companies carry out value adding processing in Indonesia and requirements for foreign investors to divest majority control of their mining operations are all elements of the phenomenon of ‘‘resources nationalism” which is affecting resource-rich jurisdictions around the world. How the Indonesian Government draws this final balance will have a major impact on Indonesia’s ability to attract the foreign capital necessary to enable Indonesia to fully and sustainably exploit its natural resource wealth.

Local Landscape Legal framework for mining Constitution, mining laws

Mining is regulated under Law No 4 of 2009 on Mineral and Coal Mining (the Mining Law). The Mining Law replaced the previous law on mining, which had been in place since 1967. The current Mining Law sets out general requirements but leaves large aspects to further implementing Government Regulations and Ministerial Regulations. These have been progressively issued since the introduction of the Mining Law, and as things presently stand, the vast majority of the implementing regulations have already been issued.

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Mining rights take two main forms in Indonesia:

• “IUPs” (Izin Usaha Pertambangan – Mining Business Licenses), which are in the form of a license with a set of standard license conditions (about five pages long); and

• “Contracts of Work”, which are in the form of an agreement between the government of the Republic of Indonesia and an Indonesia-incorporated mining company. A Contract of Work sets contractual requirements for each stage of the mining project from general survey to production, and also provide for other matters such as taxation. From the introduction of the current Mining Law, no more Contracts of Work will be issued and existing Contracts of Work will be phased out upon expiry of their current terms. Contracts of Work have traditionally been used for large mining projects often with foreign ownership.

Companies incorporated in foreign countries cannot hold an IUP or a Contract of Work directly. An Indonesia-incorporated company is needed to hold the IUP or Contract of Work. Foreign companies can hold shares in this Indonesia-incorporated company but subject to foreign ownership restrictions discussed below.

IUPs are issued by various levels of government based on the following rules (simplified somewhat here):

• If the IUP is to be issued to a company with foreign ownership, the IUP will be issued by the Central Government (the Director General of Minerals and Coal on behalf of the Minister of Energy and Mineral Resources).

• In all other cases:

(a) if the IUP area is within one regency (Local Government area), the IUP will be issued by the regent (the head of the local government);

(b) if the IUP area overlaps regencies, the IUP will be issued by the governor of the province; and

(c) if the IUP area overlaps provinces, the IUP will be issued by the Central Government (the Director General of Minerals and Coal on behalf of the Minister of Energy and Mineral Resources).

The reason why IUPs are issued at several levels of government is due to Indonesia’s Regional Autonomy laws, which have the aim of giving regions more control over the wealth generated in their own regions. However, the Indonesian Regional Government Law that was recently issued indicates that the Regent is no longer entitled to issue the IUPs, and as the result if an IUP area is within one Regency (Local Government area), the IUP will be issued by the governor of the province. This new regulation causes an inconsistency with the Mining Law.

The Central Government has supervisory powers under the Mining Law and does exercise these. In essence, bureaucratic processing and evaluation of applications and compliance requirements under IUPs are done at the regional level. However, the rules and directions which govern compliance are set at the Central Government level.

Contracts of Work are all issued by the Central Government.

Prior to the issuance of an exploration IUP for ferrous minerals and coal over a new area, a tender needs to be conducted.

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The Mining Law also provides for “specific” IUPs which can be issued to companies wishing to undertake processing or transport and sales of minerals or coal but not having a mine. In addition, the Mining Law provides for some other types of mining rights such as “People’s Mining Rights,” which are designed for small-scale (community) mining operations. These other types of rights are beyond the scope of this chapter.

The legal system

Indonesia has a civil law system inherited from Dutch colonial law. Contract law in Indonesia is governed by the Indonesian Civil Code, which derives from the nineteenth-century Dutch Civil Code which, in turn, derives from the French Civil Code. Since the end of the colonial period, most pre-existing Dutch colonial regulations (including some parts of the Civil Code) have been replaced by new Indonesian legislation.

Ownership of minerals and coal

Under Indonesia’s constitution, the land, water and natural resources of Indonesia are under the control of the State and are to be used to the greatest benefit of the Indonesian people. The State is the ultimate owner of minerals and coal. Land titles (as opposed to mining rights) do not give the holders of the land any rights to minerals or coal located on or under the land.

The point at which a mining company obtains title to the minerals or coal mined varies. In the case of IUPs, the Mining Law provides that the mining company is entitled to own the minerals and coal “produced” provided that the necessary government duties have been paid, and for that purpose, the Indonesian Government requires the payment of government duties to be made before the minerals or coal is shipped or transported. From that point, the mining company will have good title to the minerals or coal which they can then transfer to offtakers. The time at which title passes can be different under Contracts of Work and depends on the precise terms in the particular Contract of Work, however, the earlier generations of Contracts of Work generally provide for title to pass at the point of export (for export sales) or domestic point of sale (for domestic sales).

Regulation of different minerals and coal

Indonesia only has one Mining Law which governs all mining activities (but not oil and gas or geothermal activities). In the Mining Law, distinctions are made between different minerals and coal in a number of areas, for example, in relation to the minimum and maximum size of concessions and the term of concessions. There are also some quite distinct and separate rules for radioactive materials.

The table below sets out the concession sizes and periods for IUPs for various minerals and coal.

Phases Ferrous Minerals

Non-Ferrous Minerals

Rocks Coal

Exploration IUP General survey

Granted by tender

Granted by application

Granted by application

Granted by tender

Exploration Term (in aggregate for all phases): 8 years max

Term (in aggregate for all phases): 3 years or 7 years for certain kinds of

Term (in aggregate for all phases): 3 years max

Term (in aggregate for all phases): 7 years maximum

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minerals

Feasibility study

Initially 5,000* hectares to 100,000 hectares

Initially 500 hectares to 25,000 hectares

Initially, 5 hectares to 5,000 hectares

Initially 5,000* hectares to 50,000 hectares

Required to relinquish so that max area is 50,000 hectares in the 4th year

Required to relinquish so that max area in 2nd year is 12,500 hectares (or in 3rd year for certain kinds of minerals)

Required to relinquish so that max area in second year is 2,500 hectares

Required to relinquish so that max area is 25,000 hectares in the 4th year

Production Operation IUP

Construction Up to 20 years initially

+ 10 years (extension 1)

+ 10 years (extension 2)

Size: 25,000 hectares max

Up to 10 years or 20 years for certain kinds of minerals initially

+ 5 years or 10 years for certain kinds of minerals (extension 1)

+ 5 years or 10 years for certain kinds of minerals (extension 2)

Size: 5,000 hectares max

Up to 5 years initially

+ 5 years (extension 1)

+ 5 years (extension 2)

Size: 1,000 hectares max

Up to 20 years initially

+ 10 years (extension 1)

+ 10 years (extension 2)

Size: 15,000 hectares max

Mining

Processing and refining

Transportation and sales

Maximum Project Life

48 years 23 years or 47 years

18 years 47 years

*Note: Constitutional Court decisions handed down in June 2012 have revoked the provisions of the Mining Law which declare a minimum size of 5,000 hectares for ferrous minerals and coal IUPs. Consequently, there is no longer any minimum size.

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Oil and gas

Oil and gas activities are regulated separately from mining under a quite different regulatory regime with different regulators, although both mining and oil and gas sectors are under the ultimate authority of the Ministry of Energy and Mineral Resources.

Restrictions on foreign investment in mining

Foreign shareholders in Indonesian mining companies holding IUPs may initially own 100% of the shares but must progressively divest shares to Indonesians (or Indonesian-owned entities) from the end of the fifth year of production moving from a maximum foreign ownership of 80% in the sixth year of production to a maximum of 49% in the tenth year of production. The recent change that was introduced by the Government is that foreign shareholders are permitted to maintain their ownership in an Indonesian mining company holding a Production Operation IUP up to 60% if the company carries out its own processing or refining activities, and up to 70% if the company carries out underground mining. In that case, they are given 15 years to achieve the sell-down. The change also provides that for holders of IUPs whose shares are listed on the Indonesian Stock Exchange (IDX), a maximum of 20% of those shares are recognized as being held by “Indonesian participants”, irrespective of whether those shares are in fact held by Indonesians or foreigners. However, it does not apply to an IDX-listed shareholder of an IUP company.

The shares for a sell down are required to be offered to the Government and Government-owned entities ahead of Indonesian private entities, at cost basis (not market value). If the foreigners divest prior to the time the relevant divestment requirement applies, they may choose who they divest to as the divestment requirement will not need to apply.

Another additional layer of foreign ownership restrictions which was imposed from September 2013 is that where there is a change in shareholding of an IUP company, or an IUP company converts its status from a domestic investment company to a foreign investment company (due to foreigners acquiring shares in the IUP Company), the Ministry of Energy and Mineral Resources imposes a 75% foreign ownership cap for Exploration IUPs, and a 49% foreign ownership cap for Production Operation IUPs (irrespective of how many years the mine has been in production).

For Contract of Work holders, the foreign divestment requirements are specified in the terms of the contract, and vary from requiring foreigners to divest down to a maximum 49% shareholding after 10 years of production (typically found in the earlier generation Contracts of Work), to some contracts which require foreigners to divest only down to 95% within 15 years of production commencing (typically found in the later generations of the Contracts of Work). However, a new regulation enacted by the Government on 14 October 2014 introduces a transitional provision which seeks to apply the divestment provisions to Contracts of Work where the Contract of Work holders have, as at 14 October 2014, been in production for less than 5 years, it is required to comply with the divestment regime which is applicable to IUP holders as laid out under the current government regulation, and where the Contract of Work holders have been in production for five years, they have to implement the share divestment provisions in an amount of 20% within one year (i.e. by 14 October 2015), and thereafter to continue with divestment in accordance with the percentages stipulated by the current government regulation such that the full divestment obligation has been met by no later than 14 October 2019.

Transfer of right

IUPs are generally not transferable (although this is now not entirely clear due to regulatory changes which appear to permit an IUP company to transfer its IUP to a subsidiary). If an investor wishes to invest in a mining project conducted under an existing IUP, it would

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typically buy shares in the mining company holding the IUP or invest by way of financing or other contractual means. For a foreign investor to buy shares in a mining company holding an IUP, the approval of the Directorate General of Minerals and Coal is required subject to the recommendation of the relevant Local Government (the regulation says that the approval will be issued within 14 working days after a complete and correct set of applications is received, however, there is no time limit under which the recommendation from the Local Government must be given, but in our experience, this has not posed an issue for most investors thus far). Approval of the Capital Investment Coordination Board (known by its Indonesian acronym as the BKPM) is also required. However, this can be obtained in a few days provided the administrative requirements are met.

Minimum sales pricing, domestic market obligation and onshore processing

Indonesia has a coal “benchmark pricing system” under which a reference price is determined based on an average of a number of international and Indonesian published coal indices. This reference price is then split (using a formula) into a number of different reference prices for different brands of Indonesian coal based on differences in calorific value, sulfur, moisture and ash content. Sales contracts for coal are required to “refer” to the benchmark price, and royalties on the sale will be calculated on the higher of the benchmark price and the sale price. It is not clear from the regulations as to whether the sale price can be below the benchmark price (regardless of whether royalties are paid at the benchmark price). However, the Government takes the view that sales below the benchmark price should not be permitted. A failure to adhere to the benchmark pricing regime can ultimately lead to a revocation of the IUP. The benchmark prices are issued monthly by the Directorate General of Minerals and Coal. For “spot” contracts (contracts with a term of less than a year), the applicable benchmark price is the benchmark price at the time of delivery, whereas for “term” contracts (contracts with a term of more than a year) the applicable benchmark price is the weighted average of the benchmark price over the three months prior to the beginning of the term (reset after each year of the term). A similar benchmark system is contemplated for other minerals.

Indonesia also has a “domestic market obligation” in relation to coal sales. In summary, the Government obtains forecasts from the larger coal producers of their expected output in the following year and from major coal consumers (mainly power stations) of the expected coal requirements for the following year and then stipulates a percentage of production which the major coal producers must sell to the major coal consumers. A producer who has exceeded its domestic market obligation may sell quota to a producer which has not been able to achieve its domestic market obligation. The domestic market obligation for 2015 is 23.4071% of production, which has been applied to 82 coal producers. The list of producers who have a domestic market obligation imposed on them can change from time to time.

The Mining Law requires domestic processing of minerals to begin by 12 January 2014. Consequently, the Indonesian Government has now implemented a ban on the export of mineral ores. However, the Indonesian Government has also taken a temporary and transitional measure which gives a case-by-case exception for export of an amount of semi-processed minerals (typically in the form of concentrate meeting minimum mineral content levels). This exception is only available until 11 January 2017 at the latest, subject to hefty and progressively increasing new export duties. Further, the temporary exception is only available to mining companies who can demonstrate concrete plans for construction of refining facilities or cooperation with those who are constructing such facilities. In January 2014, the Ministry of Finance issued a regulation increasing export duties for the mineral ores which are exported in the interim period until 11 January 2017. The export duty begins at 20% or 25% in 2014 (depending on the mineral) and progressively escalates to 60% for exports from 1 July 2016 to 31 December 2016. The export can be conducted after the

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relevant mining company obtains an export recommendation from the Directorate General of Minerals and Coal and an export approval from the Ministry of Trade.

The Government has also now required any export of coal and minerals to use a letter of credit instrument. However, exporters can apply for an suspension of the use of the letter of credit to the Minister of Trade provided that they can fulfill certain requirements (e.g. existing contracts that provide the terms of payment other than letter of credit was entered before 5 January 2015).

Environmental considerations

A Production Operation IUP cannot be granted unless an Environmental Impact Assessment (known as an AMDAL) or a less onerous Environmental Management Efforts/ Environmental Monitoring Efforts (known as UKL-UPL) has been completed and approved by the Government, and an environmental permit has been obtained. Whether a mine requires an AMDAL or an UKL-UPL depends on the size of the mining project. The AMDAL includes an ongoing monitoring and reporting plan which also needs to be complied with.

There are a variety of smaller licenses which are also needed for particular activities. The following are the typical environmental licenses which may be needed:

• a license to use groundwater;

• a license to use surface water;

• a license to dispose of wastewater to water courses;

• a license to operate wastewater treatment facilities;

• a nuisance act permit; and

• a license to dispose of hazardous and toxic waste.

It is a condition under a Production Operation IUP and the related regulations that the mining company deposits a “mine closure guarantee” and a “reclamation guarantee” with the Government prior to commencing any production activities. The amount of the deposit is determined by the Government as part of the review of the reclamation and post-mining plan submitted with the application for the Production Operation IUP. At the end of a mining project, the mining company must perform reclamation on the land affected, to restore the land to a natural state. A reclamation guarantee is also required for reclaiming land damaged by exploration activities.

In order to conduct any activities in a forest area, a license from the Ministry of Forestry known as a “Borrow and Use” license (in Indonesian, an “Izin Pinjam Pakai”) is required. The concept is that in some areas of Indonesia where there is insufficient forest cover, in addition to reforesting the land used for mining activities when completed, additional land must also be provided and reforested by the mining company prior to mining activities being conducted. In other areas, where there is sufficient forest cover, only an additional government levy is paid. There are numerous requirements in relation to obtaining a “Borrow and Use” license. Open-cut mining is prohibited in areas of forest designated as “Protected Forest” (most of the coal mining in Indonesia is open-cut) so a “Borrow and Use” license cannot be obtained for these areas. There was also a two-year moratorium on the issuance of “Borrow and Use” licenses in certain areas of “peat land” and “primary natural forest” which was initially due to end on 13 May 2015, but has since been extended to 13 May 2017.

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Indigenous people considerations

Indonesia has a system of registered land titles and a system of traditional unregistered land ownership. A mining concession is not a land title and does not remove the rights of those who have land titles or traditional ownership over land (the mining concession and the land titles co-exist). A mining company needs to negotiate and reach compensation agreements with local landowners in relation to the disruption of their enjoyment of the surface rights to the land (compensate for lost crops, for example). This can be done progressively as various areas of land are needed for mining activities or facilities within the mining concession area. It is not necessary for the mining company to actually purchase the land titles to the land, although sometimes a mining company may do this for strategic reasons.

Holders of IUPs are required to formulate plans for the development and empowerment of communities around the IUP area in consultation with the Local Government and local communities. These plans are submitted each year to the issuer of the IUP as part of the IUP holder’s work plan and budget. The plans must be implemented and paid for by the holder of the IUP. IUP holders are also required to report on their progress in achieving the requirements of these plans. These plans often include things such as building (or contributing to) schools, roads and medical clinics.

Exploration Tenements / rights available

There are two forms of IUPs: an IUP for Exploration and an IUP for Production Operation.

The IUP for Exploration covers the phases of General Survey, Exploration and Feasibility Study.

Terms of rights

The maximum term of an IUP will be between three and eight years depending on the mining commodity in question (see the table inrelation to Regulation of different minerals). An Exploration IUP has only one term and cannot be renewed. If exploration is not completed during the term of the Exploration IUP, the mining company will need to seek a new Exploration IUP (which will involve a tender process if it relates to ferrous minerals or coal).

The initial maximum exploration area also depends on the mining commodity. The maximum area for a Production Operation IUP is smaller than for an Exploration IUP so there may need to be relinquishment of areas which are not needed (depending on the size of the Exploration IUP) when moving to a Production Operation IUP. An IUP holder can also relinquish an area which is not needed voluntarily.

Holders of Exploration IUPs are required to pay “dead rent” to the Government, which is a flat fee per hectare covered by the IUP.

Steps to acquire an exploration right

At the time of writing, all existing IUPs are conversions of pre-existing mining rights which were issued under the previous Mining Law. The process for awarding new acreage is either by grant or by tender depending on the mineral commodities involved. New IUPs for ferrous minerals and coal require a tender process. The regulation on the tender process provides the required timeframes for almost all of every phase of the tender process which mainly consists announcement re proposed tender, pre-qualification announcement, determination of qualified tender participant and determination of tender winner. In determining the winner

30 Baker & McKenzie

of the tender, the weighting applied is 40% to the evaluation of the prequalification materials, and 60% to the financial bid.

IUPs for non-metallic minerals and rocks (e.g. for quarries) do not require a tender, and can be directly granted to interested investors.

Obligations of holder - Exploration

Exploration IUP holders are required to deposit a “seriousness guarantee” of USD100,000 in a government bank appointed by the issuer of the IUP. Holders of IUPs are also required to submit annual work plans and budgets to the issuer of the IUP and to provide quarterly reports on their activities conducted in accordance with the annual work plans and budgets.

The more significant license conditions under an Exploration IUP are to:

• deposit the “seriousness guarantee” mentioned above;

• submit an annual work plan and budget;

• submit quarterly activity reports;

• submit a plan for community development and empowerment and report on it;

• pay dead rent;

• prepare their AMDAL or UKL-UPL;

• prepare and eventually submit a feasibility study (for progressing to the production operation stage);

• prepare a reclamation and mine-closure plan based on feasibility documents;

• prioritize the use of local manpower and domestic goods and services;

• prioritize the use of local and Indonesian-owned mining services providers;

• submit exploration data, including exploration activity reports, to the Government;

• compensate holders of land titles who have had their use of the land disturbed;

• prepare plans for domestic processing and refining;

• relinquish areas of the IUP area which are not needed; and

• apply good mining norms.

Holding tenements

Indonesian law does not provide for holding tenements to bridge the gap between when exploration is finished and development starts.

The holder of an Exploration IUP must apply to upgrade to a Production Operation IUP prior to expiry of the Exploration IUP.

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Development / Production tenements Tenements / rights available

When the mining company has completed its exploration activities, feasibility study and AMDAL or UKL-UPL, it applies for a Production Operation IUP. A Production Operation IUP covers the phases of construction and mining, and also allows the holder to undertake processing and transportation and sales of the minerals or coal produced. An Exploration IUP holder is guaranteed to receive a Production Operation IUP provided that it has been in compliance with the terms of the Exploration IUP and applied correctly for the Production Operation IUP during the period required prior to the expiry of the Exploration IUP.

Terms of rights

The term and area available for Production Operation IUPs are set out in the table in section 1.4. Two extensions to the initial term of a Production Operation IUP are available (but may be rejected if there has not been good performance). Each extension must be applied for at least six months (but not more than two years) before the end of the current period of the IUP.

Steps to acquire a right - Development / Production tenements

The holder of an Exploration IUP who wishes to obtain a Production Operation IUP must apply for a Production Operation IUP at least three months prior to the expiry of the Exploration IUP. The holder is “guaranteed” to receive a Production Operation IUP provided that their application is satisfactory and they have been in compliance with the terms of the Exploration IUP. A number of documents are required to be submitted at the time of the application, including:

• a map containing the boundaries and coordinates of the area in question (produced to the Government’s standards);

• a complete exploration report;

• the feasibility study for development of the mine;

• the reclamation and post-mining plan in respect of the mine;

• the proposed work program and budget;

• details of the availability of mining specialists and geologists having at least three years’ experience

It is also a requirement that the AMDAL or UKL-UPL be completed and approved by the Government (see section 1.9).

There is no legislated time frame during which a Production Operation IUP must be issued. However, because the application must be submitted at least three months prior to the expiry of the Exploration IUP, the concept is that the Production Operation IUP should be issued before the Exploration IUP expires (i.e., within three months). In many cases, a Production Operation IUP is applied for considerably before the end of the Exploration IUP as exploration activities have already been completed.

Obligations of holder - Development / Production tenement

Holders of Production Operation IUPs are required to pay a royalty which is a percentage of the sales price. The royalty amount depends on the type of mineral or coal and other factors

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(for example, with coal there are different royalties applicable to different calorific values). Indonesia has a benchmark pricing system for coal (based on a number of indexes) and the royalty on the sale price will be calculated on the higher of the sales price and the applicable benchmark price.

The more significant license conditions under a Production Operation IUP are to:

• deposit mine closure and reclamation guarantee monies;

• submit an annual work plan and budget;

• submit quarterly activity reports;

• submit production reports;

• submit a plan for community development and empowerment and report on it;

• pay dead rent and royalties;

• prioritize the use of local manpower and domestic goods and services;

• prioritize the use of local and Indonesian-owned mining services providers;

• submit geological data to the Government;

• compensate holders of land titles who have had their use of the land disturbed;

• obtain approval for long-term sales contracts (three years or more);

• perform processing domestically;

• construct the necessary mining facilities; and

• apply good mining norms.

Key Issues Taxes

The main financial obligations of a mining company to the Government (in addition to paying the usual corporate tax, withholding taxes and VAT) are to pay dead rent (a flat fee based on the amount of land area covered by the IUP or Contract of Work) and royalties on the sale of minerals or coal. The royalty rates depend on the mineral (or coal) involved and are set for IUPs in a government regulation. For Contracts of Work, the rates of dead rent and royalties are set down explicitly in the terms of a Contact of Work. In January 2014, the Ministry of Finance imposed export duty in the interim period until 11 January 2017 which begins at 20% or 25% in 2014 (depending on the mineral) and progressively escalates to 60% for exports from 1 July 2016 to 31 December 2016.

Further, the Ministry of Finance recently issued a new regulation imposing a 1.5% income tax on export value of several mineral commodities including coal, which will be effective on 9 August 2015.

Overlapping tenements

In addition, due to various historical factors, there have been numerous instances where IUPs have been found to overlap with IUPs issued to other parties for the same mineral or

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coal. There were also some issues with conversion of pre-existing mining licenses known as kuasa pertambangan to IUPs after the enactment of the Mining Law in 2009. Since June 2011, the Central Government has been conducting an “audit” of the existing IUPs to ensure that they were validly issued (most were issued at the Local Government level) and to resolve any overlaps. The list of compliant IUPs compiled by the Central Government has become known as the “Clean and Clear List.” In 2012, the Government increased the requirements which need to be demonstrated for an IUP to appear on the Clean and Clear List to include checking a few more relevant aspects (including evidence of payment of dead rent and/or royalties) and invented the concept of a “Clean and Clear Certificate,” which is issued by the Directorate General of Minerals and Coal confirming that an IUP has a “Clean and Clear” status. This process has no legislative basis. However, it is becoming increasingly important for a range of reasons. These include that having an IUP in the Clean and Clear List is a pre-requisite for a change of investment (e.g. share transfer and amendment to articles of association) or a Clean and Clear Certificate is a pre-requisite for a Production Operation IUP holder for minerals to obtain a recommendation to export mineral ores. Also, the Ministry of Forestry will no longer grant a permit to use a forest area to an IUP holder if the IUP is not on the Clean and Clear List.

Other types of rights and concessions can also co-exist over the same land area as a mining concession, including (amongst others) oil and gas concessions, geothermal concessions, timber concessions and plantations. Before a mining company can utilize an area of land which is subject to an overlap with another concession, a mining company needs to reach agreement with any overlapping concession holders as to the usage of the land. There are no defined rules as to who has priority in the event of a dispute. However, the Government will play a coordinating role and may have a preference based on prevailing policies.

Usual structure of venture

As IUPs are not readily transferable, the normal way to invest in an Indonesian mining project is to take shares in the company holding the IUP and then regulate the relationship of the investors as an incorporated joint venture. Often, there is a shareholders’ agreement and a suite of other relevant agreements such as loan facility agreements and offtake contracts. Sometimes, the joint venture aspects are implemented by the investor taking shares in an offshore holding company. Singapore is a popular jurisdiction in this regard as it has a double-tax treaty with Indonesia, is quite proximate, uses a common law legal system and has a good history of resolving commercial disputes.

Investing may also be achieved through structures involving listed entities on the Indonesian Stock Exchange.

In the past, it was common for large aspects of mining projects to be contracted out to mining services providers (contract miners) and this was also used as a form of investment. This situation has changed as a result of the introduction of regulations which prohibit a mining services provider from removing ore from the mine (as opposed to overburden which is allowed). The mining services regulations also require mining companies to give preference to Indonesian-owned mining services companies.

Security of tenure

There are two main issues in relation to security of tenure in Indonesia, namely, whether the IUP was validly issued in the first place, and secondly, whether the IUP overlaps with another IUP for the same mineral or coal. Subsequent to the introduction of the Mining Law, it took some time for the new requirements to be fully understood by the Local Governments which issued most of the IUPs. Consequently, there are a number of instances where IUPs have been found to have been issued without the correct legal procedures being followed. In the case of overlaps, an IUP should not have been issued over the area of an already

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existing mining right for the same mineral or coal. If this occurs the earlier right in time should prevail (and the later in time is technically invalid in its entirety). The current regulations do not provide an adequate method for the Government to unilaterally adjust the sizes of IUPs to remove the overlaps.

The Mining Law requires that existing Contracts of Work be re-negotiated (a process which is ongoing). This has created uncertainty for holders of Contracts of Work as to exactly how their rights will vary.

Protection for foreign investors

Indonesia’s Investment Law (Law No. 25 of 2007) contains a number of provisions designed to protect foreign investors, including a requirement that the Government provide the same treatment to both domestic and foreign investors. However, in practice, numerous other laws and regulations do draw a distinction between Indonesian and foreign investors. There are also protections from nationalization without market compensation. However, these provisions are largely untested.

Indonesia is also a party to numerous double tax and investment and trade treaties and a member of the World Trade Organization. However Indonesian recently has indicated that it may be revisiting investment protection commitments made under its Bilateral Investment Treaties, and has recently announced that it is not renewing the Netherlands-Indonesia Bilateral Investment Treaty which is due to expire in 2015.

Restrictions on exports/government take

Indonesia does impose “domestic market obligation” requirements on mining companies to ensure supply to the domestic market as a priority over exports. Additionally, there are required in Indonesia for onshore processing of minerals (which in effect works as a ban on the export of ores).

Additionally, the Government does have general power to impose production limitations on mining companies on a provincial basis. To date, the Government has not exercised these powers although the Government has recently announced that it may implement these production limitations in the coal industry in order to try to strengthen global thermal coal prices.

The Government does not purport to have ownership of any portion of the minerals or coal produced by a Production Operation IUP holder once they are out of the ground. Instead, the Government charges a royalty on sales of those minerals or coal. Under some older Contracts of Work, the concept of a “production share” was used such that a portion of the minerals or coal produced was owned by the Government and the company holding the Contract of Work was appointed to market this portion on behalf of the Government. Later Contracts of Work adopted the royalty concept instead.

Laos

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Laos Author’s Summary Author(s)* Sorachon Boonsong and Kitchrat Kontain

*This chapter has been prepared in conjunction with South East Asia Law Office, a law firm in Vientiane, Lao PDR.

Summary Lao People’s Democratic Republic (Lao PDR) is a developing country in South East Asia constituted as a single-party socialist republic. With the advent of the New Economic Mechanism (NEM) introduced in 1986, the government has gradually promulgated new laws to accommodate the changing economic and political landscape, without affecting its unique social system. Laos officially became a member of the World Trade Organization (WTO) since February 2013. As a result, Laos has started to open its markets and provide security for investors, including addressing trade rights and investments.

Lao PDR is rich in mineral resources. A significant number of mineral deposits have been identified, most notably gold, silver, copper, zinc and lead. As Lao PDR derives its revenue mainly from the use of its own natural resources (e.g., hydropower, minerals), the Government’s policy has been focused toward promoting foreign direct investment in the mining sector to support the country’s economic development. The country is landlocked, being bordered by Myanmar, China, Vietnam, Cambodia and Thailand.

Local Landscape Legal framework for mining Legislation

The Investment Promotion Law, Mining Law and Land Law are the main laws governing mining activity in Lao PDR.

Following the introduction of NEM in 1986, the first Investment Promotion Law was adopted in 1994, with the aim of promoting foreign direct investment in Lao PDR. Consistent with the Government’s policy, the first Mining Law was enacted in April 1997 and amended in 2008 and 2011.

Minerals

Minerals are classified under Lao law into four categories:

• metallic minerals such as gold, silver, copper, zinc, iron and lead;

• non-metallic minerals such as diamonds, precious stones, limestone, gravel, sand and gypsum;

• energy minerals such as coal, crude oil and natural gas; and

• liquid minerals such as underground water.

These minerals are further classified by the government into reserved or restricted minerals based on proposals from the Ministry of Natural Resource and Environment (MoNRE).

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Ownership of minerals

All minerals on the surface of the land, underground or underwater throughout the entire territory of the country constitute the property of the national community (the State), and these minerals are under the central and uniform administration of the Government.

Mineral resource areas

Mineral resource areas are areas where basic geological reconnaissance surveys have been conducted and where commercial mineral deposits have been identified for further detailed investigation

There are four mineral resource areas:

• areas licensed for mining operation – i.e., areas determined by the Government as areas where mineral operations may take place. The use of these areas will be determined by the Government based on social, economic and environmental considerations.

• reserved areas – i.e., areas set aside for the extraction of specific minerals, long-term development and tourism.

• restricted areas – i.e., dangerous areas with unexploded ordinances or severe pollution, and public areas that are of national importance and conservation areas within which no mineral development activities can be carried out.

• toxic areas – certain mineral resource areas containing toxic substances or poisonous contaminants such as arsenic and mercury.

Restrictions on foreign investment in mining The Mineral Law of Lao PDR does not impose any restriction on foreign investment in exploration and mining operations in Lao PDR, with one exception relating to some small-scale mining activities (e.g., with machinery power not more than five horsepower) for which local people who reside in such area have priority consideration. However, exploration and mining operations (for both domestic and foreign investors) require prior approval from the Government of Lao PDR and permission to operate under the concession scheme.

Environmental considerations

The Government’s policy regarding environmental preservation requires a balance between mining, natural resource conservation and environmental protection to be maintained. The Mining Law imposes responsibilities on investors in relation to environmental protection, including the requirement for investors to propose environmental protection plans and rehabilitation plans, to offer assistance to those who are affected by the mineral business, to make contribution to the environmental protection fund and to report social and environmental impact assessments to the concerned organization. All such requirements are in addition to the environment and social impact assessment which investors are required to submit when applying for a mining license.

Further, investors are required to comply with certain guidelines to ensure sustainable mining development. For instance, mining activities must be consistent with the National Socio-Economic Development Plan.

Investors are required to remedy any negative impact that occurs during mining and after mine closure.

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Indigenous people considerations

There are no laws or regulations that specifically consider indigenous people, with some exceptions relating to some small-scale mining activities (e.g., with machinery power not more than five horsepower) for which local people who reside in such area have priority consideration.

The local community in or around the area is normally to be compensated for any adverse direct affect from the concession and mining operations in the area.

Exploration Tenements

Under the Mining Law, mineral prospecting refers to field observations to determine the geological conditions of the area and mineral outcrops on the surface in order to evaluate the quality of minerals and identify potential areas for exploration. Prospecting may be undertaken by the holder of a prospecting license.

Mineral exploration refers to geological and geophysical studies within a determined area to acquire detailed data through testing, trenching, drilling, analyzing the physical and chemical features of the minerals and assessing their economic potential. Mineral exploration may be undertaken pursuant to an exploration license.

Terms

The term for a prospecting license is two years after the signing of the contract, with a possibility of a one-year extension. The initial term of an explanation license for the survey of mining resources and feasibility studies is normally granted for up to three years with a possibility of extension for two years.

An investor who wishes to extend the term needs to complete at least 60% of the work in the area of exploration and survey to the satisfaction of the Ministry of Natural Resources and Environment, with the condition that the investor submit the proposal letter and supporting documents for such extension at least three months in advance before the end of the initial term.

Steps to acquire an exploration right

As the exploration right is normally granted under the concession scheme, to acquire such right, the investor is required to obtain an initial approval for exploration and survey from the Government of Lao PDR. Upon such approval, it is further required to apply and obtain the Concession Registration Certificate before start-up of operations under the terms and conditions as approved by the Government of Lao PDR.

Relationship with landowners - Exploration In theory, land in Lao PDR belongs to the commune which is managed by the State. In practice, the State grants the right for permanent land use for Lao people. There are two types of relationships: (i) individuals who are granted rights for permanent land use, and (ii) land which is under management of the State. For the first category, such individuals are entitled to compensation for their land under the law of Lao PDR. The relationship with the landowner under the second category is normally prescribed under the terms and conditions of the concession agreement. The relationship with landowners is normally based on the terms and conditions of the concession agreement made with the Government of Lao PDR.

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Obligations of holder - Exploration

An exploration license holder is subject to the following primary obligations:

• to perform in accordance with the approval of the Government of Lao PDR;

• to give full cooperation and facilitate relevant State agencies regarding inspection of exploration work;

• to use local products and workers as much as possible;

• to prevent pollution, and provide equipment and other facilities in order to maintain the security and health of the community and workers;

• use and train Lao workers by transfer of expertise and technology both in the short and long term in order to replace foreign workers;

• compensate for abandonment of land, or arrange suitable relocation for persons impacted by the mining operations;

• collect the technical information regarding mining, drawings, plans, information or data of exploration;

• arrange for water treatment, limit air pollution, dust, noise and contaminating chemicals and filling voids by the method that complies with the plan for environment management;

• report to the energy and mining sector immediately any incident or accident that occurs or may occur;

• summarize the information and data regarding exploration and production;

• pay concession fees, fees for natural resources, tax, fee and service charges, contribute to the fund for environment protection and payment of expenses for community development and human resource development;

• manage the project and develop the mining area in a sustainable manner; and

• fulfill other obligations in accordance with the laws and regulations.

Holding tenements Rights to hold

There are no specific licences for a retention or holding right, between exploration and mining.

Development / Production tenements Tenements / rights available Under the Mining law, “mining” is defined to include mining, mineral processing, and sale of concentrate, which have the following definitions:

• Mining refers to the extraction of minerals from the surface and underground through the process of topsoil and overburden stripping, digging, drilling, pumping, blasting, concentrating, removing and storing of minerals.

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• Mineral processing refers to the stage of production to upgrade the quality and create an economic value of the minerals to become a commodity.

• Trading of concentrate refers to an arrangement whereby an investor agrees to sell the concentrate to individuals or legal entities, either domestic or foreign, who will take the concentrate for further processing into certain kinds of commodities.

A mining licence is issued under the following primary items:

• to construct and install equipment, factory and building for exploration purpose, transportation, production, analysis and storage;

• to be entitled to the assets obtained from mining operations;

• to distribute mining products that derive from the mining operation in accordance with the laws of Lao PDR;

• to protect its rights and benefits according to the laws of Lao PDR;

• not to disclose any confidential information regarding business or science and technology to any person and entity except the State agency;

• to operate other businesses as appropriate that relate to mining operations as agreed by the Government;

• to propose to temporarily suspend the business in the case of force majeure; and

• to have the rights and perform the obligations in accordance with the relevant laws and regulations.

Terms of rights The period of mining operations in the concession area according to the concession agreement is normally up to 20 years, but can be extended for up to five years in accordance with the agreement of the Government on a case-by-case basis.

Transition from exploration / holding right to mining right - Development / Production tenements

After completion of exploration and survey in accordance with the approval for the concession area, if the investor wishes to carry out mining activities, the investor is required to conduct the economic/ technical detailed feasibility study and prepare the environment and social impact assessment in order to obtain mining concession approval from the Government of Lao PDR.

Foreign ownership restrictions and government participation As mining business is one of the businesses being promoted in Lao PDR, there is no restriction on foreign ownership in mining projects. However, in granting the concession, the Government will have the authority to determine the level of foreign shareholding for any given project on a case-by-case basis.

The Minerals Law provides for the Government’s right to participate in the mining business by notifying the investor of its intention to participate no later than 120 days from the receipt of the feasibility study report. The Government may choose to make its equity contribution in the form of:

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• cash;

• direct the investor to make payment of the equity on behalf of the Government, after which the investor shall be entitled to deduct such amount from the dividend payable to the Government;

• turning minerals into capital contributions; or

• any other method to be mutually agreed on.

Steps to acquire a right - Development / Production tenements After having concluded prospecting and exploration phases, an investor wishing to undertake mining activities in Lao PDR is required to perform a feasibility study or an assessment of mineral deposit, and a study on technology for mining, processing, selling and buying, and an environmental and social impact. The feasibility study shall be carried out within a period of one year, with one possible extension which must be approved by the MoNRE. The MoNRE will accept or reject the report on the feasibility study within 120 days from the receipt of the report.

Relationship with landowners - Development / Production tenements

The right to own and utilize the land area lying within the borders of Lao PDR is presently governed by the Land Law, which was promulgated in 2003.

As Lao PDR is a socialist country, the land is owned by the national community, represented by the State. Lao nationals and foreign investors are not permitted to own land in Lao PDR.

The Government is solely responsible for the centralized and uniform management of land throughout the country and the allocation of land for use, lease or concession. Investors wishing to conduct mining business in Lao PDR, therefore, must obtain land use rights through concession granted by the Government.

Pursuant to the Land Law, foreigners are entitled to lease or receive concessions of land from the Government. Alternatively, foreigners wishing to lease developed land from Lao nationals may do so by obtaining approval from the local provincial or city administrations having jurisdiction over the land, who will then recommend to the national land management authority for approval. Where the parcel of land desired for lease by a foreigner has an area of greater than 10,000 hectares, approval from the Lao National Assembly is also required.

The land lease or concession term granted by the State to foreign investors may vary depending on the characteristics, size, and conditions of the intended operations and project on the prospective land, with the same term as the mining business (the Land Law allows a maximum term of not more than 50 years and may be extended on a case-by-case basis upon the decision of the Government). Similarly, the maximum lease term for foreign investors leasing land from Lao private entities will also be based on the characteristics, size, and conditions of the intended operations and project, and shall not exceed 30 years, subject to possible extension on a case-by-case basis as agreed between the contracting parties and with the approval of the national land management authority based on the recommendation of the relevant provincial or city administration.

Obligations of holder - Development / Production tenements An exploration license holder is subject to the following primary obligations:

• to perform in accordance with the approval of the Government of Lao PDR;

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• to give full cooperation and facilitate relevant State agencies regarding inspection of exploration work;

• to use local products and workers as much as possible;

• to prevent pollution and provide equipment and other facilities in order to maintain the security and health of the community and workers;

• use and train Lao workers by transfer of expertise and technology both in the short and long term in order to replace foreign workers;

• compensate for abandonment of land, or arrange suitable relocation for persons impacted by mining operations;

• collect the technical information regarding mining, drawings, plans, information or data of exploration;

• arrange for water treatment, limit air pollution, dust, noise and contaminating chemicals, and filling voids by the method that complies with the plan for environment management;

• report to the energy and mining sector immediately about any incident or accident that occurs or may occur;

• summarize the information and data regarding exploration and production;

• pay concession fees, fees for natural resources, tax, fee and service charges; contribute to the fund for environment protection and payment of expenses for community development and human resource development;

• manage the project and develop the mining area in a sustainable manner; and

• fulfill other obligations in accordance with the laws and regulations.

Key Issues Treaties

There are no treaties specifically regarding the mining business in Laos.

Export The key requirements and procedures for exporting mining products are normally under the terms and conditions set out in the concession agreement with the procedures of exporting in compliance with the relevant law which is under the supervision of the Ministry of Industry and Commerce and the Customs Department.

Taxes The taxes related to mining activities (with no specific royalty fee) usually involve income tax (up to 24%), profit tax (up to 24%), Value-Added Tax (10%), environment tax and other similar fees and charges (normally specified under the concession agreement).

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Usual structure of venture

Due to delays by concessionaires in implementing projects, the government decided in June 2012 to temporarily suspend the issuance or granting of new mining concessions until the end of 2015. This suspension was not retrospective nor have any effect on concessions already granted, but the government normally inspects the progress of the current mining concession granted before June 2012. In practice, some projects are restructuring their venture, which requires government approval.

Suspension of the granting of mining concessions The Government of Lao PDR has a firm policy of promoting the mining sector. However, due to delays by concessionaires in implementing projects, the Government decided in June 2012 to temporarily suspend the issuance or granting of new mining concessions until 2015. This suspension was not retrospective nor have any effect on concessions already granted. The Government aims to encourage those investors who have already received mining concessions to implement their projects. In the meantime, the Government is monitoring and evaluating the positive and negative impacts of the projects before deciding whether to resume investment in the mining sector in 2016.

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Myanmar Author’s Summary Author(s) Peerapan Tungsuwan, Bulin Sanooj, Ornsiri Samarnmitr and Saw Yu Win

Summary Myanmar has significant mineral wealth with a variety of mineral commodities, including coal, copper, gold, nickel, precious and semiprecious stones, tin, tungsten and zinc. Mining is considered the second-largest industry sector in Myanmar, next to the energy industry.

Like a number of other jurisdictions, the State assumes the ownership of the resources found on or under the country’s soil and continental shelf. All activities, policies, laws and regulations related to minerals and/or mining are under the administration of the Ministry of Mines.

Under Myanmar’s former strict nationalistic policies, the State-owned Economic Enterprises Law reserves exploration and production rights with the Government. However, the Government has the right to permit foreign companies to operate in the sector either as a 100% foreign investment or through a joint venture with the State, subject to obtaining a permit of the Ministry of Mines and a permit of the Myanmar Investment Commission, with the approval of the government. Partner identification, screening and detailed due diligence are the most important processes for any company venturing into this industry. If the investor enters into a joint venture with the State it will be with the State owned Mining Enterprise 1, 2 or 3.

Foreign companies have been involved in mineral exploration in Myanmar since the country opened up to such investment in 1988. However, many unexplored mineral areas remain.

Given Myanmar’s current liberalization strategy, according to the recent notification issued by the Myanmar Investment Commission in 2014, foreign operators have been allowed to carry out prospecting and exploration and large-scale production of minerals. Investment incentives including the right to remit foreign currency and a guarantee against nationalization have been provided in the Foreign Investment Law.

Local Landscape Legal framework for mining

The legal framework for mining in Myanmar is provided by the Myanmar Mines Law and the Myanmar Mines Rules.

The Myanmar Mines Law was promulgated in September 1994. It establishes the State ownership of all minerals. All naturally occurring minerals found either on or under the soil of any land and within the continental shelf are deemed to be owned by the State. Under this new law, all mining activities are administered by the Ministry of Mines (the Ministry). As there still exists a large mineral potential, it is the policy objective of the Ministry to immediately boost present production, meet the growing domestic needs for mineral and metal products and at the same time promote exports.

Investment can be through production-sharing or profit-sharing arrangements. It is also the intention of the Ministry not to make new investments by itself. Rather, it encourages foreign investors to invest.

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The Myanmar legal system is based on the English-Indian legal system. Myanmar legislation includes 13 volumes of codified law from 1818 to 1954 and numerous specific laws which have been published annually since 1955.

Oil and gas activities are regulated separately from mining and fall under the ultimate authority of the Ministry of Energy.

An amendment is currently being drafted to the Mining Law. The Amyotha Hluttaw and the Pyithu Hluttaw have commented on the proposed amendments. The amendments may allow for the issuing of integrated permits (not requiring the application for a production permit once exploration is complete), a requirement to rehabilitate mine sites at the end of the mine life and new royalty rates. These amendments are being intensely debated and are unlikely to be passed in 2015.

Restrictions on foreign investment in mining Under the State-Owned Economic Enterprises Law 1989 (the SEE Law), mining is one of the restricted activities to be carried out solely by the Government. However, the Government can relax such restrictions by allowing direct foreign investment, joint ventures between the Government and any other person or economic organization.

If the Government allows foreign investors to carry out mining activities, foreign investment in mining needs to comply with the Foreign Investment Law. In this connection, a foreign mining company must obtain a permit issued by the Ministry and a permit issued by the Myanmar Investment Commission for operating mining activities in Myanmar. However, companies engaging in natural resource extraction with a MIC permit may no longer be eligible for a corporate income tax exemption (an incentive most foreign investors are afforded).

Environmental considerations

Under the Mines Law, a permit holder has responsibility to provide for environmental conservation works to remedy detrimental effects due to mining operations.

Under the Mines Rules, a production permit holder must ensure there is no pollution of the environment due to the use of water, and must also observe environment-related provisions such as backfilling and remediating land surfaces that have been damaged by bore holes or excavation works during underground mining operations to the satisfaction of the Ministry.

The Myanmar Investment Commission has listed mining as an industry sector which requires the completion of an Environmental Impact Assessment before it will issue an investment permit. The Environmental Impact Assessment will need to be carried out in accordance with the requirements of the Environmental Conservation Law.

Indigenous people considerations Pursuant to the Foreign Investment Law and its rules, the MIC gives priority for the benefit of the indigenous people.

Extractive Industries Transparency Initiative (“EITI”) Myanmar has been accepted as an EITI candidate. It is currently in the process of agreeing the scope and Terms of Reference for the first MEITI EITI Report, which is likely to cover data from financial year March 2013-March 2014.

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Exploration Tenements An applicant may apply for a prospecting permit or an exploration permit. An exploration permit gives the holder the exclusive right to carry out mineral exploration operations in the specified area in accordance with the conditions imposed by the Ministry.

Terms

Initially an investor may apply for a prospecting permit which is granted for 1 year with the possibility of an extension by one year. The mineral prospecting area needs to be specified and may not exceed 4,200 square kilometres.

An exploration permit is valid for a period not exceeding three years, extendable twice, each time for one year. In addition, the Ministry may further extend a permit, with the approval of the government, if it is in the interest of the State. Unless special permission is granted, an extension application can only be made with respect to half of the original exploration area.

The maximum permitted area for an exploration permit is 3,150 square kilometers.

Steps to acquire a prospecting or exploration right

A foreign investor must send an official letter of interest through its respective Embassy in Myanmar to the Union Ministry of Foreign Affairs and to the Ministry. If allowed by the Ministry, discussions will take place with the Department of Geological Survey and Mineral Exploration. Upon reaching an agreement in principle, a proposal form must be submitted by the foreign investor to the Ministry together with relevant documents. The Ministry may, with the approval of the government, grant a prospecting or exploration permit. After the Ministry approves and all the required documents are completed, a proposal and a draft agreement are sent to the Myanmar Investment Commission for the issue of a permit (the MIC Permit).

Relationship with landowners - Exploration

Under the Mines Law and the Mines Rules, an exploration permit holder can carry out production operations only after coordinating and reaching an agreement and after the payment of the agreed compensation or damages to a party having the rights of cultivation, possession, utilization, beneficial enjoyment, succession or transfer of the land included in a permit. If coordination cannot be made and agreement is not possible, the matter is submitted to the Ministry.

An exploration permit holder must also obtain written consent from the relevant Union Ministry or the relevant government department or the owner of the land or a person in possession of the land or a legal representative of the owner of the land.

Obligations of holder – Prospecting and Exploration A permit holder must expend not less than the amount specified in the conditions of the prospecting or exploration permit. In addition, a permit holder must relinquish an area which is not less than half of the exploration area at the end of each year unless specific permission from the Ministry has been obtained. A permit holder must also maintain complete and accurate records, and submit to the Ministry at least once every three months copies of records together with reports.

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Holding tenements Terms of rights - Holding Tenements In general, there are no holding tenements to bridge the gap between when exploration is finished and development starts. However, according to the Mines Rules, the Ministry may grant a large-scale production permit if the application is made by an exploration permit holder who has already made a discovery of a mineral to which its permit relates, and which is made in accordance with the Mines Law and conditions of the exploration permit.

Development / Production tenements Tenements / rights available

A large-scale production permit holder has the exclusive right to carry out mineral production operations in accordance with the conditions of the permit issued by the Ministry, and the right to sell the mineral products within the country or abroad in accordance with the prescribed conditions.

Terms of rights

A large-scale production permit is valid for a period not exceeding 25 years. The term depends on the estimated life of the ore deposit.

The Ministry may extend a permit, with the approval of the government, with or without variation of the conditions, for a period not exceeding five years at a time.

Transition from exploration / holding right to mining right - Development / Production tenements Under the Mines Rules, an exploration permit holder can apply for a mining right after making a discovery of a mineral to which its permit relates.

Foreign ownership restrictions and government participation Mineral exploration and production are restricted activities to be carried out solely by the Government under the SEE Law, but which can be carried out by direct foreign investment, in the form of joint venture with the relevant Government entity under the Ministry or Myanmar Citizens.

Steps to acquire a right - Development / Production tenements The Mines Law and the Mines Rules do not specially provide for the timing. An exploration permit holder can apply for a mining right after making a discovery of a mineral to which its permit relates.

Relationship with landowners - Development / Production tenements

Under the Mines Law and the Mines Rules, a production permit holder can carry out production operations only after coordinating and reaching an agreement and after the payment of the agreed compensation or damages to a party having the rights of cultivation, possession, utilization, beneficial enjoyment, succession or transfer of the land included in a permit. If coordination cannot be made and agreement is not possible, the matter is submitted to the Ministry.

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A production permit holder must also obtain written consent from the relevant Union Ministry or the relevant government department or an owner of the land or a person in possession of the land or a legal representative of the owner of the land.

Obligations of holder - Development / Production tenements

The Mines Law and the Mines Rules do not specifically provide for expenditure to be spent in connection with a large-scale production permit holder.

Under the Mines Rules, a large-scale production permit holder is responsible for carrying out mining of minerals permitted in accordance with the approved program of development and production operations.

In addition, a large-scale production permit holder has to commence production on or before the date specified in the approved program of development and production operations and notify the Ministry in advance before commencing production or terminating production.

There are no domestic supply obligations.

Key Issues Export A large-scale production permit holder has the right to sell mineral products within the country or abroad in accordance with the prescribed conditions.

Taxes Royalties and dead rents must be paid under the Mines Law and the Mines Rules.

All export items are exempted from commercial tax, except precious stones and jade which are subject to commercial tax.

Customs duties are imposed at the rate ranging from 0% to 40% under the Customs Tariff of Myanmar 2012.

In addition, a foreign mining company is subject to a 25% corporate income tax.

Usual structure of venture In practice, a joint venture agreement on the production or profit-sharing basis with a Mining Enterprise or a joint venture with a Myanmar citizen owned company is the usual structure.

Protection for foreign investors The Foreign Investment Law guarantees non-nationalization of foreign investors’ business during the permitted investment period or extended period.

Exclusivity

The relevant permit holder has the exclusive right in accordance with the conditions of the relevant permit to carry out exploration operation or production operation respectively.

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New Caledonia Author’s Summary Author(s) Mathieu Hanaut and Emmanuelle Boue-Mansukh

Summary New Caledonia is an archipelago in the Pacific Ocean located near the Tropic of Capricorn approximately 1,500 kilometers east of Australia, 1,800 kilometers north of New Zealand, 7,500 kilometers from Japan and 18,000 kilometers from metropolitan France.

New Caledonia became a French colony in 1854, and shortly thereafter, various minerals, including coal, gold, copper, cobalt, chrome and antimony, were discovered. These discoveries have provided New Caledonia with an economic advantage in the South Pacific region and international significance disproportionate to its geographical size. Nickel ore, in particular, has been and remains the principal driver of New Caledonia’s mining industry with the country holding a significant proportion of the world’s nickel ore reserves (estimated at approximately 25% to 40%).

Offshore, Australia, New Zealand and New Caledonia share a set of common geological structures within their maritime area, now dubbed the Tasman Frontier Region. Oil extraction sites have already been in operation in Australia and New Zealand. In New Caledonia, the oil potential of west Caledonian offshore basins has now been proven, although knowledge about those basins is still to be developed. The objective is to fill the knowledge gaps, particularly in terms of seismic data compliant with industry standards and deep-sea drilling data, by 2018.

In the same way, recent geological and geophysical data seem to confirm that New Caledonia’s exclusive economic zone (EEZ) could also shelter substantial deep mineralization related to ferromagnesian encrusting, polymetallic nodules and massive sulphuric deposits.

Mining greatly influences New Caledonia’s social and economic development. Extensive legal regulations surrounding the exploration, mining and expose of resources, particularly nickel, reflect the important status of mining in New Caledonia. Excluding tourism, nickel ore and other derived metallurgical products represent approximately 97% of the total value of New Caledonian exports.

Local Landscape Legal framework for mining Legal History

By order of Napoleon III, on 24 September 1853, Rear-Admiral Fébvrier-Despointes took possession of New Caledonia in order to establish a penal colony. Convicts first arrived in 1864 and New Caledonia continued as a penitentiary administration until 1897. In the late 1900s, colonials from metropolitan France were encouraged to settle in New Caledonia and were offered land for cultivation purposes. Despite this, the tropical climate and isolation from France ensured that the ‘free colonization policy’ was short-lived. In the 1920s, another group of French settlers unsuccessfully attempted to cultivate cotton.

In 1946, New Caledonia became an overseas territory within the Republic of France. By 1953, French citizenship had been granted to all New Caledonians, despite ethnicity. The

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decolonization period that followed World War II did not affect New Caledonia until the early 1970s. A New Caledonian independence movement peaked in the 1980s, a period characterized by political crisis and violent confrontations between the pro-independent Kanaks and the descendants of French settlers.

Following the 5 May 1998 Nouméa Agreement, New Caledonia became a territorial collectivity with a specific status within the French State (a “sui generis collectivity”). The current political organization of New Caledonia is derived from the Organic Law (No. 99-209 dated 19 March 1999), which followed the Matignon Agreement and the Nouméa Agreement, and was enacted pursuant to Articles 76 and 77 of the French Constitution. Together, these laws create a complex system that provides for the allocation of powers between the French State, the New Caledonian institutions and its three provinces.

The legal system

New Caledonia has a civil law system inherited from the French system. Contract law in New Caledonia is governed by the French Civil Code. In January 2000, New Caledonia was granted independent authority from France in relation to the regulation of chromium, cobalt, hydrocarbons and nickel exploration and mining. The provinces, which are responsible for monitoring the operations, environment and labor practices of the mining industry, are also responsible for decisions relating to the implementation of the mining legislation.

Mining Code and Scheme

On 18 March 2009, Congress passed a new mining law establishing the Mining Code (the Mining Code) which became operational on 30 April 2009. The introduction of the Mining Code resulted in New Caledonia’s mining regulations being contained in a singular legislative instrument, the Mining Code. The Mining Code has yet to be translated into English.

The Mining Code has the following objectives:

• streamlining mining regulations;

• overhauling New Caledonia’s foreign investment conditions to provide more conducive investment conditions for foreign investors;

• establishing mechanisms that provide for cooperation and open discussion among mining operators, authorities and local communities;

• developing an environmental protection framework which includes an environmental approval process and rehabilitation obligations;

• supporting the export of metallurgically transformed products and laterites; and

• preserving resources through the creation of provincial technical reserve.

In addition to the Mining Code, New Caledonia recently introduced a mining resources development scheme (Schéma de mise en valeur des richesses minières) (the Scheme). The Scheme provides for various undertakings to be commenced in the three provinces in order to:

• provide clarity and transparency of the various administrative procedures in an attempt to provide a context that facilitates industrial development;

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• enhance the mining industry participants’ knowledge of New Caledonia’s resource potential by developing an inventory of resources;

• conserve the natural environment by developing adequate administrative, technical and financial tools; and

• implement measures for the long-term management of mining revenue.

The Mining Code is the initial legislative instrument implemented by the Scheme. Further regulations are expected to be passed.

Environmental considerations

New Caledonia’s environmental legal framework is founded in international law, French law, New Caledonian law and the laws of each province. No specific environmental code has been developed in New Caledonia. However, both the northern and southern provinces of New Caledonia have adopted their own environmental codes. A number of provisions in the environmental code of the Northern Province may have an indirect impact on mining activities. This code provides for protected areas and natural spaces which may ban or limit the implementation of certain mining activities.

International law

New Caledonia is a party to several International and Regional Conventions on Environmental Law, following regarding mining activities and environmental matters: Convention for the Protection of the Natural Resources and Environment of South Pacific, signed in Nouméa on 24 November 1986; and Convention on Long-range Transboundary Air Pollution, signed in Geneva on 13 November 1979.

French law

The Environmental Charter inserted in the French Constitution provides a general framework and guiding principles that are applicable to New Caledonia.

Furthermore, the French Environmental Code contains specific provisions applicable in New Caledonia, including:

• authorization of legal action for environmental protection associations;

• marine waters and waterways open to shipping, subject to specified laws enacted by New Caledonia and its provinces;

• implementation of a protocol on environmental protection based on the Antarctic Treaty signed in Madrid on 4 October 1991; and

• limiting the effect of greenhouse gases

New Caledonian law

Classified installations: Industrial installations that are likely to present dangers or inconveniences for the well-being, safety or health of local residents, public health, agriculture, and the preservation and conservation of the environment, sites and monuments, are subject to an authorization or a declaration from the government, depending on the seriousness of the hazard or inconvenience they may create.

Industrial installations which require authorization or a declaration from the government are listed in nomenclatures specific to each province (Classified Installations).

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Mining activities do not belong to these nomenclatures. However, certain installations related to mining activities, such as treatment facilities of nonferrous minerals, grinding of stone, pebbles, ores and other natural or artificial products, may be subject to authorization or declaration (generally dependent on the power of the machines used on site).

DIMENC and the provinces have the responsibility for the implementation of the Classified Installations’ regulations.

Authorization or declaration: The operation of installations listed as Classified Installations is subject to obtaining prior authorization (Operating Permit) from the president of the provincial assembly.

The operator of installations listed as Classified Installations must file a declaration and must comply with general prescriptions determined by the relevant province.

DIMENC ensures the instruction and the follow-up of the authorization and declaration applications.

The authorization procedure: The procedure for the authorization of a Classified Installation is regulated by each province. Generally speaking, the operator must submit an application to the president of the provincial assembly, containing the following information:

• the identification of the applicant;

• the location of the installation;

• the nature and volume of the activities and the process which will be undertaken;

• several maps depicting the surroundings and the location of the installation;

• Environmental Impact Assessment (EIA) which contains: an analysis of the initial state of the site land and its surroundings; and an analysis of the predictable effects of the installation on its surroundings and the measures envisaged by the applicant to suppress, limit and compensate for the inconveniences of the installation and for the conditions of the restoration of the installation after operation;

• a Danger Risk Assessment (DRA) which indicates: the dangers that the installation may present in case of an accident and the appropriate measures contemplated to reduce its probability and its effects; and the emergency measures the applicant intends to set up in case of an accident.

An application is also subject to public inquiry in the locality where the industrial installation will be operated. The application is also presented to DIMENC and other relevant public authorities for their opinion. The authorization will be delivered by the president of the provincial assembly upon consideration of each opinion sought.

In order to operate an Industrial Installation, the applicant must file with the president of the provincial assembly an application which contains their identity, the location of the installation, and the nature and the volume of activities the operator intends to undertake.

The functioning of a Classified Installation: Once the authorization has been obtained or the declaration acknowledged by the competent authority, the operator must prevent pollution, and protect health and the environment in accordance with technical rules.

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The authority for the control of classified installations is DIMENC. In this capacity, DIMENC may:

• conduct inspections of the installations. Depending on the breaches (if any), an inspection may result in a warning or a formal notice of violation;

• process complaints; or

• conduct inquiries in case of incidents or potential accidents.

The installations are also subject to additional regulations set out by each province which relate to, for instance, disposal of used oils and used batteries or noise pollution.

The closure of a Classified Installation: In each province, the operator is required to notify the president of the provincial assembly when an installation has ceased and thereafter, and must rehabilitate the site to a condition that presents no dangers or inconveniences to the protection of the environment.

DIMENC is responsible for the closure of the classified installation, as well as its remediation procedure.

In the Northern Province, in the event of the sale of a site on which classified installations have been operated, the seller has an obligation to inform the purchaser of the dangers resulting from past operations.

New Caledonian lagoon

The New Caledonia Barrier reef surrounds Grande Terre, New Caledonia’s largest island, as well as the Ile des Pins and several smaller islands, reaching a length of 1,500 kilometers (930 miles).

In January 2002, the French government proposed listing New Caledonia’s reefs as a UNESCO World Heritage Site. UNESCO listed New Caledonia Barrier Reef on the World Heritage List under the name The Lagoons of New Caledonia: Reef Diversity and Associated Ecosystems on 7 July 2008. The Lagoons were listed under three UNESCO categories: Superlative natural phenomena or natural beauty; ongoing biological and ecological processes; and biological diversity and threatened species.

Inclusion in the UNESCO World Heritage is both a recognition and a guarantee of preservation of many endemic mollusks, but also of critical marine habitats such as mangroves and sea grass beds, and a large number of marine wildlife and plant species.

On 23 April 2014, the Government of New Caledonia created a marine reserve called “parc naturel de la mer de corail”. The objective is to protect the marine ecosystems in creating restricted zones where any human activity will be forbidden. A management plan to be approved by the Government is currently discussed and will delimit these zones and provide development and protection programs. A Committee is in charge of the management and protection of the marine reserve. The Committee will monitor the human and commercial activities within the reserve and make sure the restricted zones remain untouched.

New Caledonian forest

Discussions are currently being held at Government level with respect to a compensation that mining companies would have to pay when they proceed to deforestation operations. These discussions are at an early stage and the form of the compensation (tax, royalty, lump sum) is not set yet.

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Indigenous people considerations

In New Caledonia, customary law exists alongside the French civil law. There is a distinction between property located on customary land, which is governed by the rules of customary law, and property located outside customary land, which is governed by the rules of French civil law. Under the mandate of the Nouméa Accord, the ordinary law courts of New Caledonia are able to hear disputes in relation to customary land with the assistance of customary assessors. The courts can impose sanctions and penalties, as well as interrupt or suspend production or use of mining sites.

As a consequence of the interaction between customary law and French civil law, three types of land tenures coexist in New Caledonia: private property, public domain and customary land. If customary lands are inalienable, private property and public domain are permeable categories.

Land claims in New Caledonia have been rare in the past few years.

Personal Mining Authorizations and Exploration Permits In New Caledonia, Personal Mining Authorizations (Autorisations personnelle minière) (APMs) were originally introduced in the 1950s with a view to protecting local resources and local enterprise. Currently, the use of APMs has evolved: they are issued to any applicant wishing to undertake mining operation, provided that they satisfy all regulatory requirements.

An APM does not grant a right to its holder to prospect or mine in relation to the minerals covered by the APM. An APM allows its holder to:

• be identified as a mining operator;

• qualify for a right to prospect;

• apply for new exploration permits;

• request the conversion of existing exploration permits to an exploitation permit or mining concession;

• lease their mining concession (amodiation); and

• export ore.

APMs are granted a term of five years. An APM can be renewed for further periods of five years

Exploration Permit holder The Mining Code provides for a single type of exploration permit to be issued, which covers all minerals. This type of exploration permit is identified by the acronym PR (Permis de Recherche or Exploration Permit).

An exploration permit holder may apply for an exploitation permit (permis d’exploitation or PEs) or a mining concession (Mining Titles) upon the completion of tests that prove the resource. An exploration permit expires upon receipt of a mining title.

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Steps to acquire an Exploration Permit

Generally speaking, the applicant is required to provide extensive technical and financial documentation when applying for an exploration permit. The Mining Code details the specific documentation required to be provided for this

The applicant must provide information which includes:

• geographical details of the relevant tenements;

• CVs of project managers and information related to activities undertaken by the company during the three-year proceeding, which justify the applicant’s mining experience; and

• financial statements.

Holding Tenements There is no concept of a holding or retention licence.

Mining Titles Mining concessions are granted for a period of at least six years and not exceeding 50 years.

A mining concession is a complex legal instrument comprising statutory and contractual elements. A Mining Concession grants its holder a real property right covering the soil and the subsoil, guaranteeing its holder the highest property and security right that can be granted under French civil law. All the permanent buildings, constructions and equipment used for the mining of the tenement are real property. The ore extracted is a chattel.

The holder of a mining concession (le Concessionnaire) is granted a mining right that varies from a usual real property right under French law as the mining concession is not only concerned with the surface area of the tenement (like any other freehold interest) but also with the area below unlimited in depth.

The Mining Concession provides the Concessionnaire with an exclusive right, on the surface and unlimited in depth, to mine the deposit.

A Mining Concession can only be withdrawn in the following limited circumstances:

• force majeure event;

• failure to pay tax;

• incompliant transfer or amodiation;

• serious breach of occupational health & safety (OH&S) or police provisions;

• wrongful operation of the tenement compromising sustainable use of the deposit;

• 10 years inactivity on a Mining Concession where the existence of resources has not been demonstrated;

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• 15 years inactivity on a Mining Concession where the existence of resources has been demonstrated but for which the Concessionaire did not justify why a Mining Concession is required for its activity;

• breach of a contractual obligation in relation to a geographical mining reserve.

Administrative courts in New Caledonia have exclusive jurisdiction to construe the meaning of Mining Concession instruments.

The Mining Code provides for the payment of rent for the tenement (calculated with reference to the acreage of a mining tenement).

It should be noted that the New Caledonian Mining Authority (DIMENC) may refuse to grant a Mining Concession without providing grounds for such refusal. DIMENC can also refuse the transfer of a mining concession between entities on public interest grounds. This concept of “public interest” is narrowly defined in French case law, which acts to limit the risk that the transfer of a mining concession will be refused in New Caledonia.

Procedure for granting APMs and mining titles Identification of the company

An application for a mining concession must state:

• the name (first and surname), profession, nationality, ordinary and elected domicile of the applicant; or

• the company name, share capital and registered office of the company; and

• the name (first and surname), profession, nationality and ordinary domicile of any agent of the applicant (whether individual or company).

Nationality of the company and directors and address

Unless an exemption is otherwise granted by the president of the provincial assemblies, a legal entity carrying on mining activities in New Caledonia (whether directly or indirectly) must be incorporated under the laws of a member state of the European Union. Directors and officers of a company carrying on mining activities in New Caledonia are not required to meet specified nationality requirements.

An APM or a Mining Title may only be granted to a person residing in New Caledonia or to a company which has a registered office or branch in New Caledonia.

Application procedure

An application for a mining concession requires submission various technical and geological documentation, which includes reports explaining the details of any exploration or mining work carried out on the relevant tenements up to the date of the application. This includes extensive financial documentation.

The applicant must also provide a feasibility study and other environmental studies, together, which outline the quality of the mining resources on the tenement and the relevant environmental activities the applicant will undertake. An application for an Exploration Permit will take approximately 45 days. During this period, competing applications for an Exploration Permit and comments may be submitted to the relevant government entity.

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Further declarations

A company holding a Mining Title must, on a yearly basis, provide the president of the provincial assembly with copies of its financial statements and any report submitted to shareholders. Additionally, such company must keep the president of the provincial assembly notified of:

• any amendment to its corporate structure, including changes to its constitution, shareholder or directorship;

• any person or company who, either directly or indirectly, holds a partial or full right to production;

• any information which may affect the technical or financial ability of the company;

• details of any acquisition of shares which result in any one shareholder holding more than 1% of the share capital of the company; and provide details of any person appointed as either a member of the board of directors, managing director, auditor or representative of the company that is not French or an EU citizen.

Obligations of holder Mine Police

The “Mine Police” is a feature of the Mining Code. This institution is responsible for monitoring mining projects from an environmental perspective.

The Mine Police has been granted broad powers which include monitoring mining operations, environmental protection, rehabilitation of zones damaged by mining operations and administrative control. In addition, the Mine Police is empowered to impose administrative and criminal penalties. The Mining Code provides that:

• the opening of a plant must be preceded by an impact study and the opening of a research center by an impact notice;

• an applicant wishing to start a research or operation project must be granted authorization by the president of the provincial assembly (Article Lp 142-9);

• mining companies must rehabilitate a mining site damaged by its activity, taking into account the fundamental characteristics of the surrounding environment;

• if a mining company fails to rehabilitate the environment, the president of the provincial assembly may order the rehabilitation at the mining company’s expense. A financial guarantee, by way of bank guarantee or ongoing contributions, is required to secure the rehabilitation of a mining site.

The “polluter pays principle” is enshrined in Article Lp 142-12. Violators will be prosecuted and will incur administrative (Article Lp 151-1) and criminal (Article Lp 151-2) penalties.

Convicted violators may be imprisoned for a period not exceeding two years and may be required to pay a fine of XPF3,579,000 if, broadly speaking, they, inter alia: operate a mine without proper authorizations, commit an infringement of occupational health and safety regulations or do not follow the Mine Police’s prescriptions. In addition, any person who does not cooperate with the Mine Police’s agent, proceeds to search without authorization or who refuses to communicate geological data or samples to the administration, may be penalized by one-year imprisonment and a fine of up to XPF1,789,000.

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Violators’ personal mining authorizations may be withdrawn and violators may be banned from any application for a mining title for a period of three years.

The president of the relevant province assembly controls the Mining Police.

Key Issues Taxes

The recently elected government is currently undertaking various changes in the tax regime and specific, up to date advice must be sought on the applicable provisions.

Tax incentives

Mining companies may benefit from various tax incentives for mining/metallurgical investment projects in New Caledonia on the basis of the New Caledonian Tax Code and the French Metropolitan Tax Code. The most tax efficient schemes include:

• the specific Metropolitan Tax Code provisions which focus on investments in French overseas territories. For instance, the provisions resulting from the Loi Girardin no. 2003 - 660 of 21 July 2003 allow tax deductions from taxable income for companies investing in certain industrial sectors in New Caledonia; and

• the Law (Loi du Pays) no. 001-009 of 17 July 2001, which relates to certain metallurgical investments and has introduced new tax incentives in the first part of the Tax Code of New Caledonia.

Generally speaking, the tax incentives (mainly tax exemptions and a tax stabilization regime) in New Caledonia concern both the creation of new metallurgical processing plants and the creation of additional equipment needed to operate the plants by non-metallurgical companies. The law also provides specific tax incentives for metallurgical processing plants. Under certain circumstances full tax exemption may be granted for a period of 10 years, which may, in some cases, be increased to 15 years.

Mining royalty

Over the years, the New Caledonian Government had worked on various project of mining royalty tax regime. The latest project was the subject of a bill introduced to Congress in June 2013. The bill proposed to introduce a royalty to finance a “Nickel fund” in order to hedge the industry against the volatility on the nickel prices. This bill was eventually not passed and the project abandoned. A new Government was elected in April 2014, it is expected to present this bill back to Parliament. .

Usual structure of venture

There are three types of limited liability companies under French law: Société Anonyme (SA); Société par action Simplifié (SAS); and Société à Responsabilité Limité (SARL). These companies are the most common type of company formation and are generally characterized as being established by minimum capital divided into transferable shares, and that liability is transferred to their shareholders in proportion to their shareholding. Various filing requirements are imposed on limited liability companies to be made with the Register of Trade and Companies (Registre du Commerce et des Sociétés).

SAS companies allow greater flexibility in corporate governance and their articles can be extensively tailored to suit the requirements of multinational groups. This is the reason why many foreign investors chose the SAS as their vehicle to carry on business in New Caledonia.

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Restrictions on exports/government take

The Mining Code encourages transformation of mineral resources in New Caledonia in order to localize added value within the territory. Subordinate legislation (arrêté No 2010-1007 dated 23 February 2010) materialized the Mining Code’s objective by two means.

Sale affecting the sustainable exploitation of NC mining resources

It is prohibited to sell (non-transformed) nickel ore to an operator whose head office is outside New Caledonia when such a sale would affect the “sustainable exploitation of NC mining resources.”

The test to determine what would affect the “sustainable exploitation of NC mining resources” varies. According to the latest government decree (arrêté n° 2011-3057/GNC dated 14 December 2011 as modified by arrêté n° 2014-1203/GNC dated 29 April 2014), it is prohibited to export non-transformed nickel ore with an average nickel content above 2.15%. The content of nickel ore exported cannot exceed 2.2% (Article R132-4-1).

Geographical mining reserve (RGM)

In order to supply local transformation units, the government of New Caledonia can set up RGM where the ore produced will not be available for export (Article Lp 132-2).

In February 2010 (arrêté n° 2010-1007/GNC dated 23 February 2010), the government established three RGMs.

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Philippines Author’s Summary Author(s) Dennis Quintero and Diane Singayan

Summary Early explorers in the fifteenth and sixteenth centuries called the Philippines the “Isles of Gold.” In addition to gold, the Philippines is richly endowed with other minerals. The country ranks third in the world in gold, fourth in copper, fifth in nickel, and sixth in chromite in terms of occurrence per unit area.

In 2012, ratings agencies confirmed that the Philippines had made a significant improvement in terms of credit/investment rating, global competitiveness, government effectiveness, corruption perception and human development index.

In 2012, the Philippine government issued an executive order (2012 Mining Policy) that sought to “ensure mining’s contribution to the country’s sustainable development” (i.e., economic and social growth and environmental protection) and “ensure a fair, adequate, and equitable shared economic benefit for the country and the people.” The executive order called for (i) Congress to pass a “legislation rationalizing existing revenue sharing schemes and mechanisms,” (ii) the preparation of a national integrated map that would show the areas that are open or close to mining, and (iii) local governments to “confine themselves only to the imposition of reasonable limitations on mining activities conducted within their respective territorial jurisdictions that are consistent with national laws and regulations.” The last item was directed at certain provinces that have passed local ordinances banning mining or open-pit mining. These local ordinances are viewed as having no legal basis under a unitary system of government for contravening the national mining law.

Under the 2012 Mining Policy, existing tenurial permits or agreements will be respected. However, pending the passage of the new mining revenue law, no new mineral agreements (e.g., Mineral Production Sharing Agreement or MPSA) will be entered into. Exploration Permits (EP) will continue to be issued even while the revenue bill is pending with Congress.

The 2012 Mining Policy further enunciates the following:

• Competitive Public Bidding – The grant of mining rights and mining tenements over areas with known and verified mineral resources and reserves, including those owned by the government and all expired tenements, will be undertaken through competitive public bidding.

• All valuable metals, mine wastes and tailings from mining operations that have ceased shall belong to the State and shall be similarly developed and utilized through competitive public bidding.

• Measures on Small-Scale Mining Activities – Small-scale mining operations may be undertaken only within the declared People’s Small-Scale Mining Areas (Minahang Bayan). The use of mercury in small-scale mining is also strictly prohibited. For metallic minerals, small-scale mining shall be allowed only for gold, silver and chromite.

• Consistency of local ordinances with national laws – Local government units are required to confine themselves to the imposition of reasonable limitations on mining activities.

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The passage of the new mining revenue sharing law, preparation of the national integrated map, and issue on the validity of the aforementioned local ordinances have created some current uncertainty in the Philippine mining landscape. The Philippine government has shown political will in expediting the passage of its other priority bills in Congress giving rise to optimism that the foregoing items will be addressed before the end of 2013.

Local Landscape Legal framework for mining

Mining in the Philippines is primarily governed by:

• The 1987 Philippine Constitution;

• The Philippine Mining Act of 1995 (Republic Act No. 7942) (Mining Act); and the

• Revised Implementing Rules and Regulations of Philippine Mining Act of 1995 (IRR).

The legal system is based on civil law.

All mineral resources are owned by the State.

Restrictions on foreign investment in mining For Mineral Production Sharing Agreement (MPSA), the contractors must be Filipino citizens or corporations whose capital is at least 60% Filipino-owned.

Financial or Technical Assistance Agreements (FTAA), Exploration Permits (EP) or Mineral Processing Permits can be held by corporations up to 100% foreign-owned.

Environmental considerations Under the Mining Act, mining activities attendant to permits and mineral agreements shall be managed in a technically, financially, socially, culturally and environmentally responsible manner to promote the general welfare of the country and the sustainable development objectives and responsibilities.

All exploration permittees and mining contractors must strictly comply with all the mine safety rules and regulations concerning the safe and sanitary upkeep of the mining operations and achieve efficient mine development.

Every contractor must undertake an environmental protection and enhancement program covering the period of the mineral agreement or permit. Such environmental program will be incorporated in the work program which the contractor or permittee shall submit as an accompanying document to the application for a mineral agreement or permit. The work program will include not only plans relative to mining operations but also to rehabilitation, regeneration, revegetation and reforestation of mineralized areas, slope stabilization of mined-out and tailings covered areas, aquaculture, watershed development and water conservation, and socioeconomic development.

For exploration projects, the exploration permittee is required to submit for approval an environmental work program, which is a comprehensive and strategic environmental management plan to achieve the environmental management objectives, criteria and commitments, including protection and rehabilitation of the disturbed environment during the exploration period.

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For projects in the production/extraction stage, the mining contractor is required to obtain approval of an Environmental Compliance Certificate (ECC) prior to start of commercial operations. An ECC contains specific measures and conditions that the project proponent has to undertake before and during the operation of a project, and during the project’s abandonment phase to mitigate any identified environmental impact.

Indigenous people considerations No exploration or extraction can be undertaken within ancestral domain without the free and prior informed consent of the indigenous cultural communities/indigenous peoples (ICCs/IPs). The IPs are entitled to royalty payment of at least 1% of the value of the gross output of minerals.

Exploration Tenements

The following rights are available for exploration:

• EP;

• Mineral Agreement, which includes an exploration phase; and

• FTAA, which includes an exploration phase.

Terms

An EP is issued for a period of two (2) years, renewable for like periods but not to exceed a total term of four (4) years for nonmetallic mineral exploration or six (6) years for metallic mineral exploration.

The maximum areas of an EP are as follows:

• Onshore, in any one province:

o for individuals, 1,620 hectares; and

o for partnerships, corporations, cooperatives or associations, 16,200 hectares.

• Onshore, in the entire Philippines:

o for individuals, 3,240 hectares; and

o for partnerships, corporations, cooperatives or associations, 32,400 hectares.

• Offshore, beyond 500 meters from the mean low-tide level:

o for individuals, 8,100 hectares; and

o for partnerships, corporations, cooperatives or associations, 81,000 hectares.

Steps to acquire an exploration right The steps to obtain an EP are as follows:

• File application for exploration;

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• Submit Exploration Work Program (EWP);

• Submit Environmental Work Program (EnWP).

The time required varies but a processing period of 12 months is common.

Relationship with landowners - Exploration An agreement may be entered with landowners, or if there is no agreement, the IRR provides the procedure to determine just compensation.

Obligations of holder - Exploration Minimum ground expenditures during the term of the EP are:

Year Pesos/Hectare

1 100

2 100

3 400

4 400

5 900

6 1,150

7 and onward 1,150

The holder must annually relinquish at least 20% of the permit area during the first two (2) years of exploration and at least 10% of the remaining permit area annually during the extended exploration period. However, if the permit area is less than five thousand (5,000) hectares, the holder need not relinquish any part thereof.

Under an FTAA, the holder is required to relinquish:

• before the end of the first two years of the exploration period, at least 25% of the area; and

• during each year of the second two-year period of the exploration period and each year of the Pre-Feasibility Study Period, at least 10% of the area.

Each FTAA Area, after final relinquishment, must not exceed 5,000 hectares, but this area may be exceeded if it is reasonably required.

The following reports must be filed:

• Report under oath of the EWP implementation and expenditures

• Report on compliance with EnWP

• Final report on all the findings in the permit area

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Holding tenements Rights to hold An EP holder may, at its option, convert totally or partially its EP to a Mineral Agreement or FTAA for the purpose of undertaking detailed exploration, if the exploration activities indicate a resource discovery.

An FTAA also covers the period between exploration and start of development.

Other conditions

Under an FTAA, the DMF should be submitted during the Feasibility Study Period, accompanied by the Mining Project Feasibility Study.

The following must also be submitted:

• Development and Construction Work Program;

• An application for Order of Survey or an approved Survey Plan of the mining area;

• An Environmental Compliance Certificate (ECC);

• An Environmental Protection and Enhancement Program (EPEP) for the Development and Construction Period.

Terms of rights - Holding Tenements

The periods of an FTAA after the exploration period are as follows:

• Pre-Feasibility Study Period – not exceeding two years commencing from the expiration or termination of the exploration period

• Feasibility Study Period – two years commencing from the expiration or termination of the exploration or pre-feasibility study period

• Development and Construction Period – commences on the date of the approval of the Declaration of Mining Project Feasibility (DMF) and ending on the day before the Date of Commencement of Commercial Production

Before the approval of the FTAA application, a one-time non-renewable Temporary Exploration Permit (TEP) with a term not exceeding one (1) year may be issued to undertake exploration.

Before approval of a Mineral Agreement, an application for Special Mines Permit (SMP) may be filed. The SMP shall be for a period of one (1) year renewable once.

Development / Production tenements Tenements / rights available

The following are available for development:

• Mineral Agreement

• FTAA

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Terms of rights

1.1 Mineral Agreement

A Mineral Agreement has a term not exceeding twenty-five (25) years, and is renewable for another term not exceeding twenty-five (25) years.

The maximum areas are as follows:

• Onshore, in any one province:

o for individuals, 810 hectares; and

o for partnerships, cooperatives, associations or corporations, 8,100 hectares.

• Onshore, in the entire Philippines:

o for individuals, 1,620 hectares; and

o for partnerships, cooperatives, associations or corporations, 16,200 hectares.

• Offshore, in the entire Philippines:

o for individuals, 4,050 hectares; and

o for partnerships, cooperatives, associations or corporations, 40,500 hectares.

1.2 FTAA

An FTAA has a term not exceeding twenty-five (25) years, and is renewable for another term not exceeding twenty-five (25) years.

The maximum areas are as follows:

• 81,000 hectares onshore

• 324,000 hectares offshore

• Combination of 81,000 hectares onshore and 324,000 hectares offshore

Transition from exploration / holding right to mining right - Development / Production tenements If the EP holder determines that mining operations are feasible within the EP area, the EP holder will submit a DMF during the exploration period and apply for either an MPSA or an FTAA. The DMF is a document proclaiming the presence of minerals in a specific site and supported by a mining project feasibility study.

Foreign ownership restrictions and government participation Please see discussion under section 2 above regarding foreign ownership.

Under MPSA, the government is entitled to excise tax, income tax, and all such other taxes, duties and fees as provided for in existing laws.

Under an FTAA, the government share is equivalent to 50% of the Net Mining Revenue. To determine whether the FTAA holder has paid the requisite 50% of the Net Mining Revenue,

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the “Basic Government Share” is computed. The Basic Government Share consists of all direct taxes, royalties, fees and related payments required by existing laws, rules and regulations to be paid by the FTAA holder. If the Basic Government Share is less than 50% of the Net Mining Revenue, an “Additional Government Share” to increase the total government share to 50% of the Net Mining Revenue must be paid by the FTAA holder.

Steps to acquire a right - Development / Production tenements The following must be submitted:

• The ECC, EPEP, Certificate of Environmental Management and Community Relations Record (CEMCRR) and approved survey plan;

• The Certificate of Non-Overlap for areas without ICCs/IPs or Certification Precondition for areas with ICCs/IPs, for applications not originating from EPs.

Relationship with landowners - Development / Production tenements An agreement may be entered with landowners, or if there is no agreement, the IRR provides the procedure to determine just compensation.

Obligations of holder - Development / Production tenements

The following environmental procedures must be followed prior to the commencement of the project:

• An ECC;

• CEMCRR - applicant’s proof of satisfactory environmental management and community relations in its past mineral resource use ventures; and

• EPEP - describes the expected and considered acceptable impact and shall set out the life-of-mine environmental protection and enhancement strategies.

The holder must furnish to the government an annual report of its mining operations and records of geologic, accounting and other relevant data.

The holder is required to maintain a Contingent Liability and Rehabilitation Fund (CLRF).

The MPSA holder will allot annually a minimum of 1.5% of the operating costs necessary to implement the Social Development and Management Program (SDMP), advancement of mining technology and geosciences, and Information, Education, and Communication Program.

Under an FTAA, the minimum ground expenditures during the exploration and pre-feasibility periods are as follows:

Year USD/Hectare

1 2

2 2

3 8

4 8

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Year USD/Hectare

5 18

6 23

and a minimum investment of USD50 million or its Philippine peso equivalent in the case of a Filipino contractor for infrastructure and development in the contract area.

Preference is given to Filipinos in all types of mining employment for which they are qualified and alien employment is limited to technologies requiring highly specialized training and experience.

Key Issues Export

The holder must submit to the Director, a copy of its existing and future marketing contract(s)/sales agreement(s) for registration before any sale and/or shipment of mineral product is made, subject to the confidentiality clause. The holder shall regularly inform the Director in writing of any revisions, changes or additions in said contract(s)/agreement(s).

Under the FTAA, the government is entitled to examine all sale and exportation of minerals or mineral products, including the terms and conditions of all sales commitments.

Taxes MPSA taxes: The total government share in MPSA is the excise tax on mineral products, income tax, and all such other taxes, duties and fees as provided for in existing laws.

FTAA taxes: To determine the payments that the FTAA operator must make in favor of the government from the proceeds of the FTAA operation, the “Net Mining Revenue” and “Basic Government Share” need to be computed.

Net Mining Revenue is the gross revenues from sale of mineral products less deductible operating expenses plus government taxes, duties, and fees included as part of deductible expenses

The government share is equivalent to 50% of the Net Mining Revenue. To determine whether the FTAA holder has paid the requisite 50% of the Net Mining Revenue, the “Basic Government Share” is computed. The Basic Government Share consists of all direct taxes, royalties, fees and related payments required by existing laws, rules and regulations to be paid by the FTAA holder. If the Basic Government Share is less than 50% of the Net Mining Revenue, an “Additional Government Share” to increase the total government share to 50% of the Net Mining Revenue must be paid by the FTAA holder.

Usual structure of venture

The project is structured around one of the following types of tenurial permit/agreements:

(a) EP

(b) Mineral Agreements

(c) FTAA

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The Mineral Agreement may either be an MPSA, a Co-Production Agreement, or a Joint Venture Agreement.

An EP shall be obtained prior to conducting exploration activities. Depending on the exploration results, the EP can be converted into an MPSA or an FTAA.

The IRR also allows an applicant to apply for an FTAA, instead of an EP. An FTAA entered into in this manner would contain its own exploration period. However, the project must qualify as a large-scale mining project with an investment commitment of at least USD50 million for development and construction. The Mining Act authorizes the President to execute and approve on behalf of the government FTAAs to be entered into with qualified entities for large-scale exploration, development and commercial utilization of mineral resources.

Protection for foreign investors

Contractors under mineral agreements are given the following investment guarantees:

• Repatriation of Investments

• Remittance of Earnings

• Foreign Loans and Contracts – The right to remit such sums as may be necessary to meet the payments of interest and principal on foreign loans and foreign obligations arising from financial or technical assistance contracts.

• Freedom from Expropriation

• Requisition of Investment – The right to be free from requisition of the property, except in case of war or national emergency and only for the duration thereof, and upon payment of just compensation.

• Confidentiality

Domestic supply obligations

The FTAA holder must endeavor to dispose of the minerals and by-products produced in the FTAA Area at the highest commercially achievable market price with the lowest commercially achievable commissions and related fees, and to negotiate for sales terms and conditions compatible with world market conditions.

The FTAA holder is required to inform the government when it enters into a marketing agreement or sales contract with foreign and local buyers. Marketing contracts and sales agreements involving commercial disposition of minerals and by-products are subject to the DENR Secretary’s approval.

Under the FTAA, the government is entitled to examine all sale and exportation of minerals or mineral products, including the terms and conditions of all sales commitments.

Sales commitments with affiliates can be made only at prices based on or equivalent to arm’s-length sales.

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Thailand Author’s Summary Author(s) Peerapan Tungsuwan, Ornsiri Samarnmitr and Bulin Sanooj

Summary Mining production in Thailand has continued to expand as a result of growing demand from both the domestic and international markets. For 2015, the expansion rate is expected to be affected by slower growth of Thailand’s industrial sector and delayed public investment in infrastructure programs.

Thailand’s mineral commodities include basalt, cement clay, gold ore, gypsum, lignite, limestone, rock salt, shale (industrial rock-cement) and silver ore, comprising both “industrial minerals” and “energy minerals.”

While recognizing the importance of the mining industry, the Thai government has placed significant importance on ensuring that Thailand’s environment and natural resources will be fully protected against damage which may be created from mining activities. Therefore, mining projects are subject to a range of preventative and control mechanisms.

Local Landscape Legal framework for mining Mining in Thailand is regulated under the amended Minerals Act, B.E. 2510 (A.D. 1967) (the Minerals Act). The Department of Primary Industries and Mines (DPIM), within the Ministry of Industry (MOI), is responsible for the supervision and promotion of the mining industry, including the mineral trade and the setting of safety and pollution-control requirements. Applications to operate in the mining industry can be divided into six categories, according to their operational stage:

• Prospecting and exploration

• Mining

• Mineral processing and metallurgical processing

• Mineral possession, transport, and royalty payment

• Purchase, sale and storage of minerals

• Mineral import and export

Thailand has a codified system of law. The major legislative codes are the Civil and Commercial Code, the Penal Code, the Civil Procedure Code, the Criminal Procedure Code, the Revenue Code and the Land Code. The content of each was drawn from the laws of other countries having codified systems, common law systems, and traditional laws of Thailand.

Although the Constitution of the Kingdom of Thailand, B.E. 2550 (A.D. 2007) stipulates that persons assembling to form a community, local community, or traditional local community have a right to the maintenance and exploitation of the natural resources, environment and biological diversity within their area, the Minerals Act provides that no person may undertake

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prospecting or mining activities in any area, regardless of the rights over the area, unless they have received a prospecting and/or mining license. Therefore, minerals, in effect, belong to the state.

Oil and gas activities are regulated separately from mining. The Petroleum Act, B.E. 2514 (A.D. 1971) governs the exploration, production, storage, transportation, sale, and disposal of petroleum. Oil and gas activities fall under the ultimate authority of the Department of Mineral Fuels, within the Ministry of Energy.

Restrictions on foreign investment in mining

The Minerals Act itself does not impose any restrictions on foreign investment in exploration and mining operations.

However the conduct of business by foreigners in Thailand is governed by the Foreign Business Act, B.E. 2542 (A.D. 1999) (FBA). The term “foreigner,” under the FBA, is defined to include companies in which a majority of shares is held by foreign nationals and/or foreign entities.

The FBA seeks to prohibit or restrict foreigners from conducting certain business activities as listed under the relevant schedules attached to the FBA. Mining is one of the restricted businesses listed under Schedule 2 of the FBA.

Foreigners may only operate businesses listed under Schedule 2 of the FBA if:

• at least 25% to 40% of the company’s shares (depending on the decision of the Minister of Commerce with the approval of the Cabinet) are held by Thai individuals or juristic entities; and

• the number of Thai directors is not less than two-fifths of the total number of directors

A foreigner seeking to conduct restricted businesses is required to obtain a Foreign Business License (FBL) prior to the commencement of businesses (unless there are circumstances which would exempt it from such requirements).

In practice, foreigners who are seeking to conduct mining activities may be required to submit an application to the DPIM in order to obtain the Mining Leases (ML) prior to being able to obtain the FBL.

Additionally, mining operators may be eligible to obtain promotion from the Board of Investment (BOI). However, one of the conditions imposed by the BOI for almost all mining activities is that Thai nationals or Thai entities must hold no less than 51% of the shares in the company.

Lastly, where foreigners undertake to provide certain services in relation to mining operations, e.g., a mining contractor, then the foreigner may be deemed to be conducting a “service business,” which is listed as a restricted business under Schedule 3 of the FBA (but falls outside the conduct of mining activities under Schedule 2), for which an FBL must also be obtained. However, in such instances, the foreigner is not subject to the specific shareholding and the director ratio requirements which apply to businesses listed under Schedule 2 as outlined above.

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Environmental considerations

Under the Enhancement and Conservation of the National Environmental Quality Act, B.E. 2535 (A.D. 1992), mining operations of all sizes must prepare an Environmental Impact Assessment (EIA) Report for submission to the Office of Natural Resources and Environmental Policy and Planning (ONEP). An EIA Report contains details of the operations’ structure and activities, an assessment of these activities’ environmental impact, and proposed environmental protection measures. For private sector projects, the EIA Report will be reviewed by the ONEP and an expert committee consisting of members qualified or specializing in the mining field, as well as representatives from the DPIM and other related agencies. For government agencies, state enterprises or joint projects between government agencies and the private sector, the EIA Report must be submitted to an expert committee and the National Environmental Board (NEB) for a feasibility assessment. Thereafter, the ONEP, acting as the secretariat of the NEB, will review and provide comments on the EIA Report. The EIA Report will then be forwarded to the cabinet for approval.

Some specific types of mining operations are classified as operations which may cause serious impact to the community and thus are required to prepare an Environmental and Health Impact Assessment (EHIA) Report to be submitted in the ML application stage. Such mining operations include underground mining in a mine designed to cave in after mining activities are completed with no supporting poles or replacement of materials to prevent cave-in, lead mining, zinc mining, mining of metal ores using cyanide or nitrate or lead in the production process, mining of metal ores with arsenopyrite as an associated mineral, coal mining which employs motor vehicle in conveying coals out of the mining area, and offshore mining.

Indigenous people considerations

There are no specific requirements under Thai law relating to indigenous peoples or other similar considerations.

Exploration Tenements

Under the Minerals Act, mineral prospecting and exploration covers geological, geochemical, or geophysical surveying; drilling, pitting, or trenching; or any other distinct method or combined methods to appraise the quantity of minerals in a specific area. Prospecting or exploration is not allowed, regardless of a person’s rights to the land, unless a Prospecting License, an Exclusive Prospecting License, or a Special Prospecting License has been granted.

Terms

Prospecting License: A Prospecting License is granted for mineral prospecting and exploration within a designated area of an administrative district or a province. It is issued by the Local Mineral Industry Official (LMIO) and valid for one year. It cannot be extended.

In submitting an application for a Prospecting License, an applicant is required to pay the following fees:

• Application fee of THB20 (approximately USD0.60)

• Fee of THB100 (approximately USD3.30) to issue license

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Exclusive Prospecting License: An Exclusive Prospecting License is a document granted to an applicant for the exclusive prospecting and exploration within a designated area.It is issued by the Minister of Industry.

In submitting an application for an Exclusive Prospecting License, an applicant is required to pay the following fees:

• Application fee of THB20 (approximately USD0.60)

• Fee of THB500 (approximately USD16.60) to issue the license

• Advance payment of Land Utilization Fee amounting to THB5 (approximately USD0.16) per rai, per year (one rai is 1,600 square meters)

There are two types of Exclusive Prospecting Licenses:

• Exclusive Prospecting Licenses for Inland Prospecting: Each application is limited to an area not exceeding 2,500 rai. However, the MOI’s policy is not to grant this type of Exclusive Prospecting License for any area exceeding 1,250 rai, except where an investment promotion certificate is granted for the prospecting and mining of minerals that will be used as raw materials in a metallurgical process or in a factory. This type of Exclusive Prospecting License is valid for one year and cannot be extended.

• Exclusive Prospecting License for Offshore Prospecting: Each application is limited to an area not exceeding 500,000 rai. However, the MOI’s policy is not to grant this type of Exclusive Prospecting License for any area exceeding 20,000 rai. This type of Exclusive Prospecting License is valid for two years and cannot be extended.

Special Prospecting License: A Special Prospecting License is granted for exclusive prospecting and exploration for a specific set of circumstances within a designated area. The area for prospecting must not exceed 10,000 rai. This license is issued by the Minister of Industry, valid for five years and cannot be extended.

In submitting an application for a Special Prospecting License, an applicant is required to pay the following fees:

• Application fee of THB20 (approximately USD0.60)

• Fee of THB500 (approximately USD33.30) to issue the license

• Advance payment of Land Utilization Fee of THB5 (approximately USD16) per rai, per year

Steps to acquire an exploration right

After the relevant application form has been filed with the LMIO, the official examines the completeness of the form, the relevant documents, and the area intended for prospecting to ensure it is not a prohibited area.

Prospecting Licenses are issued by the LMIO while applications for Exclusive Prospecting and Special Prospecting Licenses are forwarded by the LMIO to the governor of the relevant province, the DPIM, and the MOI for approval and issuance.

The time required depends on circumstances of each individual case and, more importantly, the availability of the Minister of Industry (in the case of Exclusive Prospecting License or Special Prospecting License). It is possible that the process may take more than one year.

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Relationship with landowners - Exploration

The applicant is not required to own land. However, prior consent from the landowner must be obtained before the exploration can proceed.

Obligations of holder - Exploration

Prospecting License: The license holder must comply with the conditions specified in the Prospecting License. Mineral prospecting can be conducted only by geological, geochemical, or geophysical surveys. Prospecting methods that directly collect mineral samplings, such as pitting, trenching, and drilling are not allowed. A report of the prospecting result is not required. The license holder may surrender the Prospecting License before its expiration.

Exclusive Prospecting License: Prospecting must be conducted according to an approved working plan and methods, under the supervision and responsibility of a certified geologist or mining engineer. The license holder must commence prospecting within 60 days from the date of receiving the Exclusive Prospecting License and submit a report detailing the results of operations and prospecting work undertaken in the first 180 days after receiving the Exclusive Prospecting License. This report must be submitted using the prescribed forms to the LMIO within 30 days before the end of the 180-day period.

A final report must be submitted, in the same manner, detailing the results of operations and prospecting work undertaken between the time when the initial report was submitted and within 30 days before the expiration of the Exclusive Prospecting License. The license holder may also surrender the Exclusive Prospecting License before its expiration.

Special Prospecting License: Prospecting for minerals must be conducted according to an approved working plan and methods under the supervision and the responsibility of a certified geologist or mining engineer. The license holder must commence prospecting within 90 days from the date of receiving the Special Prospecting License and must report the results of the operations and prospecting works to the DPIM every 120 days.

The license holder is required to spend a certain amount on prospecting expenses in each obligation year as specified in the Special Prospecting License. At the end of each obligation year, if the license holder has not fully complied with the obligation, the difference must be paid to the DPIM within 30 days.

If the license holder incurs prospecting expenses in excess of the prospecting obligation, the excess may be carried forward and deducted from the obligations in subsequent obligation year.

If the license holder has complied with the conditions and obligations of the Special Prospecting License, and prospecting results indicate that the whole area or parts of the area contain no targeted minerals or contain insufficient values to mine, the license holder may surrender the Special Prospecting License or parts of the area thereof by submitting an application to the LMIO. The revocation or the surrender of the area becomes effective on the date of submission and the holder is relieved of the remaining obligations.

Holding tenements Terms of rights - Holding Tenements A PML is valid for one year from the date of issue. If the ML application is rejected, the PML expires on the date of rejection.

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The PML covers the same area as the area applied for in the ML application.

In submitting an application for a PML, an applicant is required to pay the following fees:

• Application Fee of THB20 (approximately USD0.60)

• Fee of THB1,000 (approximately USD33.30) to issue the license

• Advance payment of the Land Utilization Fee of THB5 (approximately USD0.16) per rai, per annum

A Provisional Mining Lease (PML) grants temporary mining rights within a designated area while an ML application is under consideration.

In the period after exploration has been completed, the ML application has been submitted, and the prospective mining area demarcated, an operator that wishes to commence mining before the ML is granted may submit a PML application to the LMIO.

However, as the qualifications needed to obtain the PML are the same as the qualifications needed for the ML, it is common for business operators to simply apply and wait to obtain the ML instead of duplicating the process by submitting an application to obtain a PML as well.

Development / Production tenements Tenements / rights available An ML is required to conduct mining operations for general minerals, excluding gold, within a designated area.

Other licenses that may be required include a Special Prospecting License and separate licenses for gold mining, industrial rock quarry mining and ore dressing. The application procedure differs for each. In the event that a large mineral deposit is discovered, the MOI may invite tenders and grant an exclusive contract for exploration and development of the area. Bidders must submit an offer containing special benefits of interest to the state.

Terms of rights The term of an ML may not exceed 25 years. However, where any ML has a term of less than 25 years, the holder may apply for an extension provided that the total period of validity does not exceed 25 years. An ML may not be transferred or subleased without the approval of the MOI.

There are three types of ML Areas with the following area limitations:

• Surface ML: limited to an area not exceeding 300 rai

• Underground ML: limited to an area not exceeding 10,000 rai

• Offshore ML: limited to an area on shore not exceeding 50,000 rai

There is no limit to the number of MLs that may be applied for. In practice, a mining operator may apply for multiple MLs.

In submitting an application for an ML, an applicant is required to pay the following fees:

• Application Fee of THB20 (USD0.60)

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• Mining Lease Insurance Fee of THB1,000 (USD33.30)

• Advance payment of the Land Utilization Fee of THB5 (USD0.16 per rai, per annum for tin mining and THB20 (USD0.60) per rai, per annum for all other minerals.

• Surveying cost of THB10 (USD0.33) per 40 meters of measured length

• Investigation Fee of THB100

• Cost of demarcation posts of THB100 per post

In addition to the above, the holder of an ML must pay a mining area utilization fee in advance on a yearly basis as well as a special subscription fee at a rate not exceeding 10% of the Mining Royalty Tariff.

The above fees are the fees which must be paid to the DPIM and are in addition to any fees that must be paid to the landowners.

Foreign ownership restrictions and government participation

The Minerals Act itself does not impose any restrictions on foreign investment in exploration and mining operations.

However the conduct of business by foreigners in Thailand is governed by the Foreign Business Act, B.E. 2542 (A.D. 1999) (FBA). The term “foreigner,” under the FBA, is defined to include companies in which a majority of shares is held by foreign nationals and/or foreign entities.

The FBA seeks to prohibit or restrict foreigners from conducting certain business activities as listed under the relevant schedules attached to the FBA. Mining is one of the restricted businesses listed under Schedule 2 of the FBA.

Foreigners may only operate businesses listed under Schedule 2 of the FBA if:

• at least 25% to 40% of the company’s shares (depending on the decision of the Minister of Commerce with the approval of the Cabinet) are held by Thai individuals or juristic entities; and

• the number of Thai directors is not less than two-fifths of the total number of directors.

A foreigner seeking to conduct restricted businesses is required to obtain a Foreign Business License (FBL) prior to the commencement of businesses (unless there are circumstances which would exempt it from such requirements).

In practice, foreigners who are seeking to conduct mining activities may be required to submit an application to the DPIM in order to obtain the Mining Leases (ML) prior to being able to obtain the FBL.

Additionally, mining operators may be eligible to obtain promotion from the Board of Investment (BOI). However, one of the conditions imposed by the BOI for almost all mining activities is that Thai nationals or Thai entities must hold no less than 51% of the shares in the company.

Lastly, where foreigners undertake to provide certain services in relation to mining operations, e.g., a mining contractor, then the foreigner may be deemed to be conducting a

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“service business,” which is listed as a restricted business under Schedule 3 of the FBA (but falls outside the conduct of mining activities under Schedule 2), for which an FBL must also be obtained. However, in such instances, the foreigner is not subject to the specific shareholding and the director ratio requirements which apply to businesses listed under Schedule 2 as outlined above.

The government may participate in mining activities through projects belonging to government agencies or state enterprises, or through joint projects between the public and private sector.

Steps to acquire a right - Development / Production tenements The steps for acquiring an ML can be divided into three stages. In the first stage, the submission stage, an applicant submits an ML application form accompanied by supporting documents and pays the applicable fees to the LMIO.

In the processing stage, the applicant accompanies an official to survey the prospective mining area in order to demarcate the said area. The results of the survey and relevant maps are then sent to the DPIM. The application is then forwarded to the Local Administrative Council and the provincial authority to make a public announcement in the local area. Should there be no objection raised within 20 days, a letter of consent from the governor of the relevant province will be issued. The applicant then submits a mining project plan, a calculation of the desired ML term, and the prospecting report, containing details of the mining reserves and value, for review by the DPIM. Next, the applicant accompanies the DPIM official to inspect the mining reserves in order to approve the mining project plan. In addition, the application must prepare and submit an EIA Report for the consideration and approval of the ONEP.

It is important to note that if the prospecting mining area is in a special area, for instance, a national reserve, certain watershed areas, or an area within 50 meters of a main roadway or public watercourse, further area-specific requirements may apply. In the case of underground mining for instance, due to its impact on the use, possession, and environment of the surface land, a public hearing must be held by the

Minister of Industry after the EIA Report is submitted by the applicant. Further, if the mining area is within another person’s property, on a public domain, or reserved land of the state, the applicant must obtain written consent from the public or private owner, as the case may be.

In the final stage, the approval stage, the application is considered by the Committee of the DPIM and the Committee formed under the Minerals Act. After the respective Committees approve the application, the MOI then issues an ML to the applicant.

The normal amount of time required to process an ML application is approximately 97 days from the date of submission.

Relationship with landowners - Development / Production tenements There are no specific requirements under Thai law which relate to indigenous peoples.

The Minerals Act does, however, require a mining operator to obtain the consent of the landowner in order to be able to conduct the mining operations in the relevant area of land.

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Obligations of holder - Development / Production tenements

The holder must comply with the terms and conditions stipulated in the ML (as well as the work plan and special remuneration committed with the DPIM upon submission of the ML application).

General expenditures include an annual area utilization fee calculated based upon the total mining area, as well as a special subscription fee not exceeding 10% of the royalty rate payable for minerals produced.

The Minerals Act requires mining operators to ensure that there are workers to work at the site in every 12-month period with a monthly average of at least one worker per two rai (3.2 square kilometers). If using labor-saving machines, the power of such machines will be calculated in place of workers-per-area at the rate of one horsepower to eight workers. Additionally, it should be noted that the holder of the ML must ensure that there must be at least 120 working days for every 12 month-period.

Further, general labor law provisions apply to the mining industry, including those contained within the Civil and Commercial Code and specific labor law acts, such as the Labour Protection Act, B.E. 2541 (A.D. 1998) and the Labour Relations Act, B.E. 2518 (A.D. 1975).

Notably, the Labour Protection Act stipulates the maximum amount of allowable working hours for work that may be dangerous to the health and safety of employees, which includes work that must be conducted underground, underwater, in caves, in tunnels or in places with limited air ventilation, shall not exceed seven hours and the total working hours in one week shall not exceed 42 hours.

Key Issues Taxes Corporate income tax

In general, all companies in Thailand are subject to a corporate income tax at the rate of 30% of net profits, although the government has issued Royal Decree No. 577 to reduce corporate tax rates from 30% to 20% for 2015. The reduction of corporate tax rate may be extended. Most payments to foreign companies, such as dividend and interest payments, are subject to income tax. The taxpayer must withhold the tax at a rate ranging from 10% to 15%. Corporate income tax is imposed on the net profit of a fiscal year. If a company incurs a loss, it may carry it forward for five consecutive years but may not carry the loss back.

Value-added tax (VAT)

According to the Revenue Code, a company or business that sells goods or services and earns an annual gross revenue equivalent to or exceeding THB1.8 million in a calendar year must apply for VAT registration.

VAT is levied on sales or services in Thailand and the import of goods into Thailand at a rate of 7% (as of 2012). Export of goods and services rendered in Thailand and utilized outside Thailand, and aircraft or sea vessels engaging in international transportation, are subject to 0% VAT, which entitles the VAT registrant to receive an Input VAT refund.

Mineral Royalty Tariff

Mining operators must pay a Mineral Royalty Tariff. The Mineral Royalty Tariff is a form of tax specifically collected by the state from mining operations. The applicable rates for the Minerals Royalty Tariff are based on the price of metal in the respective ores. The current

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rates for various minerals range from 2% to 15% as stipulated in the Ministerial Regulation issued under the Mineral Royalty Rates Act.

Usual structure of venture

The entity usually used to conduct mining operations in Thailand is the limited liability company (both private and public).

Therefore, an important issue which should be considered in cases where foreigners (as defined under the FBA) will invest in such companies in Thailand is the foreign shareholding restrictions under Thai law.

Where the foreign party wishes to maintain control of the mining company, it may be necessary to have certain control mechanisms in place.

For example, the shares in the company may be split into preference and ordinary shares, whereby the holders of the preference shares have greater or lesser voting rights. Notwithstanding the foregoing, there would have to be reasonable economic returns which justify one shareholder having more limited rights.

Security of tenure

Security of tenure may still be an issue for the mining industry in Thailand. In this respect, there are no definitive guarantees that the Prospecting License holder will obtain the right to conduct the mining operations in the area in which it conducted exploration as other applicants would not be prevented from submitting an application to obtain an ML at such area.

As for the holders of the Exclusive Prospecting License and the Special Prospecting License, although others may be prevented from submitting an application to obtain the ML, there is still an exception which would allow the owner of the land to submit an application.

Even if no others submit an application to obtain an ML in competition with the holder of the Prospecting License, the Exclusive Prospecting License and the Special Prospecting License, such license holders would still be required to submit all the required information and documents in order to obtain an ML. Thus, failure to submit such required documents and/or information may still mean that the ML will not be issued to said license holders.

Lastly, it should be noted that the Minerals Act empowers the Minister of Industry, with the approval of the cabinet, to change the area under the Prospecting License, the Exclusive Prospecting License, the Special Prospecting License, the PML or the ML, where there is a necessity to use the said area for the benefit of public utility works, the defense of the nation or for other public benefits. In such instances, the relevant license holders cannot claim damages which may arise from the said changes.

Protection for foreign investors

The Investment Promotion Act guarantees BOI-promoted companies against nationalization, competition from state enterprises, monopolies on the sale of similar products, price controls and export restrictions.

Restrictions on exports/government take

Although the Minerals Act does not impose any specific domestic supply obligations, it is possible that the government may, from time to time, issue regulations and/or policies which may impose an obligation upon the mining operator to sell a certain portion of minerals gained to the government.

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Exports of the following minerals are subject to restrictions:

• The export of more than 50 grams of tin

• Any export of gold, thorium, or any radioactive minerals

• The export of over two kilograms of copper, zinc or iron

• The export of more than one ton of dolomite, barite, feldspar or gypsum

Persons who wish to export such products must obtain a Mineral Export License.

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Vietnam Author’s Summary Author(s) Frederick Burke, Dang Chi Lieu and Nguyen Thanh Hai

Summary Vietnam has relatively diverse mineral resources with more than 60 kinds of minerals having been discovered. However, mineral deposits in Vietnam are mainly of small or medium sizes. Resources found in quantities that can serve long-term mining and export are oil and gas, bauxite, rare earths, titanium, coal, limestone, silica sands, facing stone, building stone and mineral water. Resources found in smaller quantities which are mined mainly for domestic consumption include iron ore, chromium, manganese, copper, tin, lead-zinc, tungsten, gold, antimony, uranium, feldspar, kaolin, talc, fluorite, barite, graphite, dolomite, phosphorite, bentonite and diatomite.

The number of enterprises engaged in mining has rapidly increased during the past decade. However, the industry is still dominated by the state-owned Vietnam National Coal and Minerals Industries Corporation (Vinacomin). Foreign investment in the mining industry in Vietnam is increasing, but still occupies a low share in comparison with other economic sectors, and is mainly concentrated in the oil and gas sector.

This chapter provides a general overview of the primary laws governing mining activities in Vietnam, except for those activities in connection with various specific minerals (e.g., oil and gas).

Local Landscape Legal framework for mining The legal system in Vietnam is civil law based. The mining industry in Vietnam is mainly regulated by the Law on Minerals and its guiding documents. Relevant laws also include those on land, environmental protection, royalties and investment.

The Constitution of Vietnam provides that underground natural resources, resources in the territorial waters, on the continental shelf and in the air space fall under the ownership of the entire people of Vietnam. The Law on Minerals provides that the government (i.e., the administrative body of the State) is in charge of the management of mining activities in the country, with various authorities being allocated with different powers. The key regulatory bodies that administer the Law on Mineral include:

• the Ministry of Natural Resources and Environment (MONRE), which manages the mining activities at a nationwide level, including the issuance of or making proposals on regulations implementing the Law on Minerals, issuance of mining-related licenses for mining projects (except for certain mining projects of smaller scale or less important);

• the Ministry of Industry and Trade (MOIT), which is in charge of technical and commercial aspect, such as drawing up master plans for mineral exploration, exploitation and processing, regulating mine designs, and supervising mineral export;

• the Ministry of Construction (MOC), which is in charge of minerals being construction materials, including drawing up master plans and supervising export activities for these materials; and

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• Provincial People’s Committees, which manage the mining activities at provincial level, including making proposals on areas subject to mining restriction or prohibition in the relevant provinces, issuance of mining-related licenses for mining projects on minerals being construction materials, or small-scale projects.

In addition, investment projects in the mining industry are also subject to the investment law, with the Ministry of Planning and Investment (MPI) and the provincial departments of planning and investment (DPIs) being the authorities in charge.

Restrictions on foreign investment in mining

Although there is no express provision on foreign ownership restrictions under the law in the mining industry, the master plans for different types of minerals are among the bases for the authorities’ assessment of mining projects. These master plans often contain the policy on investment forms. Normally, foreign investment is sought in large-scale projects that need strong financial capacity or high technology to develop. This gives the authorities certain discretion to decide whether to approve the foreign ownership in a project or not. In addition, some general restrictions under the law for all sectors would apply as well, such as the limitation of cumulative 49% foreign ownership in public companies in Vietnam.

Environmental considerations

In order to apply for exploration licenses and exploitation licenses, depending on the nature and the size of the relevant projects, investors must prepare either environmental impact assessment (EIA) reports or environment protection commitments under the environment regulations. These documents must be approved by the competent environmental authorities and included in the application dossiers for relevant licenses.

After the completion of the construction of environmental protection works and prior to the project operation, the environmental authority will conduct an inspection on the environmental protection works and measures to ensure that they comply with the EIA reports and regulations.

Before conducting mineral exploitation activities, the holders will have to pay a deposit for environmental rehabilitation and restoration to the relevant environment protection funds to guarantee their obligations to rehabilitate and restore the environment at the end of the projects.

If the operation of the mining facility needs to discharge pollutants to the environment, then the investor would need to apply for certain pollutant discharge permits from the competent environmental authorities.

Indigenous people considerations Vietnamese laws do not provide for special rights to ethnic minority groups or indigenous people affected by mining activities. However, in cases where investors lease land from the government authorities to serve their mining activities, the people residing or farming on the land (if any) would normally be compensated for their interests in the land as part of the site clearance process.

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Exploration Tenements Mineral areas may only be explored pursuant to an exploration license.

In Vietnam, an exploration license holder is entitled to the following rights:

• to use mineral-related information pertaining to the exploration purpose and area;

• to conduct exploration according to the mineral exploration license;

• to take away from the exploration area, even abroad, specimens with volume and types suitable to the characteristics and requirements of analyses and experiments under the approved exploration project;

• to be prioritized to obtain a license for exploring minerals in the exploration area;

• to request the extension of the mineral exploration license, to return it or return part of the exploration area;

• to transfer the mineral exploration right;

• to lodge complaints or lawsuits against decisions revoking the mineral exploration license or other decisions of competent state agencies; and

• other rights provided by law.

Terms

A mineral exploration license is valid for 48 months at most and may be extended multiple times for a total maximum duration of 48 months. Upon each extension, the licensed organization or individual must return at least 30% of the exploration area stated in the granted license.

The size of an exploration area under a specific exploration license for a kind or group of minerals is stipulated as follows:

• not exceeding 50 square kilometers for gemstone, semi-gemstone and metallic minerals except bauxite;

• not exceeding 100 square kilometers for coal, bauxite and non-metallic minerals on land, with or without water surface, except minerals to be used as common construction materials;

• not exceeding 200 square kilometers for minerals of all kinds in the continental shelf, except minerals to be used as common construction materials;

• not exceeding two square kilometers on land or one square kilometer in water surface areas, for minerals to be used as common construction materials;

• not exceeding two square kilometers for mineral water and natural thermal water.

The current fees payable for issuance of an exploration license is from VND4,000,000 to VND15,000,000 (approximately USD200 to USD750), depending on the size of the exploration area.

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Steps to acquire an exploration right

For areas subject to the auction of the exploitation right, the entities winning the relevant auctions will be entitled to apply for exploration licenses for relevant areas.

For areas not subject to the auction of the exploitation right, the licensing authorities will select the entities to conduct a mineral exploration on the basis of application and, if there is more than one entity applying, evaluation in terms of equity capital, previous involvement, and commitments to use the minerals for domestic use according to the relevant master plan.

Relationship with landowners - Exploration In Vietnam, the land is owned by the people as represented by the State. Therefore, entities engaged in mineral activities must rent the land from competent government authorities according to the land law, unless they do not use the land surface layer or their mineral activities do not affect the use of land surface of organizations and individuals that are lawfully using such land. A land lease contract will terminate upon the expiration of the relevant mineral exploration license or mineral exploitation licenses, and will be correspondingly adjusted upon the return of the part of the mineral exploration or exploitation area. People residing or farming on the land (if any) would normally be compensated for their interests in the land as part of the site clearance process.

Obligations of holder - Exploration An exploration license holder is subject to the following obligations:

• to pay a licensing fee and fulfill other financial obligations provided by law;

• to strictly comply with the mineral exploration license and implement the approved exploration project;

• to report to the licensing agency for consideration and approval changes in exploration methods or volumes which result in an increase of over 10% in estimated expenses;

• to compensate for damage caused by exploration activities;

• to notify the exploration plan to the provincial-level People’s Committee of the locality in which they will conduct mineral exploration before implementation;

• to collect and store mineral-related information and report exploration results to state management agencies in charge of minerals; and report other activities to competent state agencies under law;

• to perform site and environment recovery when the mineral exploration license expires; and

• other obligations provided by law.

Holding tenements Rights to hold

Vietnamese law does not provide for holding tenements to bridge the gap between when exploration is finished and development starts. Please see Transition from

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exploration/holding right to mining right - Development/ production tenements for more information.

Development / Production tenements Tenements / rights available

Development operation of a mine can only occur after an exploitation license for that mine has been issued. According to the Law on Minerals, organizations and individuals licensed for exploitation have the following rights:

• to use mineral-related information pertaining to the exploitation purpose and area permitted for exploitation;

• to exploit minerals under the exploitation license;

• to further explore mineral deposits within the permitted area and depth and, before exploration, notify the volume and duration of such exploration to competent licensing state management agencies;

• to store, transport, sell and export the exploited minerals under law;

• to apply for extension or return of the exploitation license, or return of part of the exploitation area;

• to transfer the exploitation right;

• to lodge complaints or lawsuits against decisions revoking the exploitation license or other decisions of competent state agencies;

• to rent land under the land law according to the approved exploitation investment project or mine design;

• other rights provided by law.

Terms of rights An exploitation license is valid for 30 years at most and may be extended multiple times with the total extension period not exceeding 20 years. The area and depth-based boundary of an exploitation area will be considered on the basis of the mining investment project suitable to mineral deposits permitted for mining design.

Depending on the type of minerals, the exploitation capacity and area, the fees for issuance of an exploitation license currently range from VND1,000,000 to VND100,000,000 (approximately USD50 to USD5,000). In addition, holders of exploitation licenses also must pay a fee for the grant of exploitation right, which is determined based on the price, deposit, quality, kind or group of minerals, and exploitation conditions.

Transition from exploration / holding right to mining right - Development / Production tenements

For areas subject to the auction of exploitation right, if the areas have not been explored, the winners of the auctions will have the right to conduct exploration.

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For areas not subject to the auction of exploitation right, organizations and individuals licensed for exploring minerals are prioritized to obtain exploitation licenses for the approved mineral deposits.

The priority right to conduct exploitation is only applied for mineral deposits that have already been explored under the exploration licenses and approved by the competent authorities. The application for exploitation licenses must be made within six months after the expiration of the mineral exploration licenses. No specific administrative fee is attached to the exercise of the priority right. If an organization or individual fails to apply for an exploitation license within this period of time, the priority right will be lost. If the authorities grant exploitation licenses to other organizations or individuals, such organizations or individuals must reimburse the exploration expenses corresponding to the licensed deposits to the organizations or individuals that have conducted the exploration.

If the organizations or individuals that wish to explore minerals need to conduct field surveys and take surface specimens to serve the selection of areas for the elaboration of mineral exploration projects, they can only do so after obtaining the written approval of the provincial-level People’s Committees of localities in which the to-be-explored areas are located.

Foreign ownership restrictions and government participation

There is no express provisions on foreign ownership restrictions or government participation in the mining industry (except for oil and gas). However, foreign-invested projects in mining sector are subject to certain conditions as mentioned in section 2.

Steps to acquire a right - Development / Production tenements

Vietnamese authorities divide mineral activity areas into (i) areas subject to auction of the exploitation right and (ii) areas not subject to auction of the exploitation right, based on certain criteria.

For areas subject to auction of the exploitation right, exploitation licenses are granted to the winners of relevant auctions organized by the authorities. For areas not subject to auction of the exploitation right, exploitation licenses are granted on an application basis. As mentioned above, organizations and individuals licensed for exploring minerals are prioritized to obtain exploitation licenses for the approved mineral deposits.

Relationship with landowners - Development / Production tenements In Vietnam, the land is owned by the people as represented by the State. Therefore, entities engaged in mineral activities must rent the land from competent government authorities according to the land law, unless they do not use the land surface layer or their mineral activities do not affect the use of land surface of organizations and individuals that are lawfully using such land. A land lease contract will terminate upon the expiration of the relevant mineral exploration license or mineral exploitation licenses, and will be correspondingly adjusted upon the return of the part of the mineral exploration or exploitation area. People residing or farming on the land (if any) would normally be compensated for their interests in the land as part of the site clearance process.

Obligations of holder - Development / Production tenements Organizations and individuals licensed for exploitation have the following obligations:

• to pay a fee for the grant of the exploitation right, a licensing fee, royalties, taxes, and charges, and fulfill other financial obligations under law;

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• to ensure the schedule of mine infrastructure construction and exploitation activities stated in the exploitation investment project and mine design;

• to register the date of commencement of mine infrastructure construction and the date of the commencement of exploitation with competent licensing State management agencies and notify them to People’s Committees at all levels in the locality in which the mines are located before construction or exploitation;

• to exploit to the maximum main and accompanied minerals; to protect mineral resources; to ensure labor safety and sanitation and take measures to protect the environment;

• to collect and store information on results of further exploration for mineral deposits and on exploitation results;

• to report exploitation results to competent state management agencies under regulations of the Ministry of Natural Resources and Environment;

• to compensate for damage caused by exploitation activities;

• to create favorable conditions for other organizations and individuals to conduct scientific researches permitted by the state in the exploitation area;

• to close mines, restore the environment and rehabilitate the soil when the exploitation license expires;

• other obligations provided by law.

Key Issues Taxes

A holder of exploitation rights in Vietnam is subject to certain main taxes and fees as follows:

• enterprise income tax;

• value-added tax;

• natural resources tax;

• import/export duties;

• fees for the issuance of exploitation license;

• reimbursement of the mineral exploration costs;

• fees for environment protection;

• deposit to environmental protection fund;

• fees for the grant of exploitation right;

• fees for the use of geological and mineral documents;

• fees for the participation in mineral exploitation right auction (in case of participating in an auction); and

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• land rental (in case of leasing land).

Overlapping tenements

Except for oil and gas sector, the law does not contain specific provisions on this issue. In principle, exploration and exploitation license holders have the obligation to conduct their activities within the licensed area. Therefore, if they want to expand their activities to adjacent areas, they would need to apply for new licenses.

Usual structure of venture

Foreign investors may invest in mining in Vietnam by either direct investment (setting up new companies under the form of 100% foreign-owned or joint venture with local partners, contributing capital to existing companies, or signing business cooperation contract with local partners without setting up a legal entity) or indirect investment (purchasing shares in existing companies).

As mentioned above, foreign shareholders currently may not own more than 49% of the total shares in public companies.

Security of tenure

As discussed above, an exploration license holder has a priority right to apply for the exploitation for the approved mineral deposits. However, an exploration license can be withheld by the authorities if the holder fails to conduct exploration within six months following the effective date of the license (unless it is due to force majeure), or the holder commits certain violations without curing the same within a period of time, or the exploration area is declared to be banned or temporarily banned from mineral activities.

An exploitation license can be withheld if the holder fails to build mine infrastructure within 12 months following the effective date of the license, or fails to conduct exploitation within 12 months since the proposed commencement date, unless due to force majeure events, or the holder commits certain violations without curing the same within a period of time, or the exploitation area is declared to be banned or temporarily banned from mineral activities.

In case an exploration or exploitation area is declared to be banned or temporarily banned from mineral activities, the license holder will be compensated for the damages that the license holder suffers from such declaration.

Protection for foreign investors

The Law on Investment of Vietnam provides for a number of measures on investment protection, notably the following:

• Guarantee regarding the investors’ assets, under which the investors’ lawful assets will not be nationalized or confiscated by an administrative measure. In the event that the State makes a compulsory purchase or requisitions of the property of an investor due to reasons of national defense or security or due to the national interest, state of emergency, or combat or prevention of natural disasters, the investor will be paid or compensated in accordance with the provisions of law concerning compulsory purchases and requisitions of property and the provisions of other relevant laws;

• Guarantee regarding the change of law, under which if a new law provides greater investment preferential treatment, the investor will be entitled to enjoy the preferential investment treatment under the new law. If a new law provides lesser preferential investment treatment, then depending on the actual situation, the investor is either (i)

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entitled to continue applying the investment preferential treatment under the previous law, or (ii) entitled to certain measure to protect its interests, such as deducting the investor’s actual damage against taxable income, adjusting the operational objectives of the investment project, or certain assistance to remedy the damages;

• Guarantee regarding the remittance of foreign investors’ assets to foreign countries, under which the investor, after having performed fully the financial obligations towards the State of Vietnam, is entitled to remit abroad the following assets: The invested capital, the proceeds from the investment liquidation, the incomes from the business investment activities, and the monies and other assets in the investor’s lawful ownership.

Central Asia

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Azerbaijan Author’s Summary Author(s) Gunduz Karimov and Jamil Alizada

Summary Azerbaijan has long been known for its considerable mineral reserves. The country is endowed with rich oil and gas resources, with oil remaining the driving force of the Azerbaijani economy. The oil industry features upstream, midstream and downstream segments, and the majority of the current production is based offshore in the Caspian Sea.

Azerbaijan is also rich in metallic minerals. During the Soviet era, it produced alumina, copper-molybdenum ore, chromite ore and other metallic minerals. The government is now making attempts to revive the aluminium industry. With the oil and gas industry predominant, however, the metallic mineral industry remains secondary in importance, and still a minor contributor to the country’s gross domestic product.

Since its independence, Azerbaijan has succeeded in creating a stable legal framework in the mining industry and a predictable legislative and regulatory framework, which governs the exploration, use, protection, safety and supervision over the use of subsoil reserves located both within Azerbaijan and on the Azerbaijani sector of the Caspian Sea.

Local Landscape Legal framework for mining

Azerbaijan is a unitary republic. Mining is primarily regulated at the national level – in limited circumstances, local municipalities regulate the mining industry. Laws are the principal means of regulation at the state level. Municipalities can issue local rules and regulations provided that these are in compliance with national law.

Contracts, such as production-sharing agreements/contracts (PSAs), (as opposed to licensing) were common during the first years after state independence as no modern mining legislation existed in Azerbaijan. Contracts are still common for projects of strategic importance. Since many provisions of these contracts contradict existing legislation, they are adopted as law, prevailing over any other inconsistent laws.

The principal laws and regulations regulating the mining industry are:

• Constitution of the Republic of Azerbaijan, adopted by public referendum on 12 November 1995;

• Law No. 439-IQ on Subsoil, dated 13 February 1998 (the Subsoil Law);

• Decree No. 102 of the President of the Republic of Azerbaijan, On Ensuring Implementation of Law on Subsoil, dated 13 February 1999;

• Instructive Order No. 351 of the President of the Republic of Azerbaijan, On Approval of Certain Legal Acts Ensuring Implementation of Law on Subsoil, dated 6 March 2000;

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• Events of Award of Special Permit (License) for Subsoil Use by Direct Negotiations, approved by Resolution No. 111 of the Cabinet of Ministers of the Republic of Azerbaijan dated June 30, 2000;

• Rules on Approval and Writing-off of Mineral Reserve Deposits, approved by Decree No. 973 of the President of the Republic of Azerbaijan, dated 23 October 2003;

• Regulations on Rules and Terms of Competitions and Auctions for Subsoil Use, approved by Decree No. 975 of the President of the Republic of Azerbaijan, dated 23 October 2003;

• Regulations on Rules on Subsoil Use for Production of Radioactive Raw Materials and Burial of Radioactive Waste and Hazardous Substances, approved by Decree No. 975 of the President of the Republic of Azerbaijan, dated 23 October 2003.

Additionally, precious metals (gold, silver, platinum and platinum group metals) and gems (natural diamond, emerald, ruby, sapphire and alexandrite) are further regulated by Law No. 924-IIQ On Precious Metals and Gems, dated 10 June 2005. Among the specific issues addressed are the regulation of the country’s gold reserves, state hallmarking and the like. Issues concerning the exploration and production of precious metals and gems continue to be regulated by the Subsoil Law and subordinate regulations.

The legal system of Azerbaijan is civil law based. As of 1 September 2000, the new Civil Code of the Republic of Azerbaijan (the Civil Code) came into effect. The Civil Code’s structure and provisions are heavily influenced by the German and Russian models.

The state retains exclusive ownership (title) to minerals in the ground. The rights that can be granted (whether through licensing or contracts) to private parties are generally limited to the right to explore and develop minerals. There are no areas where the mining rights are held privately or which belong to the owner of the surface rights (the rights of such owners typically extend to no more than five meters underground).

The same regime applies to oil and gas as to other minerals.

Restrictions on foreign investment in mining There are no general limitations on foreign parties obtaining mining rights in Azerbaijan.

The government has imposed certain restrictions on foreign capital in certain strategic spheres, such as national defense. Restrictions also apply to certain specific types of activities, such as those involving treatment of radioactive and other hazardous substances. In cases where restrictions apply, a specific activity can be carried out either by a state-owned business or a business where the government holds a controlling stake.

Environmental considerations

There are no published health, safety or environment rules specifically applicable to the operation of mining-related facilities. The existing regulations prescribe the limits of environmental pollution, the requirements for environmental monitoring and other related matters. Additionally, administrative regulations establish the types of operation prohibited as part of general subsoil use. Mining operations are subject to certain mandatory insurance cover (environmental and third-party liability insurance).

The principal regulator in relation to health, safety and environmental matters is the Ministry of Ecology and Natural Resources (the MENR). The operation of facilities that are considered hazardous is also regulated by the Agency for the Supervision of Safe Conduct

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of Works in Industry and Mining under the Ministry of Emergency Situations (the Mining Agency).

Penalties for the violation of health, safety and environmental rules include administrative fines which differ depending on the type of violation; the state is entitled to recover damages from a subsoil user delinquent in environmental pollution.

Indigenous people considerations

There are no requirements specifically applicable to subsoil users to protect the rights of aboriginal, indigenous or previously disadvantaged peoples. There are general rules requiring a person taking over a particular project to comply with certain obligations relating to the social protection of employees (particularly of state-owned entities) previously operating a project. These rules may also be set out in terms of the licenses and contracts granting mining rights. Other general rules address social protection and the protection of labor rights of disabled persons and other categories of disadvantaged individuals.

Exploration Tenements

Under the Subsoil Law, a right to engage in subsoil exploration activities can be granted to Azerbaijani citizens and entities, as well as to foreign individuals and legal entities, pursuant to a special permit or license. The licensing process also normally involves the award of geological leases. The law does not specifically set forth the tenements/rights granted for exploration.

Terms A license for exploration can be issued for a term of up to five years and can be extended subject to the subsoil user’s compliance with the terms of the license. An existing license holder who has complied with the terms of the license has a priority right to obtain an extension.

Upon the grant of a special permit (license), the MENR confers the status of a geological lease to subsoil plots granted for the purpose of exploration. Several special permits relating to the same subsoil plot can be granted to various subsoil users — legal relations between them are set out in the special permit.

Under the Subsoil Law, duties, royalties and taxes payable by private parties conducting exploration activities consist of the following specific payments:

• state duty for the award of license;

• payments for the use (exploration) of subsoil (do not apply if both exploration and development are licensed); and

• payment for the use of areas of the seabed and water.

Because fields are often awarded through contracts, not all of the above payments may apply in practice.

Steps to acquire an exploration right

Licenses for exploration are awarded by competitive tender (auction) and, in exceptional cases, through direct negotiation. MENR prepares an initial list of deposits to be licensed. This list is subsequently approved by the Mining Agency and by all other relevant authorities.

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Tenders and auctions are conducted by the MENR and the Mining Agency, and may be open or closed. Open tenders (auctions) have no restrictions as to the number or categories of subsoil users. Closed tenders (auctions) are conducted for Azerbaijani entities, defense industry enterprises converting to civil production, and state enterprises where the use of subsoil reserves involves the production of radioactive raw materials and the burying of radioactive waste and hazardous substances.

Direct negotiations for the award of a mining license are conducted by the MENR and the Mining Agency. Direct negotiations are conducted where less than two bids have been received during the tender (auction) process, where production of reserves remains unexploited (preserved), and in certain other cases.

State duty of AZN2,200 (approximately USD2,800) is payable on licenses: The license itself is issued by the Ministry of Emergency Situations.

Relationship with landowners - Exploration

Surface rights are normally acquired independently from mining rights. As a condition for a subsoil user being awarded a license, the preliminary consent of the landowner must be obtained.

Land ownership is divided into three categories: (i) state-owned, (ii) municipal and (iii) private land, that is, land owned by individuals and entities. Foreign persons may not own land in Azerbaijan but may lease it without an option to purchase. According to the “residual principle” set forth in the Civil Code, all land not owned by municipalities or private persons (whether individuals or entities) is state-owned.

As a general rule, title to state-owned land may not be transferred to private parties. In certain cases, however, such land may be leased by district and city executive authorities to private parties. Certain state-owned land may be leased pursuant to auctions held by state, district and city authorities.

Municipal land consists of publicly used land, municipal land leased to individuals and entities and land in the reserve fund. Municipality-owned land can be leased from municipalities through an open auction conducted by the State Committee of the Republic of Azerbaijan for Land and Cartography. As with state-owned land, the minimum rent chargeable is tied to the amount of land tax.

The legal regime governing privately owned land is less restrictive than that governing state-owned and municipal land. Subject to certain restrictions, private owners can freely exercise their rights with regard to such land, including the right to lease it.

Obligations of holder - Exploration

Subsoil users prepare annual reports as of 1 January of the preceding year, to be filed by 1 February. The reports consist of five geological survey statistical report forms, description of reserves “written off” protocols on the increase of reserves and their transfer from one category to another, and explanatory notes. The reports are prepared for each type of mineral by deposit fields (or portions of a field), and are classified according to whether only geological exploration or both geological exploration and extraction have been conducted.

Exploration and development rights may be terminated in the following cases:

• expiration of special permit or license;

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• waiver by subsoil user of his rights — in this case, the subsoil user shall inform the state authority issuing the license (special permit) six months in advance; and

• in case of occurrence of circumstances (depriving the rights) under special permit or license.

The right of exploration and development may also be limited or terminated early by the state authority issuing the special permit (license) in the following cases:

• occurrence of threat to life and health of people living and working in the mining areas;

• non-compliance with conditions determined in the special permit or license;

• systematic violation of the rules of subsoil use;

• the occurrence of force majeure (natural disasters, acts of war and others);

• where the subsoil user has not proceeded to mining activities in specified volume, within the time frame determined in the special permit or license;

• liquidation of entity that was granted the right of subsoil use;

• by the initiative of the holder of a special permit or license.

In case of elimination of circumstances that provoked the early termination or limitation, the right of subsoil use may be fully re-established.

Subject to the fulfillment of the terms of a license, the parties may agree to extend the time for the use of subsoil.

There are no restrictions or limitations specifically imposed on the employment of domestic or foreign employees in connection with mining.

The law does not provide for domestic supply obligations in connection with mining activities (although such obligations are common under PSAs and similar contracts).

Holding tenements Rights to hold

There is no particular system of holding tenements, to bridge the gap between when exploration is finished and development starts.

Development / Production tenements Tenements / rights available

Under the Subsoil Law, a right to engage in both subsoil exploration and extraction (development) activities can be granted to Azerbaijani citizens and entities, as well as to foreign individuals and legal entities, pursuant to a special permit or license. The licensing process also normally involves the award of mining or geological leases.

In cases of both exploration and development activities, subsoil users have the rights to:

• use the subsoil within the boundaries of lease in accordance with the purposes specified in the special permit (license);

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• independently choose the forms of activity in accordance with the purposes specified in special permit (license);

• use the results of activities, including the minerals extracted, in accordance with the special permit (license) and existing law;

• use mining wastes, unless otherwise provided in special permit (license);

• carry out geological exploration without additional authorizations at own expense within the boundaries of a geological lease; and

• apply to relevant executive authorities for revision of the conditions of special permit (license).

The license and the rights granted pursuant to the license may not be assigned to third parties. The succession of subsoil use rights or a change of the subsoil user’s name requires reissuance of the license.

Subsoil users must have documentary evidenced qualifications and experience for carrying out the relevant activities and must comply with the rules applicable to mining (filing of mining activity reports, compliance with ecological and other standards, etc.).

Terms of rights A license for development may be issued for a term of up to 25 years; a 30-year license may be issued in the event of a combination of exploration and development activities by the subsoil user. The term of a development license can be extended subject to the subsoil user’s compliance with the terms of the license. An existing license holder who has complied with the terms of the license has a priority right to obtain an extension.

The status of a mining lease is assigned to the subsoil plot designated for development. The preliminary boundaries of such mining lease are determined at the moment of grant of the special permit (license). After finalization of the technical plan, receipt of favorable opinions of state experts in relation to the technical plan, and its endorsement by the MENR and the Mining Agency, the documents with updated and detailed boundaries (plot coordinates, plans and cutting lines) are included as part of the special permit (license).

Duties, royalties and taxes payable by private parties conducting mining activities consist of the following payments:

• state duty for the award of a license;

• payments for the use of subsoil (see description below);

• mining tax (royalty);

• allocations for the replacement of minerals; and

• payment for the use of areas of seabed and water.

Payments for the use of subsoil consist of payments for the use of the subsoil related to production, for use unrelated to production, and for excessive losses during production. In practice, the assessment of payments for the use of subsoil is made based on tax law, which does not provide for any such payments. Tax law does, however, provide for a mining tax and certain other taxes generally levied on businesses (income tax, value-added tax, assets tax etc.), including those engaged in mining.

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PSAs approved into law may provide for other or additional taxes and levies, such as acreage fees.

Transition from exploration / holding right to mining right - Development / Production tenements

The right to explore the resource arises upon receipt of a development (extraction/production) special permit (license) or, if the special permit provides for both exploration and development, upon completion of the exploration in accordance with the conditions of the special permit (license).

PSAs generally provide for exploration obligatory work programs with relevant time limitations, such as four years, that can vary from PSA to PSA.

Foreign ownership restrictions and government participation

Pursuant to Presidential Decree No. 310 on Measures to Improve the Grant of Special Permit (License) of Some Forms of Commercial Activities dated 28 March 2000, activities such as, inter alia, extraction of precious stones and mining and processing of gold, oil and oil products, and natural gas must be carried out by state entities or joint-stock companies with government holding a controlling stake.

Steps to acquire a right - Development / Production tenements

Licenses for exploration are awarded by competitive tender (auction) and, in exceptional cases, through direct negotiation. MENR prepares an initial list of deposits to be licensed. This list is subsequently approved by the Mining Agency and by all other relevant authorities.

Tenders and auctions are conducted by the MENR and the Mining Agency, and may be open or closed. Open tenders (auctions) have no restrictions as to the number or categories of subsoil users. Closed tenders (auctions) are conducted for Azerbaijani entities, defense industry enterprises converting to civil production, and state enterprises where the use of subsoil reserves involves the production of radioactive raw materials and the burying of radioactive waste and hazardous substances.

Direct negotiations for the award of a mining license are conducted by the MENR and the Mining Agency. Direct negotiations are conducted where less than two bids have been received during the tender (auction) process, where production of reserves remains unexploited (preserved), and in certain other cases.

State duty of AZN2,200 (approximately USD2,800) is payable on licenses: The license itself is issued by the Ministry of Emergency Situations.

Relationship with landowners - Development / Production tenements Surface rights are normally acquired independently from mining rights. As a condition for a subsoil user being awarded a license, the preliminary consent of the landowner must be obtained.

Land ownership is divided into three categories: (i) state-owned, (ii) municipal and (iii) private land, that is, land owned by individuals and entities. Foreign persons may not own land in Azerbaijan but may lease it without an option to purchase. According to the “residual principle” set forth in the Civil Code, all land not owned by municipalities or private persons (whether individuals or entities) is state-owned.

As a general rule, title to state-owned land may not be transferred to private parties. In certain cases, however, such land may be leased by district and city executive authorities to

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private parties. Certain state-owned land may be leased pursuant to auctions held by state, district and city authorities.

Municipal land consists of publicly used land, municipal land leased to individuals and entities and land in the reserve fund. Municipality-owned land can be leased from municipalities through an open auction conducted by the State Committee of the Republic of Azerbaijan for Land and Cartography. As with state-owned land, the minimum rent chargeable is tied to the amount of land tax.

The legal regime governing privately owned land is less restrictive than that governing state-owned and municipal land. Subject to certain restrictions, private owners can freely exercise their rights with regard to such land, including the right to lease it.

Key Issues Taxes

The law provides for low (compared to the rates applicable to oil and gas) mining tax rate applicable to ore deposits. Also, certain exemptions and discounts are applicable to payments for the qualifying use of subsoil (production of commonly found minerals, operation of deposits with low efficiency, etc.). Other than that, there are no specific tax advantages available to private parties carrying out mining activities. There are also no distinctions between the duties, royalties and taxes payable by domestic and foreign investors.

Generally, PSAs approved into laws provide for a taxation regime that may normally be viewed as advantageous compared with the generally applicable tax regime.

Usual structure of venture The current practice in Azerbaijan is for foreign entities to either (i) establish a limited liability company (LLC) in which both the foreign contractor and the local partner own shares, or (ii) form a contractual joint venture, i.e., enter into an agreement with the local partner. A contractual joint venture may be in the form of a joint activity agreement (which is the most common form for an unregistered venture) or a profit-sharing, alliance or similar agreement. Contractual joint ventures are not registered with a government agency.

Security of tenure

As discussed above, an existing license holder who has complied with the terms of the license acquires a priority right to receive an extension. Other than that, the law does not provide for specific security of tenure in connection with transition from exploration to production.

Protection for foreign investors

Foreign investment in Azerbaijan is regulated by a number of international treaties and agreements involving Azerbaijan and by domestic legal acts, including the Law on Protection of Foreign Investment dated 15 January 1992 (the Foreign Investment Law); the Law on Investment Activity dated 13 January 1995 (the Investment Activity Law); and the Privatization Law and the Second Privatization Program, as well as laws regulating specific sectors of the Azerbaijani economy.

Foreign investors (foreign entities, governments, international organizations and individuals permanently residing outside Azerbaijan) may engage in any investment activity not

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prohibited by Azerbaijani law. Pursuant to the Foreign Investment Law, foreign investment may take any of the following forms:

• participation in entities established with legal entities and citizens of the Republic of Azerbaijan on a shared basis;

• establishment of enterprises wholly owned by foreign investors;

• purchase of enterprises, proprietary complexes, buildings, structures, shares in enterprises, other shares, bonds, securities, and certain other property which, under the laws of the Republic of Azerbaijan, may be owned by foreign investors;

• acquisition of rights to use land and other natural resources, and other proprietary rights; or

• conclusion of agreements with legal entities and citizens of the Republic of Azerbaijan providing for other forms of foreign investments.

Enterprises with foreign investment include joint ventures, enterprises wholly owned by foreign investors, and representations (offices and branches) of foreign legal entities.

Under Azerbaijani law, foreign investments are provided with the following guarantees:

• A “not-less-favored” regime for foreign investors, except as otherwise provided in an applicable bilateral investment or other treaty or the

• Foreign Investment Law, foreign investors have the same rights as local investors and may, additionally, be granted preferential rights not accorded to local investors;

• Foreign investors have the right to repatriate profits, revenues and other amounts received in connection with investments, provided that all applicable Azerbaijani taxes have been paid;

• Where a change in Azerbaijani legislation adversely affects an investment, the application of that change is subject to a 10-year moratorium. The moratorium has the force of law and is automatically enforceable and binding upon all Azerbaijani state agencies. Legislation that governs national security, defense, public order, morality, public health and environmental protection, as well as acts affecting credits and finances, fall outside the scope of the moratorium. However, under the Investment Activity Law, subsequent acts (including acts governing defense, national security, public order and tax) adversely affecting investment terms should not apply to the investor for the term of an “investment contract”;

• Nationalization is possible by resolution of the National Assembly under exceptional circumstances to prevent harm to the people or state interests of the Republic of Azerbaijan. Confiscation is possible only under circumstances of natural disaster, epidemics and other extraordinary situations by a decision of the Cabinet of Ministers. In both cases, foreign investors are entitled to compensation that must be “prompt, adequate and effective”; and

• Free access to international arbitration. The use of arbitration for dispute resolution is generally possible where two conditions are present: the law does not specifically prohibit a particular type of dispute from being submitted to an arbitration tribunal; and the parties agree to transfer specific disputes to the international tribunal.

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Incentives may be available to foreign investors and enterprises with foreign investment in certain sectors of the Azerbaijani economy, notably the energy sector. These are granted by legislative acts regulating those sectors of the economy, as well as by agreements concluded by the state with investors.

Bilateral investment and other treaties in relation to foreign investment may establish a more favorable investment climate and provide additional guarantees to foreign investors. Under Azerbaijani law, international treaties prevail over local law (except for the Constitution and acts adopted by referendum) regulating the same issue.

The Republic of Azerbaijan has entered into and implements 44 bilateral treaties on the mutual protection of investments and is a party to a number of multilateral treaties concerning foreign investment. Azerbaijan has entered into and implements bilateral treaties for the avoidance of double taxation with 45 countries.

Restrictions on exports/government take

Export of ferrous metal scrap from Azerbaijan is subject to an export customs duty. To promote local processing, however, the government has, since April 2001, prohibited the export of scrap ferrous metal and non-ferrous metals from Azerbaijan. There are no other restrictions or limitations imposed specifically on the processing, export or sale of metallic minerals.

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Kazakhstan Author’s Summary Author(s) Azamat Kuatbekov and Nurgul Abdreyeva

Summary In Kazakhstan, the mining industry is regulated by the Subsoil and Subsoil Use Law, a single law which covers both the mining and oil and gas sectors. Accordingly, the basic regulatory regime is the same for both industries, although specific rules may also apply. Mining rights are granted by the state on the basis of “subsoil use contracts” executed between the state and private entities. Mining operations are heavily regulated by various laws (including, but not limited to, environment protection, safety, health, local content and other regulations). Compliance with obligations set forth in subsoil use contracts is essential since failure to comply may result in unilateral termination of such contracts by the State. Acquisition, direct or indirect, of mining rights is subject to obtaining a number of statutory clearances.

Recently, the Government has announced its intent to change its general policy with respect to the mining industry. The contemplated policy change is prompted by the desire to increase the investment attractiveness of the industry, particularly in the mineral exploration sector. In line with this policy, the Subsoil and Subsoil Use Law has been amended a number of times. In particular, the latest amendments to the law envisage, among other things, the following:

(i) introduction of two additional mechanisms for the grant of subsoil rights, (ii) reduction of the time required to obtain subsoil rights and in the number of approvals to be obtained from the State, (iii) optimization of the application package for obtaining subsoil rights and (iv) introduction of the possibility to split contract territory by way of separation of different deposits.

Also, in order to increase the attractiveness of the industry, the Government is currently considering adoption of the Code On Subsoil and Subsoil Use which will codify the main rules in this area. It is anticipated that the new Code will provide more flexible rules for private investors.

Local Landscape Legal framework for mining Kazakhstan’s legal system is civil-law-based, built on the traditions of the continental, Roman-Germanic family of laws. The Constitution, as the supreme law of the country, establishes the general basis of the mining industry. Under Kazakhstan’s constitution, all subsoil resources in situ are owned by the State. Title to natural resources only passes from the State to the subsoil user on their extraction from the ground pursuant to the terms of a subsoil use contract.

The primary law regulating mining activities is the “Law on Subsoil and Subsoil Use” dated 24 June 2010 (the Subsoil Law). The industry is also regulated by other laws and regulations, including the Government Resolution No. 1456 “On the Approval of the Rules for Granting Subsoil Use Rights,” dated 30 December 2010; the Tax Code; the Land Code; the Labour Code; the Environment Code; the National Security Law and the procurement laws.

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The Subsoil Law provides the general framework for subsoil use operations, which is further detailed in legislation from the Government and other State bodies. Unlike many other countries, the Subsoil Law regulates both mining and oil and gas activities.

Restrictions on foreign investment in mining

There are no special requirements or limitations on the acquisition of mining assets by foreign companies or individuals. However, the acquisition of subsoil use assets (irrespective of whether they are acquired by local or foreign parties) is subject to a number of statutory approvals and consents, including the waiver of the State’s pre-emptive purchase rights (if a transaction involves a strategic deposit from the special list approved by the Government), consent of the Ministry of Investments and Development and consent of the Competition Agency. Among other things, Kazakhstani law allows the Ministry of Investments and Development (the MID), which is the primary regulator for the mining industry (except for uranium), to withhold its consent to the transfer of an interest in a subsoil use contract or shares in the relevant subsoil entity (or its parent entity), if such transfer may result in a “concentration of rights to conduct subsoil use operations” in the hands of one person or a group of persons from one country. The concept of “concentration of rights” is not clearly defined in the law and the MID may exercise substantial discretion in this regard.

Environmental considerations

Subsoil users in Kazakhstan are subject to extensive environmental protection regulation. The Ministry of Energy of the Republic of Kazakhstan (the ME) is the principal State authority in the sphere of environmental protection. Among other things, it issues environmental permits and licenses and establishes the limits for environmental emissions.

Individuals and legal entities that use the environment (e.g., subsoil users) are subject to State environmental control. ME carries out such control by organizing State environmental inspections. Various aspects of business activities are subject to environmental requirements. For example, a positive State environmental expert evaluation must be obtained in relation to projects involving an environmental impact before such projects may begin. Enterprises engaged in environmentally hazardous business activities are subject to the mandatory requirement of obtaining environmental insurance covering potential damage as a result of environmental contamination. All individuals and legal entities that produce discharges into the air, sewage and any solid or industrial waste must obtain an environmental permit from ME or its local subdivisions.

Legal entities and individuals may be subject to civil, administrative and criminal liability for the violation of environmental requirements.

Indigenous people considerations In Kazakhstan there are no indigenous people or similar population considerations. However, there are a number of so-called local content requirements. Further to these requirements, subsoil users must buy locally produced goods, works and services according to minimum thresholds usually set in subsoil use contracts. It is anticipated that these requirements will become softer in view of Kazakhstan’s entrance into the World Trade Organization.

Exploration Tenements

Exploration is carried out on the basis of exploration or combined exploration and production contracts. Currently, Kazakhstan has a contractual concession regime in place for granting

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subsoil use rights. As a result of amendments to laws in 1999, Kazakhstan no longer operates a license system.

Terms

Exploration contracts are concluded for a term of six years. In the event of discovery of natural resources, the contract may be extended for the period necessary for the assessment of the commercial discovery.

The territory subject to an exploration contract is determined by a geological allotment. Every subsoil user that is granted exploration rights is issued a geological allotment, which details the area in which exploration may be conducted. A geological allotment is considered as an integral part of the subsoil use contract.

If, within one area, there is more than one subsoil user acting on the basis of separate contracts, such subsoil users need to agree on how they will operate within this area. If the subsoil users cannot reach agreement, a subsoil user extracting commonly occurring minerals must follow the order of operations established by a subsoil user extracting rare minerals (as opposed to commonly occurring minerals). If all such subsoil users extract rare minerals, the subsoil user that executed its contract earliest will have the right to establish the order of operations.

Steps to acquire an exploration right The Subsoil Law envisages that the government will determine the mineral deposits to be put to tender. Accordingly, a potential investor cannot choose a particular deposit that he wishes to explore and develop, since tenders are announced with respect to deposits from a list approved by the government.

As an exception to this general rule, there is also a simplified procedure of granting exploration rights. Exploration rights under the simplified procedure can be granted with respect to areas with limited or no geological data to be determined by MID. In such event, exploration rights may be granted without a tender on the basis of the “first come - first get” principle.

Further, the latest amendments to the Subsoil and Subsoil Use Law introduced another novelty to the rules regulating the process of subsoil use grant. In order to make the tender process more flexible, the amendments enable investors to change their bids during the tender. In particular, the amendments introduced a new type of tender to award subsoil use rights - the ‘competitive’ tender. Under this tender, an investor will be able to adjust the bid and, if necessary, increase the signing bonus. Investors will thus have more flexibility during a tender and the State will receive a better price for the tendered project.

Exploration rights are currently granted on the basis of a subsoil use contract entered into by the subsoil user and the MID, representing the State. Such contracts are, with certain exceptions (including the simplified procedure for granting exploration rights), granted following a competitive tender process and on the basis of negotiations with the successful tenderer. The process of acquiring exploration rights may take up to two years (this period will be less if the subsoil use rights are granted under the simplified procedure).

Relationship with landowners - Exploration

Kazakhstani legislation differentiates between surface and subsurface rights. Subsurface rights are granted by the State on the basis of a subsoil use contract. The Subsoil Law provides that on the execution of a subsoil use contract (i.e., the acquisition of subsurface rights), the contract holder may apply to the local executive authority (Akimat) for the

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provision of a land plot for the purposes of subsoil use operations. The local executive authority must make the land plot available to the subsoil user for the duration of the subsoil use contract. If the land plot is State-owned, the Akimat will lease the plot to the subsoil user. If the land is privately owned, the Akimat may requisition the plot in order that it may be leased to the subsoil user. The right to use the land plot is linked to the subsoil use rights such that any changes to the subsoil use rights (such as transfer or termination) will lead to corresponding changes in the right to use the land plot.

Obligations of holder - Exploration

The Subsoil Law establishes a number of obligations of a subsoil user which are further detailed in the subsoil use contract itself.

Among others, prior to execution of a subsoil use contract, the subsoil user must prepare and submit a work program for approval by the territorial department of the Geology and Subsoil Use Committee of the MID. The work program describes the main obligations of the subsoil user and will form an integral part of the subsoil use contract. Among other things, the work program outlines the main works and expenditures of the subsoil user for the whole duration of the contract. The work program is not required if subsoil use rights were granted under the simplified procedure.

The subsoil user must also submit exploration project documents, which form the basis for the work program. Project documents must provide for the most effective and intensive program for investigation of the territory, including modern and precise methods of exploration and laboratory analysis. Among other things, project documents must contain a financial section reflecting expenditure obligations for the whole term of the contract. Project documents are not subject to the approval by the authorities if the subsoil use rights were granted under the simplified procedure.

The subsoil user must submit to the MID quarterly reports on fulfillment of license and contract provisions indicating compliance with the terms of subsoil use contracts, including work programs.

A subsoil user is obliged, after finishing work, to restore land plots and other natural objects damaged in the course of subsoil use operations to a condition suitable for further use.

Holding tenements Rights to hold

There are no special holding tenements under Kazakhstani mining laws to bridge the gap between when exploration is finished and development starts. However, for the gap between the exploration and production stages, there is an obligation of a subsoil user to keep the contract territory in a condition suitable for future mining operations (taking into account ecological safety) and to ensure safety of personnel and the population.

Terms of rights - Holding Tenements

This obligation covers the territory that a subsoil user intends to develop on the basis of future development contract. Other territory (if any) must be returned to a condition suitable for further use, through restoration of land plots and other natural objects damaged in the course of subsoil use operations.

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Development / Production tenements Tenements / rights available Production rights are currently granted on the basis of a subsoil use contract entered into by the subsoil user and the MID representing the State.

Terms of rights

A mining contract may be executed for a term of up to 25 years (45 years, with respect to large or unique deposits). Such terms can also be extended provided that there have been no breaches of the contract terms by the subsoil user.

The territory of a mining contract is determined by a mining allotment. Every subsoil user which is granted development rights is issued a mining allotment, which describes the area for conducting mining operations. A mining allotment is considered as an integral part of the subsoil use contract.

Transition from exploration / holding right to mining right - Development / Production tenements A subsoil user that has made and assessed a commercial discovery on the basis of an exploration contract may proceed to the development stage through execution of a mining contract with the MID. Such subsoil user has an exclusive right to execute a mining contract on the basis of direct negotiations (i.e., without holding a competitive tender) with the MID.

If a commercial discovery has been made on the basis of a combined exploration and mining contract, the subsoil user will be able to proceed to the mining phase on the basis of the same contract. In such event, the subsoil user will have to prepare and approve production-related project documents and corresponding amendments to the subsoil use contract.

Foreign ownership restrictions and government participation

The considerations outlined in relation to exploration are also applicable to mining rights.

As concerns government participation, the Subsoil Law provides that there are certain deposits that can be developed only with mandatory participation of the State through one of the national companies. The list of such deposits is set by the MID.

Steps to acquire a right - Development / Production tenements Development contracts are, with certain exceptions, also granted following a competitive tender process and on the basis of negotiations with the successful tenderer. Among such exceptions, the Subsoil Law provides that a subsoil user that has made and assessed a commercial discovery on the basis of an exploration contract has an exclusive right to execute the development contract on the basis of direct negotiations with the MID (i.e., without the MID holding a competitive tender). The process of acquiring development rights may take up to two years.

Relationship with landowners - Development / Production tenements Following the execution of a mining contract, the contract holder may apply to the local executive authority (Akimat) for the provision of a land plot for the purposes of subsoil use operations. The local executive authority must make the land plot available to the subsoil user for the duration of the subsoil use contract. If the land plot is State-owned, the Akimat will lease the plot to the subsoil user. If the land is privately owned, the Akimat may requisition the plot in order that it may be leased to the subsoil user. The right to use the land

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plot is linked to the subsoil use rights such that any changes to the subsoil use rights (such as transfer or termination) will lead to corresponding changes in the right to use the land plot.

Obligations of holder - Development / Production tenements

The main obligations of a subsoil user are established by the work program and development project documents.

The work program describes the main obligations of the subsoil user and forms an integral part of the subsoil use contract. Among other things, the work program outlines the main work and expenditure of the subsoil user for the entire duration of the contract.

An industrial development project must include a calendar plan of mining and extraction work and technical decisions that ensure measures directed at procuring rational and effective use of subsoil, safety of personnel, environment protection, as well as information regarding the financing of works with a yearly breakdown.

Employment matters are generally regulated by the Labour Code. Specifically in the area of subsoil use, the Subsoil Law obliges subsoil users to give preference to Kazakhstani personnel. This obligation is usually further detailed in subsoil use contracts by setting forth minimum thresholds (as a percentage) of Kazakhstani personnel with which a subsoil user must comply.

Key Issues Treaties

Kazakhstan has concluded bilateral treaties on the encouragement and mutual protection of investments with 44 countries. Kazakhstan is also party to a number of multilateral treaties concerning foreign investments (for example, the Energy Charter). Investment treaties provide a number of guarantees to nationals of member countries, including most-favored-nation treatment, protection against discrimination, requisition and nationalization and the right to resolution of investment disputes by international arbitration in the absence of an arbitration agreement.

Taxes

In terms of fiscal obligations, subsoil users, among others, are subject to specific subsoil use taxes and payment obligations, which include the following:

Signature Bonus

A signature bonus is a one-time payment to the State for the right to use the subsoil. The amount of this bonus is preliminarily determined in the Tax Code based on estimations of reserves, the economic value of the deposit, and certain other factors. The final amount of the signature bonus must be set out in the subsoil use contract.

Reimbursement of Historical Costs

Subsoil users are obliged to compensate the State for expenses related to geological exploration and preparation of deposits.

Commercial Discovery Bonus

A commercial discovery bonus is a fixed payment that is payable by the subsoil user when a commercial discovery is made in the contract territory. The rate of the commercial discovery bonus is 0.1% of the value of reserves approved by the relevant authorized state body.

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Mineral Extraction Tax

For mining companies, the mineral extraction tax is generally payable on the average exchange price of extracted minerals (as quoted by specified publications). The rates of the mineral extraction tax for mining companies currently range from 0% to 18.5% depending on the type of mineral.

Excess Profits Tax

An excess profits tax is payable annually in respect of the net income under a specific subsoil contract exceeding 25% of cumulative deductions (for corporate income tax purposes) and certain other expenses. The tax rates range according to a sliding scale from 0% to 60%.

Usual structure of venture The structure of ventures used in development of mineral deposits may differ depending on the particular circumstances and requirements of participants. A mining company may develop a deposit directly by executing a subsoil use contract with the MID or through a special purpose vehicle which will be a subsoil user under a contract with the MID.

Protection for foreign investors Foreign investors currently enjoy the same level of protection as national investors. In 2003, Kazakhstan adopted the Law On Investments (the LOI) which replaced the Law On Foreign Investments and the Law On State Support for Direct Investments. The LOI equalized the rights of foreign and domestic investors, while reducing or eliminating a number of the guarantees previously available to foreign investors. In particular, the LOI eliminated guarantees against adverse changes in legislation (the so-called grandfather clause) and guarantees of international arbitration in the absence of an arbitration agreement.

The LOI retains the following investment guarantees: stability of contracts (with certain exceptions), free use of income, transparency of State investment policy, reimbursement of losses in the event of nationalization and requisition, and certain others.

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Mongolia Author’s Summary Author(s) John Connors and D. Khand*

*This chapter has been prepared by the Hong Kong office of Baker & McKenzie, in conjunction with Tsets, a law firm in Mongolia.

Summary Mongolia is a sparsely populated developing country in East and Central Asia. Although having a land area roughly equivalent to that of the countries of Western and Central Europe, the country is landlocked, being bordered by Russia to the north and China to the south, east and west. During the socialist era (1921 to 1990), Mongolia was a Soviet satellite, adopting a single party socialist political system and command-and-control economic system. Following the 1990 democratic revolution, Mongolia embarked on a dual transition toward a free-market economy and democracy. That transition continues.

Mongolia is rich in mineral resources, including coking and thermal coal, uranium, rare earths, copper, molybdenum, tungsten, nickel, fluorspar, gold, silver and iron ore yet the country’s mining industry is still at an early stage of development.

In the period 2009 to 2012, Mongolia emerged as one of the more fashionable mining investment destinations in the Asia Pacific region, especially for Western exploration juniors, smaller China-based resources companies, industry suppliers/services providers and financial investors. Mongolia’s highly prospective geology, proximity to China, high economic growth rates, open investment regime, first-come, first-served exploration licensing system, democratic government structure and the signing in October 2009 of the Oyu Tolgoi project investment agreement, provided an attractive story.

However, by early 2013, the Western mining investment community’s enthusiasm for Mongolia had begun to wane. The global economic slowdown and reduction in demand for minerals from China had made it harder for junior mining companies to raise finance for projects in frontier jurisdictions. At the same time, increasing public skepticism and resistance toward foreign mining investment in Mongolia (with expressed concerns including lack of tangible benefits for ordinary Mongolians, adverse environmental effects, speculation, corruption, exploitation and national security issues, especially in regard to investment from China) and new “resource nationalist” legislative and regulatory developments, reflecting the public mood, produced a more sober assessment of Mongolia’s risk profile.

In May 2012, a highly controversial Law on Regulation of Foreign Investment into Business Entities Operating in Strategic Industries (SIFIL) was hastily introduced, its perceived deficiencies contributing to a sharp decline in foreign direct investment, especially in the mining sector.

Mining investors were further unsettled by several additional developments, including: the election in June 2012 of a new coalition government committed to a resource nationalist program; ongoing calls for the Government of Mongolia (GOM) to renegotiate the Oyu Tolgoi project investment agreement; uncertainty surrounding implementation of SIFIL and a 2012 package of environmental laws and amendments; confusion surrounding government policy on rail infrastructure; and lack of progress in negotiations with foreign investors regarding development of the Tavan Tolgoi coal project.

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In December 2012, at a time when there remained substantial investor uncertainty and concern such matters, the President’s Office released a draft revised Minerals Law for public comment. The draft revised law differed radically from the 1997 and 2006 Minerals Laws, containing, among others, vaguely drafted requirements for Mongolian equity, mining according to State direction rather than market considerations and State preemptive rights. The draft drew substantial criticism from the business community and industry groups, which considered it certain to adversely affect investment and the development of mining projects in Mongolia.

In early 2014 the draft law was shelved in favour of draft amendments to the 2006 Minerals Law, based on the principles of a new State Minerals Policy. The new Minerals Policy, adopted by parliament on 16 January 2014, outlines general principles aimed at ensuring long-term sustainable development of the mining industry and equal treatment and non-discrimination towards mining investors. The Minerals Policy also envisages the gradual privatisation of State-owned mining companies and improvement in State administrative services to achieve greater transparency and efficiency and increase support for the private sector.

On 1st July 2014, the Mongolian parliament passed the Law on Amendments to the Minerals Law(2006). Following are some highlights of the Revised Minerals Law (which are not retrospective):

• common minerals are specifically excluded from the scope of the amended law;

• exploration licences are to be issued within coordinates approved by the State, while the President’s 2010 ban on the issue of new licences was lifted. As a result, the area of Mongolia available to mining and exploration was increased to approx. 20 per cent from the previous approx. 8 per cent;

• exploration licences will continue to be ordinarily granted on a first come, first served basis;

• the licence issuance procedure is to be streamlined, including through introduction of an on-line system for licence applications and reporting;

• no time restrictions will apply to the transfer of newly issued exploration licences. Hence such licences remain immediately transferable;

• the maximum term of an exploration licence was increased to 12 years as compared to the previous 9 years, the longer period being considered more suited to Mongolia’s climatic conditions;

• at the same time the requirement enter into a pre mining agreement (which in part has enabled delaying commencement of mining for up to 3 years) was removed;

• documents such as reports on exploration work results, reserve estimation and feasibility studies are required to be prepared by accredited entities (e.g. the deposit submitted by an exploration licence holder as part its application for a mining licence must be prepared by an internationally recognized organization appointed by the Minerals Professional Board.);

• approval of exploration work expenditures by MRAM is to be based on the conclusions of exploration specialists and third party audits;

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• the Government has been given certain additional powers, including determining co-ordinates of areas available for exploration licences, determining boundaries of strategic deposits and approving agreements to be entered by licence holders with local administrative bodies (in the areas of environmental protection, mine development, infrastructure building and job creation.);

• the Ministry of Mining has also been given certain additional powers, including and adopting regulations of mine and processing, plant commissioning and processing plant operations, rehabilitation and mine closure;

• MRAM functions are split between a newly created National Geology office and the existing mining and cadastre departments.

Between 2010 and early 2015 no new exploration licences were issued, the president’s ban having been confirmed in the Law and Moratorium on issue of Mineral Exploration Licences, dated 9 February 2011. The result was a serious drop in investment in minerals exploration, with very little new work in drilling, prospecting, geophysics and laboratory analysis.

Coupled with recent reform to Mongolia’s legal framework for foreign investment (see below) the amendments to the Minerals Law indicate a concerted effort by the Government of Mongolia to attract renewed investor interest in Mongolia.

It remains to be seen however whether the 2014 amendments will introduce a period and stability in Mongolia’s Minerals Law. The draft amendments were the subject of sharp dispute between the ruling party and opposition. While the ruling party argued that the amendments would help revive the economy and restore foreign investor interest in Mongolia, the opposition urged a more resource nationalist direction.

Local Landscape Legal framework for mining Constitution and mining laws

Mongolia is a unitary state. Mongolia’s parliament promulgates mining laws and regulations which apply nationally.

During the socialist period, mining activity in Mongolia was regulated by the Mining Regulations of the Government of People’s Republic of Mongolia (1923) and in turn, the Subsoil Law (1988). The principal laws regulating mining activity (other than artisanal mining) today are the Minerals Law 2006 (as amended), the Subsoil Law (1988) (as amended) and the Nuclear Energy Law (2009), which regulates activity in relation to radioactive minerals.

Other relevant laws include the Business Licensing Law (2001), Land Law (2002), Water Law (2012), Forest Law (2012) and Investment Law (2013).

The Ministry of Mining determines State policies for the mining industry. The Mineral Resources Authority of Mongolia (MRAM), an implementing agency within the Ministry of Mining, constitutes the State administrative body referred to in the Minerals Law and is responsible for, among other things, issuing, renewing and terminating mineral licenses.

The National Geology Office, created pursuant to the 2014 amendments to the Minerals Law, has duties including the conduct of geological, geophysical, geochemical, hydro geological and geo-ecological mapping, research and surveys, establishment of a geological database and maintaining a unified national register of minerals.

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The Nuclear Energy Commission constitutes the State administrative body for purposes of the Nuclear Energy Law and is responsible for, among other things, issuing, renewing and terminating exploration, mining and certain other types of licenses for radioactive mineral sector activities.

The Environment, Geology and Mining Department of the State General Specialized Inspection Authority is responsible for reviewing and approving annual exploration work plans and reports as well as inspection of various aspects of exploration, mining and processing activities.

The legal system

Mongolia’s legal system is civil law based, being built on the traditions of the continental, Romano-Germanic family of laws. While containing legacies from the 70-year socialist period, it also includes certain elements drawing on common law examples, reflecting Mongolia’s post-socialist openness to Western concepts and the influence of Western advisers and aid organizations. The legal system remains in development, with frequent new laws, amendments and proposals for change.

Ownership of minerals

Under Mongolia’s Constitution (1992), the land (except land in citizens’ private ownership), its subsoil, forest, water, fauna and flora, and other natural resources are the property of the State. The Minerals Law, Subsoil Law and Nuclear Energy Law each similarly provide that mineral resources naturally occurring on the earth’s surface and in subsoil in Mongolia are the property of the State, while the State, as owner, may grant exploration and mining rights to private parties.

Regulation of different minerals

The Minerals Law 2006 applies to all mineral resources except water, petroleum, natural gas and radioactive minerals (see above).

Oil and gas

Commercial activities in relation to oil and gas are governed by the Petroleum Law (Revised 2014[1]. Rights to explore for and produce oil and gas in Mongolia are granted pursuant to Production Sharing Agreements (PSA) negotiated on the basis of a model agreement.

Restrictions on foreign investment in mining The regulatory framework for foreign and domestic investment

Until 2012 Mongolia maintained a relatively open regulatory environment for foreign investment, especially in comparison with neighboring countries. However, on 17 May 2012, evidently in response to a controversial acquisition proposed by a PRC State owned enterprise, Mongolia’s Parliament hastily enacted a new law on regulation of foreign investment (SEFIL). SEFIL contained a number of provisions troubling to foreign investors, including a requirement for prior government or parliamentary approval in regard to certain types of foreign investment transactions in sectors deemed “strategically important “(viz, mining, banking and finance and media and communications). A number of SEFIL’s provisions were vaguely drafted, creating considerable uncertainty. In net result, SEFIL was perceived as significantly contributing to a dramatic decline in foreign investment and slowdown of Mongolia’s economy.

In an endeavor to reverse the deterioration in Mongolia’s economy and increase foreign direct investment, Parliament repealed SEFIL and enacted a much more benign Investment

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Law, effective 1 November 2013. The new Investment Law was intended to create a more stable investment environment for both domestic and foreign investors in Mongolia.

The Investment Law:

• applies to both foreign and domestic investors;

• removed the limitations and government approval for foreign private investment, maintaining the approval requirements for any foreign state-owned enterprise investing in more than 33 percent of an entity in the minerals, communication or financial sectors (collectively, the “Strategic Sectors”);

• provides investors with certainty as to tax rates for a specified period through “tax stabilization certificates” issued according to the sector involved and the amount and location of the investment. The taxes and other levies subject to stabilization are corporate income taxes, customs duties, value added taxes and mineral royalties; and

• entitles any entity investing more than MNT 500 billion to enter into an investment agreement with the Government of Mongolia.

A subsequently introduced Government Regulation on Investment Agreement (21 February 2014) outlines the requirements, application procedures and permissible and required contents of an Investment Agreement.

As a result of an amendment to the Minerals Law 2006 made on 3 October 2013, it is no longer possible to obtain an Investment Agreement under the Minerals Law.

Environmental considerations Minerals Law

The Minerals Law imposes a number of environmental protection obligations on exploration and mining license holders.

A mining license holder must, inter alia:

• before (or after, in the case of a license issued by tender) obtaining the mining license, complete an environmental impact assessment and develop an environmental protection plan and submit these to the Ministry of Environment for approval;

• upon approval of the above, deliver copies thereof to the soum or district governor and to the environmental protection office according to territorial jurisdiction;

• record all instances of adverse environmental impact occurring in the course of mining activity, annually deliver implementation of the plan and report to the Ministry of Environment, the respective soum or district governor and environmental protection inspection office;

• as a guarantee of performance of its environmental protection obligations, deposit monetary funds equal to 50% of the expenses required for environmental protection in the respective year in a special account designated by the respective soum or district governor; and

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• when applying for a license extension, renew the environmental impact assessment and environmental protection plans and deliver them for approval to the Ministry of Environment.

Other environmental protection laws

In addition, a number of general environmental protection laws apply to mineral license holders.

These include:

• Environmental Protection Law (1995);

• Law on Protection from Toxic and Hazardous Chemicals (2006);

• Environmental Impact Assessment Law (2012);

• Law on Industrial and Household Waste (2012);

• Law on Air (2012);

• Law on Air Pollution (2012);

• Law on Soil Protection and Prevention of Desertification (2012);

• Water Law (2012); and

• Law on Water Pollution Fees (2012).

Indigenous people considerations

There are no laws providing special rights to indigenous or disadvantaged persons. However, retention of mining rights may be practically affected by expectations that the license holder will make contributions to social and economic development within the soum where the relevant exploration or mining area is located.

Administratively Mongolia is divided into 21 aimags (provinces), which in turn are divided into 300 soums. During the socialist period, communities in mining areas relied on State-owned mining entities to provide townships, infrastructure, employment, social services and benefits. This experience continues to influence public thinking and expectations.

Also, the rights of Mongolian herders, who still number more than 30% of the country’s population, are recognized in relation to granting the water permits. Generally, the environmental impact of mining and related activities such as utilization of ground water from aquifers and extensive truck movements is becoming a sensitive issue in Mongolia, especially in active mining areas such as the South Gobi region.

Exploration Tenements

Mineral exploration activity in Mongolia for minerals subject to the Minerals Law may only be conducted pursuant to an exploration license granted by MRAM. Exploration for uranium and other radioactive minerals may be undertaken under a license granted by the Nuclear Energy Authority pursuant to the Nuclear Energy Law (2009). An exploration license entitles its holder to conduct exploration for minerals within the boundaries of the licensed area during the license term.

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Terms

An exploration license area may be up to 150,000 hectares. This was reduced from 400,000 hectares under the 2014 amendments to the Minerals Law. Notably there is no new requirement to progressively relinquish portions of the licence area, as had been proposed in a draft of the amendments.

An eligible legal entity may hold any number of exploration licenses. However, a license may only be held by a single entity and licenses are not divisible.

Exploration licenses are issued for an initial term of three years, extendable for three further three-year periods. One month prior to the expiration of the current term of an exploration license, the license holder may apply for an extension by submitting an application and certain specified documents (evidencing payment of license fees, renewal approval of environment protection plan, and completion and acceptance of exploration work results).

Exploration license fees are payable per hectare of the exploration area.

Steps to acquire an exploration right

An eligible person must submit an application to MRAM on an approved form, accompanied by specified documents.

On receipt of an application, MRAM is required to register the application and conduct a preliminary screening to determine whether the requested exploration area overlaps with any restricted area, reserve, etc., or any area subject to an existing license or pending application.

Within 20 days after registration of an application, MRAM must notify the applicant whether or not the requested area is available. If MRAM proposes to grant a license, it must give written notice to the governor of the relevant aimag (province). The governor, in turn, is required to inform MRAM whether or not he objects to granting the license.

If the governor has no objections, MRAM will make a decision to grant the license and notify the applicant. The license fee for the first year must be paid within 10 business days.

Within three business days following payment of the first year’s license fee, MRAM must issue an exploration license and make appropriate register entries.

Exploration licenses are ordinarily granted on a first-come, first-served basis in respect of an area open for exploration. However, in the following instances, an exploration license will be granted by way of tender:

• where the licence is for an area with mineral concentration determined through State funded geological surveys;

• where an earlier license has been revoked on any of the grounds provided in Articles 56.1.3 - 56.1.5 (the exploration licence holder’s work expenditures in a given year does not reach the minimum required by the Minerals Law; or the given exploration or mining area is designated or as special purpose or reserve land; or exploration and mining within such area is prohibited by law;

• if an exploration license expires and its holder fails to apply for a mining license.

A foreign-invested business entity is defined in Article 3.1.5 of the Investment Law (2013) as an entity incorporated under Mongolian law of which 25% or more of shares is held by a

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foreign investor (foreign legal entity or natural person) with investment by each foreign investor of USD 100,000 or more.

Relationship with landowners - Exploration

Most land in Mongolia, outside urban areas, is owned by the State. There are three types of land tenure in Mongolia:

• ownership rights;

• possession rights; and

• use rights (collectively, “land rights”)

Only Mongolian citizens can own land. Mongolian legal entities, other than foreign-invested business entities (FIBE) may obtain land possession rights. Land possession rights may, subject to the consent of the granting person, be transferred or given to the use of other person, and may be pledged but not in favour of a foreign bank or company. A FIBE can only obtain land use rights which may not be transferred or pledged.

A mineral license is not a real property interest and does not confer either land possession or land use rights on the holder.

Obtaining land rights is not required by law but is necessary for conducting mining operations.

Land rights are obtainable at the mining stage by way of a land possession or use agreement, as relevant, by applying to the local administrative body (governor of the relevant soum or district). A land use or possession certificate is then issued for a fixed term and for a specific purpose as stated in the relevant land use or possession agreement. Once such agreement is executed, an environmental impact assessment (EIA) is undertaken. If the EIA is negative, the land right is revoked. A land user or possessor may only use or possess the land for the purpose and in accordance with the terms and conditions set out in the agreement.

Obligations of holder - Exploration

An exploration license holder has obligations to:

• pay annually in advance the license fees for the subsequent year. Exploration license fees are USD0.10 per hectare for the first year; USD0.20 per hectare for the second year; USD0.30 for the third year; USD1.00 per hectare for the fourth, fifth and sixth years; and USD1.50 per hectare for years seven, eight and nine;

• annual fess for the 10th to 12th years of an exploration license are USD 5.00 per hectare and the minimum expenditure is USD 10.00 per hectare;

• satisfy the minimum exploration work expenditure requirements per hectare, which are USD0.50 in the second and third years; USD1.00 in the fourth, fifth and sixth years; and USD1.50 in years seven, eight and nine. The actual amount of exploration work expenditure made is subject to verification by MRAM, based on the annual exploration work report and license holder’s balance sheet;

• submit specified reports to the MRAM (see below); and

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• comply with the environmental protection obligations of an exploration license holder under Article 38 of the Minerals Law.

An exploration license holder must submit the following reports to MRAM and the General Agency for Specialized Inspection, within the specified time periods:

• annual exploration work plans – by 15 April each year;

• annual exploration work reports separately detailing the prospecting and exploration works for the previous year, in the form approved by MRAM - by 15 February each year;

• annual report on health and safety – before 20 January each year.

Mineral reserves determined through exploration activity must be registered with the Mineral Resources Council.

Holding tenements Rights to hold

The Minerals Law does not recognize holding tenements.

Development / Production tenements Tenements / rights available Mine development and mining activity may only be undertaken by the holder of a mining license.

Except where a mining license is to be issued by tender (See 8.3 below), only an exploration license holder is entitled to apply for a mining license in the exploration license area.

A mining license confers on the holder the rights, among others, to engage in mining within the license area during the license term, gain access, construct necessary facilities and use land and water.

Terms of rights

Mining licenses are issued for an initial 30-year term and are extendable for two further successive periods of 20 years each, depending on the reserves of the mineral.

An application for a mining license must contain coordinates of all corners of the requested mining areas in degrees, minutes and seconds, on a standard map approved by MRAM, while the requested mining area must meet certain requirements.

Mining license fees are payable annually at the rate of USD15.00 per hectare. For coal and “other common mineral resources,” the license fee is USD5.00 per hectare.

Transition from exploration / holding right to mining right - Development / Production tenements An exploration license holder has an exclusive right to apply for a mining license for the whole or any part of the exploration license area.

An application for a mining license must be made prior to the expiration of the exploration license, failing which a mining license for the area will be granted through tender.

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A mining licence will also be issued by tender, in respect of an area for which mineral reserves are determined things exploration conducts with State budget funding.

Foreign ownership restrictions and government participation

See section 2 in relation to foreign ownership restrictions.

The current (2006) Minerals Law introduced the concept of “mineral deposit of strategic importance,” defined as a deposit either (i) of a size to have a potential impact on the national security, economic and social development of the country at the national or regional levels; or (ii) which produces or has the potential to produce more than 5% of Mongolia’s total GDP in a given year. Based on these criteria, by Decree No. 27 dated 7 February 2007, Parliament approved a list of 15 strategically important deposits. Decree No. 27 also identified a further 39 deposits to be considered by the Government for possible future recommendation to Parliament for designation as strategic deposits.

The State is entitled to participate, jointly with a private legal entity, up to 50% in the exploitation of any mineral deposit of strategic importance when “State funded exploration was used to determine proven reserves.” The words, “where State- funded exploration was used to determine proven resources” in Article 5 of the Minerals Law includes socialist-era exploration work and post-socialist era surveying and other geological work.

The State may own up to 34% “of the shares of the investment” when private funds have been exclusively used to determine proven reserves. In addition, a minimum of 10% of the common shares issued by a public company that holds a mining license for a deposit of strategic importance must be made available for trading on the Mongolian Stock Exchange.

Under the Nuclear Energy Law (2009), all radioactive mineral deposits regardless of size are deemed strategic and the State may own up to 51% of the shares in a company holding a license to exploit a radioactive mineral deposit, without compensation.

Steps to acquire a right - Development / Production tenements

An applicant for a mining license must submit an application to MRAM, accompanied by prescribed documents. MRAM will register the application, conduct a preliminary screening, clarify certain matters, and within 20 business days make a decision on whether or not to grant a mining license and notify the applicant.

The applicant must pay license fees for the first year within 10 days following receipt of MRAM’s approval notice.

Within three business days following payment of the license fee for the first year, MRAM is required to issue a mining license and register the license and mining area in the license and cartographic registries.

Before a mining license holder may commence mining operations, MRAM will appoint a commission of experts to determine whether all pre-mining requirements have been satisfied and whether certain key documents, including the following, comply with applicable laws and regulations:

• feasibility study and mine plan;

• environmental impact assessment;

• environmental protection plan;

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• any mineral sales agreement;

• any lease agreement related to mining assets; and

• any agreements on land and water use.

In addition, the Commission will undertake an on-site inspection of the mine and associated infrastructure facilities.

Upon completion of the review, the Commission will issue an approval, signed by all of its members, approving the commencement of mining operations.

Relationship with landowners - Development / Production tenements Mining license holders are entitled to engage in mining of minerals within the license area, enter and pass through the mining area, construct necessary structures and use the mining area to conduct mining activities, pass through the land adjacent to the mining area, enter and pass through land owned or possessed by other persons in order to exercise the rights provided by the Minerals Law, and use land and water in accordance with applicable laws.

If the license holder is a FIBE, it will invariably seek land use rights to the relevant land area. To obtain such rights, the license holder will enter into a land use agreement with the governor of the relevant soum or district and obtain a land use certificate.

Government Decree No 302 dated 30 September 2009 sets the term of land use for a foreign investment enterprise holding a mining license relating to a mineral deposit of strategic importance at 30 years, extendable once for 20 years.

Land fees are determined for each licensed area by the relevant local self-governing body based on the initial value of the land (e.g., agricultural and pasture land) and the base land value set by the Government.

License holders are required to fully compensate owners and users of private and public residential dwellings, wells, winter arrival shelters, other structures, and historic and cultural landmarks for any damage caused through exploration or mining operations, including, if necessary, relocation costs.

Obligations of holder - Development / Production tenements

In order to maintain the validity and good standing of the license, a mining license holder, apart from being a Mongolian legal entity, must:

• pay annually in advance the license fees for the subsequent year;

• comply with the environmental protection obligations required of mining license holders under the Minerals Law;

• preferentially procure goods and services and hire sub contractors from business entities that are registered and paying taxes in Mongolia;

• employ an employee act as a point of liaison with MRAM in relation to environmental rehabilitation and mine closure;

• submit the following information and reports to MRAM:

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o feasibility study regarding development of the deposit, within one (1) year after the date of issue of the mining license. The feasibility study must (i) clearly state how the licence holder will transport its mineral products and build necessary infrastructure and (ii) demonstrate the availability of capital repaired for mine rehabilitation;

o prior to 1st December each year, the mining plan outlining details of major production indicators for the subsequent year, in the approved form;

o reports on works for the given year, major mining work indicators and mining and graphical drawings, prior to 15 February of the following year; and

• keep specified documents at the mine site.

Expenditure, restrictions on time to develop or commence production: (See above) Expenditure obligations and restrictions on time to develop a project or commence production may also be imposed under any Investment Agreement to which the mining license holder is a party.

Employment: A license holder is obliged to employ and ensure that any mining contractors working at the mine, employ Mongolian citizens as not less than 90% of its total employees.

If the number of foreign employees exceeds 10% of the total employees, the license holder must pay to the budget of the relevant town or district, 10 times the minimum monthly salary for each such additional foreign citizen for every month. Currently the minimum salary is MNT140,400. It appears that this fine applies to any non compliance by the licence holder or its sub contractors.

Domestic supply obligations: Under the 2014 amendments to the Minerals Law a mining licence holder must supply products that have been mined, processed or semi processed preferentially to processing facilities operating in Mongolia, at market price. The 2014 amendments do not make clear whether the reference to market price is to an international market price or to a domestic market price. Also, in any negotiations for an Investment Agreement, it is likely that the Government negotiators would press for commitments to create both upstream and downstream economic linkages. Genuine mining investors in Mongolia will, in any event, recognize the importance of domestic supply arrangements, where feasible, as part of the process of gaining and maintaining a social license to operate.

Key Issues Overlapping tenements Under the Minerals Law, no part of a requested exploration area may overlap with a reserve or special needs land, an existing licensed area or an area under a pending application. Further, the normal straight-lined, tetragon-shaped exploration license area may deviate from straight lines in order to avoid overlapping.

Oil and gas exploration and development rights, in the form of PSAs, are awarded by way of tender procedures. The 2014 amendments to the Minerals Law addressed certain issues relating to the possible overlap of petroleum and mineral exploration rights, including issues in regard to exploitation of coal seam gas. Mining licence holder are obliged to notify the Petroleum Authority of Mongolia if coal seam gas is discovered during coal mining and are permitted to produce coal seam gas in accordance with the Petroleum law.

The Nuclear Energy Law has established a separate licensing and regulatory regime for uranium and other radioactive resources.

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Usual structure of venture

Mongolia’s Company Law recognizes two forms of company: (i) a limited liability company (LLC) and (ii) a joint-stock company (JSC). The main differences between a JSC and an LLC are: first, a LLC issues shares, options to acquire shares and securities convertible into shares only by means of closed subscription, while a JSC may issue shares and other securities through either open or closed subscription, unless otherwise provided in a company’s charter; and secondly, shareholders in a LLC have a pre-emptive right to acquire shares offered for sale by another shareholder, while shares in a JSC are freely transferable.

Shareholders in an LLC are liable for the LLC’s obligations only to the extent of their capital contributions to its registered capital. Their participatory interests in the LLC are expressed in the form of respective percentage ownership of the registered share capital. There is a minimum capital requirement for a FIBE.

Typically, mining ventures involve the establishment of an LLC as the holder of relevant mineral licenses. That company may be structured as a wholly owned subsidiary of a foreign entity, joint venture entity or as the subsidiary of a joint venture entity. It is common for foreign investors to establish joint venture as a holding entity in a foreign jurisdiction with a wholly owned operating subsidiary in Mongolia.

Companies which intend listing on the Mongolian Stock Exchange and/or a foreign stock exchange and raising equity through public subscription, will take the form of a JSC.

Security of tenure Grounds for license revocation: Under the Minerals Law, a mineral license terminates in the event, inter alia, of revocation by MRAM. The law provides that MRAM shall revoke an exploration or mining license if:

• the license holder is no longer an eligible person to hold a license;

• the license holder fails to timely and fully pay the license fees (see below);

• the exploration work expenditures in a particular year do not reach the minimum requirement;

• the exploration licensed area is designated “reserved land” or is taken for “special needs” with full compensation to the license holder;

• the Ministry of Environment issues an opinion that the license holder has failed to fulfill its environmental rehabilitation obligations.

The 2014 amendments to the Minerals Law introduced a grace period of 30 days before a licence will be revoked for failure to pay licence fees. During this period a late penalty of 0.3% of the annual licence fee, per day, is payable.

Should the license holder consider a decision to revoke licence unlawful, it may contest the decision in the relevant administrative court. If a court annuls a decision to revoke a licence, the licence term continues.

Prohibition under the Land Law (2002)

Under the Land Law certain types of land are classified as reserve land. No mineral licenses can be issued for such areas. In addition, the Land Law allows the State to claim for special needs certain types of land subject to exploration or mining licenses. The level of State body

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(national, aimag or soum) which may make such a claim in any given case depends upon the categorization of the relevant land.

Under the Minerals Law, the fact that a license area has been declared reserve land or taken for special needs constitutes a ground to revoke an exploration or mining license, provided the license holder has been fully compensated.

If the period for which land is claimed of a special purpose area a reserved area, expires and the land is returned to the licence holder, the licence form continues. However, claims, and potential claims from Government bodies may adversely impact and even render impossible further mineral operations of a license holder in affected areas.

Prohibition under the Law of Prohibition of Exploration and Mining in Water Basins and Forested Areas (2009)

This law prohibits mineral exploration and mining in the following areas:

• watersheds;

• land protection zones within water basins; and

• forested areas (collectively “prohibited areas”).

Toward implementation of the above law, the Government approved by Decree No. 174 dated 8 June 2011, boundaries (coordinates) of gold benches in which exploration and mining are prohibited. If licenses are issued for such areas, the licenses will be revoked with compensation.

It appears that the Water Law (2012) and Forest Law (2012) have effectively replaced the 2009 law, evidently allowing discretion for local and regional authorities, in conjunction with the central Government, to determine where and when exploration and mining activities can take place near environmentally sensitive areas.

Protection for foreign investors

During the late 1990s and early 2000s, one of Mongolia’s primary objectives was to attract international investors in order to bring much-needed foreign capital and know-how into the country.

Correspondingly, the Foreign Investment Law (1993) (FIL) accords foreign investors the following privileges and guarantees:

• Protection against unlawful expropriation – Property of foreign investors may only be expropriated for public purposes or interests and only in accordance with the procedure prescribed by law on a non-discriminatory basis and with payment of full compensation.

• Guarantee for compensation of losses – Losses suffered by foreign investors due to a state of emergency or war in Mongolia are to be treated equally with those suffered by Mongolian investors.

• Right to repatriate profits – After payment of relevant taxes and duties, a foreign investor is entitled to repatriate: its investment contributed to the equity of a foreign-invested business entity in Mongolia; the residual value of its investment upon liquidation of a business entity; earnings from equity investment and dividends; and principal and interest payments paid to it.

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• Protection against changes in legislation – Foreign investors will be subject to the same legal regime as at the time of conclusion of an investment agreement with the Mongolian government, irrespective of the unfavorable changes in law.

The FIL also provides for tax stability agreements for qualifying investing entities.

In addition, Mongolia is a party to the New York Convention (1958) for the enforcement of foreign arbitral awards and the Washington (ICSID) Convention (1966).

The 1997 Minerals Law, which was prepared with assistance from the World Bank, aimed to ensure that the country’s mining sector would be internationally competitive and attractive to foreign exploration and mining companies. Features included grant of exploration licenses on a first-come, first-served basis, a transparent system for the processing of license applications, security of tenure, freedom to assign mineral rights, and a reduction in taxation and royalty burdens on investors.

Since 2005, the political and investment climate has shifted. An influx of foreign companies and many glowing statements by promoters and financial investors regarding Mongolia’s overall resource endowment and prospects for new projects, as well as promises by politicians, have created high public expectations of tangible benefits from mining for ordinary Mongolians. To date, however, there has been relatively little perceived “trickle-down” effect while poor environmental practices, particularly by many smaller mining companies and artisanal gold miners (referred to as “ninjas”), have raised serious concerns. Observers have noted growing public disenchantment and increasing resistance to foreign ownership and control of mining companies. Popular demands have prompted the Mongolian Parliament to enact a number of laws providing for increased State control, State and national ownership, and stricter environmental protection requirements. While the President and several government ministers have stated that the government remains supportive of foreign investment, investors see diminishing security of tenure and investment protection and increasing uncertainty, costs and risks of investing and operating in Mongolia. It is clearly proving difficult for the relatively young Mongolian legislature to strike an appropriate balance between, on the one hand, environmental and cultural protection and the material needs and aspirations of the Mongolian people, and on the other, the commercial interests of investors.

Restrictions on exports/government take There is no requirement for an export license to export non-radioactive minerals. The Minerals Law entitles mining license holders to sell mineral products and minerals extracted from the mining area at international market prices on foreign markets. However, export clearance procedures include requirements that:

• the mining company pay the applicable royalty and obtain a document evidencing payment from the tax office;

• the producer/exporter obtain a certificate of origin from the Mongolian Chamber of Commerce and Industry in respect of each shipment, certifying that the source of the mineral is within Mongolia;

• the producer /exporter obtain a certificate from the Mongolian National Centre of Standardization and Measurement, certifying that the product to be shipped is properly classified (e.g., that a coal shipment is properly classified as thermal coal or coking coal).

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The exporter/producer must present the above documents, together with certain other documents (including a copy of the exporter’s/producer’s mining license), to the customs authority at the relevant border crossing.

Investment agreement

On 3 October 2013, the Minerals Law was amended such that its provisions regarding entitlement to enter an investment agreement with GOM were invalidated deemed no longer applicable.

Hence, at present, the only statutory basis for entering an Investment Agreement with GOM is the relevant provisions of the Investment Law 2013. Article 20.1 of the Investment Law 2013 provides that “The Government of Mongolia shall conclude an investment agreement with the investor who is to invest more than MNT 500 billion, at the investor’s request, with the purpose of stabilizing the environment of business activities.”

The Regulation on Investment Agreement 2014 specifies the required elements in an application for an Investment Agreement. The Regulation also stipulates that an Investment Agreement should contain provisions regarding among others:

• the shareholding pattern;

• purpose of the investment and primary business lines;

• term and stages of Investment Agreement, amount, term and stages of investment;

• terms of tax stabilization ;

• the feasibility study under which the agreement is made and how the agreement will be amended if it becomes necessary to modify the former;

• contribution to local development;

• infrastructure issues;

• rights and obligations of the investors and of the Government; and

• dispute resolution.

If an application is accepted the applicant will be invited to negotiate an Investment Agreement with the State central administrative body in charge of foreign investment. On agreement being reached the draft must be submitted to the Minister of Economic Development and in turn to Cabinet for approval prior to signing.

Transfer and pledging of mineral licenses

Transferring mineral licenses: The Minerals Law restricts the transfer of licenses. A license is transferable, in the case of reorganization in the form of merger or consolidation, to the legal successor formed, as well as from a controlled or subsidiary company to its parent company. Otherwise, a license holder may only transfer a license to an unrelated party in conjunction with the sale of associated exploration and/or mining materials, reports and other information (such as books, records, accounts, seismic and interpretive data, notes, drawings, maps, drill cores, logs of drill cores, samples, files, surveys, mosaics, metallurgical information, aerial photographs, electromagnetic tapes, and other information and material in various media) relating to activities under license and subject to payment of relevant tax, proven by documentary evidence.

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Pledging mineral licenses: A license holder may pledge its license only to a bank or non-banking financial institutions and may do so only together with the related documents (exploration work results, geological information and feasibility study report) and mineral property not prohibited by law from being the subject of a pledge, to provide security for financing of its investment and operations. The license alone cannot be the subject of a pledge.

A pledge of a mineral license must be registered with MRAM. The pledgee does not assume the obligations under the license.

If the license holder fails to perform its obligations under the pledge agreement and there are grounds for termination of the license, MRAM must notify the pledgee that it has the right to propose transfer of the license to a person eligible to hold a license.

MRAM must notify the pledgee of the impending expiration of the license, at least 14 days prior to the expiration date. Within 10 days following receipt of the notice, the pledgee must deliver its proposal to transfer the license.

Resource Nationalism

Mongolia’s 1997 Minerals Law, which was prepared with assistance from the World Bank marked an important stage in Mongolia’s economic transition. The law aimed to ensure that the country’s mining sector would be internationally competitive and attractive to foreign exploration and mining companies. Features included grant of exploration licenses on a first-come, first-served basis, a transparent system for the processing of license applications, security of tenure, freedom to assign mineral rights, and a reduction in taxation and royalty burdens on investors.

Indeed the 1997 Minerals Law and an otherwise relatively stable and benign investment climate contributed to a significant wave of direct foreign investment in Mongolia’s resources sector in the period 1997-2006. Another investment wave occurred in the period 2010-2012, stimulated in part by the signing in October 2009 of the Oyu Tolgoi project Investment Agreement. Since 2005, however, the political and investment climate has shifted. The influx of foreign companies and glowing statements by explorers, promoters, services providers, financial investors and media commentators, regarding Mongolia’s overall resource endowment and prospects for new projects, as well as promises by politicians have created high public expectations of tangible benefits from mining for ordinary Mongolians. To date, however, there has been relatively little perceived “trickle-down” effect, while poor environmental practices, particularly by many smaller mining companies and artisanal gold miners (referred to as “ninjas”), have raised serious concerns. There have also been concerns regarding the high level of direct and indirect foreign ownership (esp Chinese) of mineral exploration and mining rights. Observers have noted growing public disenchantment and increasing resistance to foreign ownership and control of mining companies. Popular demands have prompted the Mongolian Parliament to enact a number of laws providing for increased State control, State and national ownership, and stricter environmental protection requirements. Some laws, hastily introduced have been subsequently repealed, replaced or amended. While the President and several government ministers have stated that the government remains supportive of foreign investment, investors see diminishing security of tenure and investment protection and increasing uncertainty, costs and risks of investing and operating in Mongolia. It is clearly proving difficult for the relatively young Mongolian legislature to strike and sustain an appropriate balance between, on the one hand, environmental and cultural protection and the material needs and aspirations of the Mongolian people, and on the other, the commercial interests of investors.

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Uzbekistan Author’s Summary Author(s) Azamat Kuatbekov and Aziza Maksudova

Summary Uzbekistan reportedly has one of the world’s largest reserves of gold and uranium, and significant reserves of copper, silver, molybdenum, potassium, tungsten and zinc. In addition, Uzbekistan possesses large oil and gas resources. Natural resources play an important role in Uzbekistan’s economy, accounting for 18.6% of total exports.

The mining sector in Uzbekistan is strictly controlled and regulated by the State. The main regulatory bodies are the Cabinet of Ministers, the State Committee on Geology and Mineral Resources (“Goscomgeology”), the State Inspectorate for Control Over Exploration and Industrial Safety in the Industrial, Mining and Public Utilities Sectors (the “Industrial Safety Inspectorate”), and the State Committee on Protection of the Environment (the “Environmental Protection Committee”).

In Uzbekistan, the State owns all land and subsoil. However, subsoil use rights, including exploration and mining rights, may be granted by the State to private parties based on a subsoil use license. Subsoil use licenses are issued by Goscomgeology based on the results of a public tender or through direct negotiations. Subsoil use rights must be registered with Goscomgeology.

Local Landscape Legal Framework for Mining

A peculiarity of Uzbekistani mining law is that the mining (metals and minerals) and oil and gas sectors are subject to the same laws and regulatory framework. Mining operations are governed by the following main laws and regulations:

• The Law of the Republic of Uzbekistan “On Subsoil”, dated 23 September 1994 (new version);

• Resolution No. PP-649 of the President of the Republic of Uzbekistan “On the Procedure and Conditions for Granting Subsoil Use Rights”, dated 07 June 2009;

• Resolution No. 1524 of the President of the Republic of Uzbekistan “On the Procedure for Granting Subsoil Use Licenses for Subsoil Plots with Non-Metallic Minerals”, dated 02 May 2011;

• The Law of the Republic of Uzbekistan “On Production Sharing Agreements”, dated 07 December 2001;

• The Tax Code of the Republic of Uzbekistan, dated 25 December 2007;

• The Land Code of the Republic of Uzbekistan, dated 30 April 1998;

• The Law of the Republic of Uzbekistan “On Protection of the Environment”, dated 09 December 1992;

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• The Law of the Republic of Uzbekistan “On Environmental Impact Assessment”, dated 25 May 2000.

All mining operations are subject to licensing in Uzbekistan and each mining operation requires a separate license depending on the type of activity and/or minerals involved. The law provides for, inter alia, an exploration license, mining license, pilot oil production license, man-made mineral formations use license, and underground facilities construction and exploitation license.

Subsoil users must comply with the obligations set out in a subsoil use license; non-compliance with these obligations may result in restriction, suspension or termination of a subsoil use license.

Restrictions on Foreign Investment in Mining Generally, there are no prohibitions or restrictions on foreign investment in the mining industry. Japan Oil, Gas and Metals National Corporation, Rio Tinto, and Shindong Resources are some of the investors with a presence in Uzbekistan. Foreign investment in the mining industry is traditionally made in two forms: through a joint venture with a state entity (mining sector) and through a production sharing agreement (oil and gas sector).

Environmental Considerations In Uzbekistan, subsoil users are subject to environmental protection laws and regulations. The law requires subsoil users to take environmental protection measures and return land plots and other natural sites, disturbed as a result of mining operations, into a condition suitable for further use.

Mining activities cannot be commenced without a positive conclusion of an environmental impact assessment.

The Environmental Protection Committee is the principal state authority dealing with environmental protection. The committee monitors compliance with environmental protection laws and regulations by conducting state environmental audits. Violation of environmental laws may result in administrative and criminal liability for subsoil users.

Indigenous People Considerations

Uzbekistani law has no express rules on indigenous people or similar population groups. Also, there are no clear rules on local content requirement. However, in practice, state authorities insist that subsoil users use locally manufactured goods and retain local contractors for mining operations.

Exploration Tenements

Geological exploration works are carried out on the basis of an exploration license issued by Goscomgeology based on the results of a public tender or through direct negotiations. Obtaining an exploration license does not, in and of itself, result in the granting of a mining license. However, a party financing exploration works has an exclusive right to obtain a mining license for the same deposit. For this, a separate license application must be filed with Goscomgeology.

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Terms

An exploration license is granted for a term of up to five years. To complete the exploration works, the term of a license may be extended at the subsoil user’s request, provided that all the terms and conditions in the exploration license have been complied with.

In addition to the subsoil user’s general obligations, an exploration license must specify, inter alia, the term and minimum scope of exploration works and the procedure and term for submission of obtained geological data to Goscomgeology.

Steps to Acquire an Exploration Right Public Tender

Under the law, Goscomgeology prepares a proposal listing the subsoil plots that are available for mining operations based on the results of a public tender which must be approved by the Cabinet of Ministers.

Goscomgeology (together with the National Holding Company Uzbekneftgaz (“Uzbekneftgaz”) in the case of hydrocarbons) prepares preliminary conditions for conducting a public tender and conditions for granting the subsoil use rights for the subsoil plots specified in the proposal. The preliminary conditions for conducting a public tender must be agreed with the Ministry of the Economy, Ministry of Finance, Environmental Protection Committee and Industrial Safety Inspectorate.

Cabinet of Ministers adopts a decision on the acceptability of the preliminary conditions and makes a public tender announcement.

Goscomgeology (together with Uzbekneftgaz in the case of hydrocarbons) prepares geological materials relating to subsoil plots that are being offered for public tender and discloses them to potential investors. Potential investors may choose the blocks that they wish to explore and develop from the list of subsoil plots.

The interested investors file an application for participation in a tender with Goscomgeology.

Goscomgeology provides an applicant with geological information relating to a particular land plot, provided that an applicant signs a confidentiality agreement. Based on this information, an applicant prepares preliminary technical and economic estimates and submits the preliminary estimates for consideration by a tender commission. The applicant’s preliminary technical and economic estimates are incorporated into the subsoil use license in the event an applicant wins a tender.

The tender commission adopts, and the Cabinet of Ministers approves, a decision on the winner of a public tender. Following the Cabinet of Ministers approval, Goscomgeology issues a subsoil use license to an investor.

Direct Negotiations Following a decision of the Cabinet of Ministers a subsoil use license may be granted to a potential investor through direct negotiations.

To be considered for a subsoil use license issued through direct negotiations, an applicant submits a license application to Goscomgeology. Goscomgeology (together with Uzbekneftgaz in the case of hydrocarbons) prepares draft subsoil use conditions, which form an integral part of a subsoil use license and must be agreed by the Ministry of the Economy, Ministry of Finance, Environmental Protection Committee and Industrial Safety Inspectorate.

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In the event the applicant is satisfied with the draft subsoil use conditions, Goscomgeology provides the applicant with geological information relating to a particular land plot, provided that the applicant signs a confidentiality agreement.

An applicant prepares preliminary technical and economic estimates and submits them for approval to Goscomgeology (and Uzbekneftgaz in the case of hydrocarbons), the Environmental Protection Committee and Industrial Safety Inspectorate. Based on their comments, if necessary, an applicant makes changes to the preliminary technical and economic estimates.

Preliminary technical and economic estimates with a positive conclusion from the above-mentioned entities must be submitted to Goscomgeology. Goscomgeology prepares an explanatory note proposing granting a subsoil use license to the potential investor and submits the relevant documents to the Cabinet of Ministers.

The Cabinet of Ministers reviews the documents and adopts a decision on granting a subsoil use license. Goscomgeology issues a subsoil use license based on the positive decision of the Cabinet of Ministers.

Relationship with Landowners - Exploration In Uzbekistan, the State owns all land and subsoil. However, individuals and legal entities may possess other titles to land, including the right of perpetual and fixed-term use, and lease rights.

When granting subsoil use rights, the State (together with parties enjoying other titles to a land plot) guarantee that a land plot will be put at the disposal of the subsoil user for conducting mining operations.

The subsoil user’s rights granted under a subsoil use license are subject to registration with the local state cadaster authority and Goscomgeology.

Obligations of Holder - Exploration The law provides for a number of obligations of a subsoil user, which are further detailed in a subsoil use license.

Subsoil users must comply with the work programs and project documents that define the scope and stages of exploration works, provide an estimation of exploration expenditure and set forth the subsoil user’s obligations. Subsoil users must ensure safety of geological, surveying and other documentation, and safety of rock, ore and core samples and field duplicates which may be used for exploration and mining works in the future. Subsoil users must also comply with environmental protection measures and restore land plots and other natural sites that have been disturbed as a result of mining operations.

Holding Tenements There are no special holding tenements under Uzbekistani law.

Development / Production Tenements Mining Rights

Similar to exploration works, mining works are carried out on the basis of a mining license issued by Goscomgeology based on the results of a public tender or through direct negotiations.

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A mining license may be granted for part of a deposit provided that this does not result in deterioration of deposit performance indicators and does not impede the development of the deposit. Also, different subsoil users may receive mining licenses for development of the same deposit. In addition, a subsoil user may be granted several mining licenses for the development of several adjacent deposits, if a feasibility study demonstrates that the development of the deposits becomes cost-efficient only when developed by a single subsoil user.

Terms

A mining license is granted for a deposit development term specified in a feasibility study. The term of a mining license may be extended at the request of the subsoil user, if it is necessary to complete the mining operations, provided that there have been no breaches of the license terms and conditions.

The subsoil plot subject to mining operations is defined by a mining allotment issued by the Industrial Safety Inspectorate based on a mining license. Every subsoil user granted mining rights is issued a mining allotment that defines the size and depth of the subsoil plot subject to mining operations. Any activity within the boundaries of a mining allotment is conducted with the prior approval of the subsoil user.

Transition from Exploration - Development / Production Tenements

A subsoil user that financed exploration works and made a commercial discovery has an exclusive right to obtain a mining license for the same deposit. In such a case, a separate license application must be filled with Goscomgeology. A subsoil user must provide Goscomgeology with documents confirming that exploration works on a given deposit were financed by this subsoil user and disclose the source of such financing.

In the event a subsoil user that financed exploration works chose not to obtain mining rights for the explored deposit, the mining rights for this deposit may be granted to another party. In this case, an initial subsoil user must be compensated for its exploration expenditures by this other party.

Foreign Ownership Restrictions and Government Participation Generally, there are no prohibitions or restrictions on foreign investments in the mining sector.

However, in Uzbekistan, certain exploration works are conducted by the state-owned enterprises and/or their joint ventures:

• exploration works for precious metals and uranium (and associated minerals) are conducted by Navoi Mining and Metallurgical Combine;

• exploration works for non-ferrous metals and associated minerals are conducted by Almalyk Mining and Metallurgical Combine.

Steps to Acquire a Right - Development / Production Tenements The steps for acquiring a mining license are the same as the steps for acquiring an exploration license. The differences are 1) the preparation of a feasibility study (instead of preliminary/final technical and economic estimates) and 2) the exclusive right of the subsoil user that financed the exploration works to obtain a mining license for the same deposit.

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Relationship with Landowners - Development / Production Tenements

As noted with respect to exploration tenements, when granting subsoil use rights, the State (together with parties enjoying other titles to a land plot) guarantee that a land plot will be put at the disposal of the subsoil user for conducting mining operations.

In addition, every subsoil user that is granted mining rights is issued a mining allotment that defines the size and depth of the subsoil plot subject to mining operations. The law provides that any activity within the boundaries of the mining allotment is conducted with the prior approval of the subsoil user.

Obligations of holder - Development / Production Tenements The subsoil user’s obligations are detailed in a mining license. The subsoil user’s obligations include compliance with the work programs, mining schedules and procedures for approval of technical projects for construction and reconstruction of mining enterprises, using development methods that exclude unjustified loss of minerals and decrease in their quality and providing Goscomgeology with information on the volume of extracted minerals. The subsoil user must also ensure safety of mining operations and take environmental protection measures.

Key Issues Treaties Uzbekistan has signed bilateral investment treaties on promotion and protection of foreign investments with 48 countries. Bilateral investment treaties provide a number of guarantees to nationals of signatory countries, including national treatment, most-favored-nation treatment, protection against nationalization, expropriation or measures tantamount to expropriation and the right to resolve investment disputes by means of international investment arbitration.

Taxes Subsoil users in Uzbekistan are subject to the following subsoil use taxes and payments:

Subsoil Use Tax

Subsoil use tax is charged on the value of extracted minerals determined using the average weighted sales price for the reporting period.

Signature Bonus

A signature bonus is a one-time payment for the right to conduct exploration works based on a subsoil use license. The amount of a signature bonus depends on the particular type of mineral.

Commercial Discovery Bonus

A commercial discovery bonus is a payment that is payable by a subsoil user every time a commercial discovery is made on the territory specified in a subsoil use license. A commercial discovery bonus is charged on the value of extracted mineral reserves. The rate of commercial discovery bonus is 0.1% of the value of extracted mineral reserves.

Excess Profits Tax

Excess profits tax is charged on the part of the subsoil user’s profit (excess profit) calculated as the difference between the subsoil user’s net income and the fixed price established by

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the law for certain minerals (copper, natural gas, polyethylene pellets, cement and clinker). The excess profit tax rate is 50%.

Usual Structure of Venture

The structure of ventures used to develop mineral deposits differs depending on the circumstances and needs of the participants. However, a joint venture with a state-owned entity remains the traditional model for investments in the mining sector.

Protection for Foreign Investors

Foreign investors enjoy the same level of protection as national investors. The Law “On Foreign Investments” dated 30 April 1998 and the Law “On Guarantees and Protection Measures for Foreign Investors” dated 30 April 1998 include, inter alia, the following investment guarantees: non-discrimination, free use of income, repatriation of profits, prohibition of nationalization and adequate compensation in the event of requisition.

EMEA

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Egypt Author’s Summary Author(s) Mohamed Ghannam and Ghada El Ehwany

Summary With 1,001,450 square kilometers of land lying between the Mediterranean Sea and the Red Sea, Egypt has a diversified geology. Minerals in commercial quantities in Egypt include ferrosilicon, gold, silver and phosphate. The ownership of minerals and ore deposits in the territory of Egypt, its territorial water and seabed is vested in the State of Egypt.

The Mining and Quarries Law No. 66 of 1953, as amended by Law No. 85 of 1956 (the Mining Law), is the primary law governing the mining sector in Egypt. Hydrocarbons are also subject to the Mining Law. The Mining Law is a very old law and does not address numerous aspects of the current mining environment. A new draft law has been under discussion in 2010/2011. However, this draft law has not been passed into law and may be subject to various changes.

For the time being, it is most likely that the Egyptian Mineral Resources Authority (EMRA) will continue to use the current production-sharing model. This chapter is an overview of the Egyptian production-sharing model and the current legal framework of mining activities, focused on gold concessions but excluding hydrocarbons. It is also worth noting that there is currently considerable interest in gold and phosphate mining in Egypt.

Local Landscape Legal framework for mining

The Egyptian legal system is a civil-law system based upon a well-established system of codified laws.

The Ministry of Petroleum is in charge of managing the minerals sector. The EMRA is the authority entrusted with the geological mapping of Egypt and the exploration and discovery of mineral wealth, excluding hydrocarbons, while the Egyptian General Petroleum Corporation (EGPC) is the authority entrusted with discovery and exploration of hydrocarbons.

EMRA is currently under and reports to the Ministry of Petroleum. There are discussions to bring it under the Ministry of Industry.

In the past, licenses for mining of minerals (other than hydrocarbons) were granted by EMRA to experienced applicants in two stages: an exploration license followed by an exploitation license, once commercial quantities are found, against a minimal rent. Development of Egypt’s hydrocarbons has typically been done by way of concession agreements, similar in structure to production-sharing agreements. In order to maximize the State’s return, EMRA in the last few years adopted the production-sharing concession model used by EGPC (in connection with hydrocarbons) in relation to mining (e.g., gold and iron ore concessions have been granted according to this model) and has not been following the licensing model on the basis that this model is not financially rewarding to the State.

Amongst the changes to be introduced in the new draft law are an increase in the rent for each kilometer, limitation of exploration areas to between 1 and 20 kilometers, a requirement

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for a feasibility study for mineral exploration and authority for the State to specify the consideration for exploitation as may be set from time to time.

Restrictions on foreign investment in mining

Exploration and mining rights are granted by way of concessions, issued pursuant to a bidding process conducted by EMRA, from time to time, in regard to certain areas in Egypt. Bidders of all nationalities are entitled to submit bids and are all subject to prior security checks. Following receipt of bids, the governmental agency evaluates each bid submitted. Bidders are given the opportunity to present their credentials, technical and financial capability. The most favorable bids are presented to the Ministry of Petroleum for review and approval.

The Mining Law provides that if an Egyptian bidder and a foreign bidder submit equal bids, priority should be given to the Egyptian bidder. Should a license/concession be granted to a foreign bidder, the foreign bidder will be required to create a legal presence in Egypt. Once a license/concession is granted, the foreign contractor must register a branch office in Egypt and must comply with local labor, tax, environmental and other regulations.

Mining concessions are usually granted on the basis that the contractor holds 50% of the interest in the concession and the remaining 50% remains with EMRA.

In operation of the concession, the contractor is required to give priority to local services suppliers and sub-contractors, as long as their performance is comparable with international performance and the prices of their services are not higher than the prices of other contractors and sub-contractors by more than 10%. Also, it is required to give preference to locally manufactured materials, equipment, machinery and consumables as long as their quality and time of delivery are comparable to internationally available materials, equipment, machinery and consumables.

Environmental considerations

The contractor and the joint operating company are subject to the provisions of the Environmental Law No. 4 of 1994 concerning the environment and its executive regulations. At the end of the term of the concession, the site has to be restored to its original state by the contractor.

Exploration Tenements

Contractors are given the right to carry out exploration activities in the relevant area for an initial exploration period that varies for each concession, but which is generally one year for gold concessions (renewable for two successive periods, each of two years). If no commercial exploration is made by the end of the exploration period, the concession will terminate.

Terms

During the exploration phase, the contractor bears all risks until a commercial exploration is made, at which point the contractor is entitled to recover its costs related to its exploration and development activities in accordance with certain cost recovery provisions included in the concession.

Only mining rights for the mineral(s) which is or are the subject of the concession are granted to the contractor, without any title or rights to the land which remains owned by the

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State. It is important to note that exploration and exploitation activities cannot start until after the approval of the Ministry of Defense is granted. Such approval is sought with the assistance of EMRA.

Steps to acquire an exploration right

Following the submission of the bids and the selection of the successful bidder by EMRA, the proposed grant of mineral rights is referred to the Ministry of Petroleum for approval. Following the grant of such approval, the Ministry of Petroleum seeks the approval of the Parliament on the grant of the mining rights. The Parliament approves the concession and a law is passed awarding the mining rights to the successful bidder. Upon the issuance of the relevant law, the Ministry of Petroleum executes the concession. Hence, the concession is signed by the Ministry of Petroleum (acting for the State of Egypt), EMRA and the contractor. This approval and issuance of the law process is time-consuming and there are no guidelines or laws regulating the time frames during which the approvals are processed.

The special law by virtue of which concession is issued supersedes any other law conflicting with its terms.

Obligations of holder - Exploration

After the issuance of the relevant law and before the date of signature by the Minister of Petroleum, a bank guarantee is required to be procured by the contractor to guarantee the execution of the contractor’s minimum exploration obligations.

Holding tenements Retention period fee In gold concessions, if the contactor opts to retain an area prior to exploitation, a fee of USD1,000 per square meter is payable for the first two years and USD2,000 per square meter for the second period of two years. Fees may vary from one concession to the other.

Development / Production tenements Terms of rights

The main terms of the exploration agreement are pre-agreed in the concession. The duration of the exploration rights is usually 20 years, but the period may be extended, subject to the approval of the Ministry of Petroleum.

With regard to gold concessions, the contractor may retain portions of the area with potential reserves to continue the exploration and evaluation of such areas. This “retain period” may not exceed two periods each of a term of two years.

Transition from exploration / holding right to mining right - Development / Production tenements

Once a commercial discovery is made, if EMRA and the contractor agree to develop the relevant area, the area is converted from an “exploration” area to an “exploitation area.” Such conversion is, once again, subject to the approval of the Minister of Petroleum.

After a commercial discovery and the conversion of the “exploration” areas to an “exploitation” area, EMRA and the contractor form a joint Egyptian operating company responsible for operating the relevant area subject to the exploration agreement. This joint operating company is established as a private sector Egyptian company that is 50% owned by EMRA and 50% owned by the relevant contractor. The operating company has a special

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status and is deemed to act as an agent on behalf of the contractor and EMRA. The joint operating company is responsible for managing operations, preparing work programs and budget for future explorations and development of the discovery. The joint operating company does not realize any profit. It is a “pass-through” for all financial purposes. Also, although it is a joint-stock company generally subject to the Egyptian Companies Law, it has special features not applicable to regular joint-stock companies.

Obligations of holder - Development / Production tenements Relinquishment

In gold concessions, a contractor is required to relinquish a minimum of 25% of the original exploration area at the end of each exploration period. At the end of the final exploration period, the contractor is required to relinquish the remaining area, except for those parts where a commercial discovery has been made. The contractor may opt to voluntarily relinquish areas at any time.

Disposal of minerals

The joint operating company is the entity responsible for marketing and disposing of the licensed mineral in compliance with the terms of the concession, taking into account that cost is recovered by the contractor in the form of receiving a share of the produced mineral.

Key Issues Taxes

Contractors are exempt from the payment of any taxes or levies payable in Egypt except for income tax. Profits generated out of the exploitation of the mineral are subject to income tax. EMRA is responsible for paying from its share of production, the contractor’s share from such income tax.

Exemption from custom duties: Exemptions from customs duties and sales taxes are granted to EMRA, the contractor and the operating company in respect of all machinery and equipment acquired for the purposes of the concession, provided the approval of EMRA is obtained.

Repatriation of funds and export of minerals: There are no restrictions on the repatriation of profits generated from the operations of the contractors in Egypt. Moreover, EMRA and the contractor have the right to separately take and freely export or otherwise dispose of all the minerals to which they are entitled under the terms of the concession subject to a priority right of EMRA to purchase the contractor’s share of any minerals in order to satisfy Egyptian demand (if any). Due the current economic strain in Egypt, the Central Bank of Egypt has imposed certain restrictions on the transfer of hard currency outside Egypt issued in 2011, ensuring that any transfer of funds is part of a genuine commercial transaction. Moreover, there has been an increasing lack of availability of hard currency in the market and banks are not generally satisfying all hard currency demand with priority being given to strategic goods and raw materials. The practice of banks is not consistent in this regard. This means that transfer of hard currency outside Egypt may practically prove difficult.

Expatriate employees of the contractor: Expatriates employed by the contractor are granted the right to reside and work in Egypt, subject to the applicable laws and regulations. Moreover, their personal belongings (including one car) are temporarily exempted from custom duties, provided the approval of EMRA is obtained.

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Usual structure of venture

Restrictions on assignment: The mining rights either under a license (per the old model) or a production-sharing concession (the new model) cannot be transferred without first obtaining the approval of EMRA and the Ministry of Petroleum. Usually, concessions include a clause providing that the relevant governmental agency or the contractor may not assign the concession to a person, firm or corporation, in whole or in part, any of its rights, privileges, duties or obligations under the concession either directly or indirectly without the prior written consent of the government. The government broadly defines the “assignment” of concessions by contractors and in certain instances it has taken the view that any change of control is deemed an assignment, requiring the prior approval of the government. The relevant governmental agency has a right of first refusal to acquire the interest of the contractor.

Right of requisition: Concessions include provisions granting the State of Egypt a right of requisition. Such provisions are quite standard in concessions in Egypt. The right of requisition consists of the right of the State, in case of national emergency due to war or imminent expectation of war or internal causes, and after officially inviting the EMRA and the contractor to meet and express their view, to: (i) by a ministerial decree, request all or part of the production from the area and require the joint operating company to increase the production to the maximum possible; or (ii) by a presidential decree notified to parties to the concession, requisition the field itself and any related facilities.

In the event of any requisition, the State will indemnify in full the parties for the period during which the requisition is made.

Sovereign immunity: Neither the State nor any of its agencies (including EMRA) enjoys immunity from suit. However, each of them enjoys immunity from enforcement. Certain assets owned by public authorities are not subject to attachment if they are “allocated either in fact or by virtue of a law or a decree for purposes of public utility.” Hence, governmental agencies, such as EGPC and EMRA’s assets that are allocated for a public utility, cannot be legally attached or seized.

Dispute resolution: Any disputes between the State of Egypt on one hand and EMRA and the contractor on the other are settled by the competent court in Egypt (most likely the administrative courts). However, disputes between EMRA and the contractor are usually settled through arbitration.

It should be noted that concessions are likely to be characterized as administrative contracts. Administrative legal rules are not codified, but the administrative courts apply the established precedents laid by the State Council and hence there is ample judicial discretion. Possible remedies available to the contractor if the governmental agency defaults under the concession would be limited.

Once a contract has been characterized as an administrative contract, the contractor cannot unilaterally absolve himself from performing its contractual obligations, even if the public authority defaults in performing its obligations. The contractor, therefore, must continue to perform the work but may claim damages due to the administration’s breach of contract or may file a suit demanding termination of the concession. However, if the court, using its discretionary power, deems that there is an absolute legal or physical impossibility beyond the control of the contracting party which has led to the failure to perform, it may conclude that there is no fault committed by the contracting party and may reject the claim for damages. For instance, the contractor will need to evidence that the non-payment by the State or relevant governmental agency has led to the failure to operate the fields or continue exploration and discovery. It should be noted that an administrative contract may be

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terminated by the State if the “public interest” necessitates so. In such case, the contractor will be entitled to compensation.

It is also worth noting that the recent political turbulence has put certain pressure on the court system. For instance, in a very recent development, the Administrative Court has annulled an exploitation lease of a gold concession while confirming that the concession itself may not be cancelled by the court, on the basis that the concession is approved by the Parliament, in the form of law. In its judgment, the Administrative Court has recommended that the policy of EMRA be reviewed in relation to the grant of concession in order to restore the economic equilibrium of such arrangements and to ensure that the revenue of the State is maximized. However, the enforcement of this judgment has been suspended and it is still under review by the High Administrative Court. It is not yet clear whether or not EMRA will adopt any new measures or policies in this respect.

Financial arrangements under mining concessions

Royalties: In return of the grant of mining rights, the State of Egypt is entitled to royalties. The value of the royalties is determined in the concession. For instance, in gold concessions, royalties are usually in the range of 3% to 4% of the produced mineral, either in kind or in cash, which is split between EMRA and the contractor. Royalties are not deemed as recoverable cost.

Bonuses: Certain bonuses are payable to the relevant governmental agency on different events (completion of exploration, starting production, etc.). Such bonuses are not recoverable.

Cost recovery: During the exploration phase, the contractor bears all risks and costs until a commercial discovery is made. Exploration and development costs are recoverable from the cost recovery mineral. Any costs that were not recovered in a particular period are usually carried forward for recovery in subsequent periods. The price of the mineral, used for the calculation of the cost recovery mineral, is the market price at the time of recovery.

Title to the assets: At the start of the exploration period, the contractor acquires all the assets at its own cost. EMRA becomes the owner of all assets that are charged to cost recovery by the contractor, gradually. Full title to assets generally passes from the contractor to EMRA when the total cost of the assets has been recovered by the contractor or at the time of termination/expiry of the relevant concession with respect to all assets chargeable to the operations whether recovered or not, whichever occurs earlier.

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Morocco Author’s Summary Author(s) Kamal Nasrollah and Adrian Gonzalez Maltes

Summary From the strait of Gibraltar in the North, to the Sahara desert in the South, Including most of the Atlas mountain Range, Morocco has a diversified geology. There are over 90 mining companies operating in Morocco, mining for 20 different mineral products including phosphates, anthracite, antimony, barite, cobalt, copper, fluorspar, iron ore, lead, manganese, salt, silver, tin and zinc.

This industry is growing and becoming ever present in the region. Worth an estimated 10% of GDP, mining in Morocco extracts 29.7 Million tons of minerals per annum of which 27.1 Million tons are phosphate (2012).

Mining is overseen by the Ministry of Energy, Mines, Water and the Environment (Ministère de l’énergie, des mines, de l’eau et de l’environnement). The Government is giving a push to the industry by starting to pass new mining legislation, encouraging mapping of mineral deposits and developing the industry as a whole.

Local Landscape Legal framework for mining

Mining in Morocco is governed by a Royal Decree (Dahir) dated 16 April 1951 (hereafter, the “Mining Law”). Though new legislation is being discussed in parliament (projet de loi n° 33-130) as of now the 1951 legislation is still in operation.

All mineral resources are the property of the state, which issues permits and licenses for the exploration and exploitation of resources. The industry is administered by the ONHYM (Office National des hydrocarbures et des mines) under the supervision of the Ministry of Energy, Mines, Water and the Environment.

Restrictions on foreign investment in mining

As a general rule, there are no restrictions on foreign investment. Each entity that complies with the conditions provided by the applicable legislation and regulation may hold a permit, whether it is a Moroccan or a non Moroccan entity. However, permit holders should have a subsidiary in Morocco.

Morocco is welcoming to foreign investment, and in particular, in the case of large investments. With respect to projects amount to over MAD 200 Million, investors may be eligible to certain grants, tax breaks and other incentives.

As a result, several international companies are showing an interest in Moroccan mining.

Environmental considerations All mining activities should be conducted pursuant to the requirements of Law n° 11-03 on protection of the environment dated May 12, 2003.

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Exploration Tenements Pursuant to article 7 of the Mining Law, companies are given the right to exploration subject to an exploration permit granted by the Ministry of energy, mines, water and environment.

This exploration permit allows for exploration for three years, renewable by a further four years.

The size of the exploration area is ordinarily limited and mentioned in the exploration permit.

As of 2012, 710 exploration permits have bee granted.

Terms Exploration is undertaken at the risk of the contractor.

In addition, it should be noted that the exploration permit is delivered for a determined category of mines within a limited area.

Furthermore, pursuant to the Mining Law, an exploration permit may not be granted on lands that are reserved to the State or for which the grant of en exploration permit is subject to a call of tender.

Steps to acquire an exploration right Rights are allocated on a company-come-first-serves basis after evaluating the financial and technical capability of each bidder.

Moroccan law sets out a classification of minerals by categories and determines the applicable procedures for each category. Generally, all categories are subject to the same procedures, except the fourth category (natural gas and oil), which is submitted to different procedures set out by the provisions of law n° 21-90 on hydrocarbons dated 2003.

The applicant must be able to justify its technical and financial capacity and present a general program for works, adapted both to the duration of the permit and the geographical and geological characteristics of the relevant territory, and undertake to devote to its research a financial minimum effort.

Obligations of holder - Exploration

One of the obligations of an exploration permit holder may be, in some cases, to seek an amicable settlement with the landlord as regards the conduct of the works relating to its permit. If such an amicable settlement is not possible, the permit holder may be authorized temporarily to use lands located outside the area of the permit, provided that the holder pays an annual indemnification at the beginning of each year occupation.

Holding tenements Rights to hold It appears that there is no particular system for holding tenements to bridge the gap between the completion of exploration and when development starts. If the exploration license holder fulfills its obligations under the Mining Law, it will be entitled to obtain an exploitation license upon making an application.

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Development / Production tenements Tenements / rights available The exploration permit may be transformed into a mining permit pursuant to the requirement set forth in the Mining Law. The holder of a mining permit will be able to work on the mining deposit and to dispose of the substances in the relevant category mentioned in the permit.

A mining concession gives an exclusive right to exploit mineral substances for a specific category within a limited area.

Terms of rights The duration of exploitation rights for a mining permit is 4 years, this can be renewed 3 times and after the final renewable an additional period of 12 years can be added.

The duration of mining concessions are either 50 or 75 years and this can be renewed for up to 25 years depending on the results obtained during the previous concession.

Being granted a concession is not very usual so far.

As of 2012 there are only 77 concession permits.

Key Issues Taxes

Concessions and permits are subject to taxes. According to the Mining Law, the taxes for granting and the renewal of mining titles are the following:

(a) Applying for a exploration permit: MAD 2,000;

(b) Renewing an exploration permit: MAD 4,000;

(c) Applying for a mining permit and its renewal: MAD 7,200;

(d) Applying for a mining concession: MAD 20,000;

(e) Annual tax for concession: MAD 6,000.

The corporate tax rate is 30%, other local taxes will also be payable. Though there may be a 5-year tax exemption for new mining projects or a 50% reduction of corporate tax for companies that export their products.

All employees will be subject to income tax (IR).

There is a royalty to be paid under article 168 (Chapitre XVII – Taxe sur les exploitations minières) of the Moroccan Tax Code between MAD 1 and MAD 3 per extracted ton.

Customs duty and tax exemptions may, in some cases, apply on imported equipment.

The State may contribute towards infrastructure expenditure, including roads, electricity and water supply. (50-75% of total costs).

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Usual structure of venture

In Morocco, the investors on mining operations should usually implement a company in Morocco. The main types of corporate entities available are:

• Private limited company (SA);

• Simplified private limited company (SAS);

• Limited liability company (SARL).

A private limited company is presented as a legal entity or individual. There are minimum 5 shareholders or partners. The share capital is at least MAD 300,000 for non publicly listed company, and the contributions must be in cash or kind. The management is under the supervision of either a Board of Directors or a Management and Supervisory Board. The corporate tax rate is 30%.

A limited liability company is presented as a legal entity or individual. There is minimum 1 shareholder or partner and maximum 50. There’s no minimum for the share capital. The contributions must be paid in cash or in kind. The management is one or several managers.

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Poland Author’s Summary Author(s) Dorota Milczarek

Summary Poland has a rich history of mining and provides substantial energy and other mineral production for export to Europe.

Unlike most mining jurisdictions, under Polish law the local communities are empowered in many cases to be the approval body for mineral exploitation.

Local Landscape Legal framework for mining

The legal framework for mining activity in Poland is not just the Geological and Mining Law. In its operations, every mining company will also be subject to laws concerning environment protection, waste management, construction law and zoning.

One of the material considerations is that the opinion of the local commune head ((wójt), which includes commune mayors (burmistrz) or city mayors (prezydent miasta) as the case may be) is required for the grant of a license for prospecting or exploration of mineral deposits, and an approval of the commune head is required for granting a license to extract minerals. Such “opinions” are not binding on the central licensing authority, which may decide not to take them into account. However, in cases where an approval is required, the licensing authority may not grant any license without that approval.

Under the previous Geological and Mining Law of 1994 many license applications had not been granted due to the requirement under the law for an applicant to obtain the approval of the commune head, but there were no criteria specified for such approval. This gave local authorities significant discretion both in approving licenses and in refusing to approve them. The new Geological and Mining Law in force since 1 January 2012 introduced certain limitations on the discretion of the commune heads for the approval of the licenses to extract minerals. The law explicitly states that the criterion for such approval is met if the licensed activity does not violate the use of the real estate as defined in the local zoning plan, and if there is no local zoning plan, in the zoning conditions and objectives study. In the current legal environment, the ability of the local authorities to oppose the grant of a license where a local zoning plan or study exist is therefore limited. In saying that, the law in its current wording has not clarified all uncertainties. It remains questionable whether the mining activity must be expressly provided for in the local zoning plan or the study in order for the planned activity to be considered as being in compliance with local law. Or whether, where the local zoning plan or the study or any specific regulations do not specifically prohibit the extraction of minerals, then there are no obstacles to undertaking such activity.

Most practitioners are in favor of the latter view, relying primarily on “the intent of the legislator” as expressed in the explanatory memorandum to the government bill for the Geological and Mining Law. The intent of the legislator was to change the law based on the assumption that it is not explicit compliance with the planning acts, but the lack of a clear conflict with their provisions, that is to be the criterion of approval of the license by the commune head. Therefore, where the provisions of local law do not contain any express prohibition of mining activity, such activity should be permitted.

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However, not all communes in Poland have local zoning plans, and only a few have a current local zoning plan covering the whole area of the commune. In those places where there are no current plans, it is the study (that in theory all communes should have) that is the document applicable for the purposes of giving opinions on and approvals of the mining activity. However generally these studies only specify very general zoning objectives for the communes.

The situation is easier where a deposit already exists (i.e., it has been documented) and a mining company wants to start exploitation. By operation of law, the area of a documented mineral deposit must be included in the relevant study, within two years from the approval of the geological documentation. If the commune fails to fulfil that obligation, the provincial governor (wojewoda) will issue an interim ordinance that has the same legal force as the study.

Participation by local community

Under the laws currently in force the local authorities and the local community can influence the decisions concerning the carrying out of mining activities. The local community, either individually or through community organizations, can participate in many procedures related to mining activities, such as:

(a) in the procedures for granting a license for activities to be carried out within the boundaries of land parcels, the owners or perpetual usufructuaries of land located within the boundaries of a planned or existing mining area or a place where geological works are performed, have the status of parties to the procedure. In contrast, lessees of land, even if the land is located within the boundaries of a mining area, are not treated as parties. The owners or perpetual usufructuaries of land located within the boundaries of a mining-affected area (outside the mining area but within the mining impact zone), are not treated as parties either.

(b) for a license for prospecting or exploration or a license for the extraction of minerals to be issued, an environmental decision (i.e., a decision on environmental conditions, which defines the conditions for carrying out the mining activity) must first be issued. Such decisions are usually issued by commune heads, following an approval of the conditions for the implementation of the project by the Regional Environmental Protection Director. The participation (in the form of consultation) of the local community is ensured almost at every stage of the procedure.

(c) the community also participates in the procedure for the passing of zoning plans and studies. Those whose legal interests will be violated or are threatened by a zoning plan or a study may complain against those documents to administrative courts.

The procedural instruments vested in local government units and people who possess real estate are sufficiently powerful to suspend or significantly delay the commencement of the extraction of minerals. The Polish legislative, having recognized this problem faced by mining undertakings, has tried to address the problem by introducing, in subsequent amendments to the Geological and Mining Law, some restrictions on the discretion of local government units and local communities, including:

(a) the narrowing of the criterion for the approvals (no conflict with the local zoning plan or the study);

(b) clearly identifying the parties to the license granting procedure (only owners and perpetual usufructuaries of real estate located within the boundaries of a mining area); and

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(c) increasing the “permamence” of the license decision (the license may not be revoked or amended as a result of re-opening the procedure if one year has passed from the commencement of the licensed activity. The start of the licensed activity is deemed to be tantamount to the emergence of irreversible legal consequences, which means that once the licensed activity has been started, the license may not be invalidated even if it has serious legal defects).

Differences with respect to standard administrative procedures

Under the Geological and Mining Law, decisions in individual cases are made, in principle, according to general administrative procedure. However, the Geological and Mining Law has introduced special procedural solutions which sometimes significantly differ from those set out in the Code of Administrative Procedure. The Geological and Mining Law provides for a number of solutions dedicated to the license granting procedures that make it possible to simplify and speed up such procedures.

The most important modifications to the general administrative procedure concern the following:

a) the principles of cooperation in issuing decisions

The Code of Administrative Procedure provides that if a provision of law makes the issue of a decision conditional upon a position being taken by another authority, the decision is to be issued only when such a position has been taken. Opinions or approvals are given in the form of decisions that are subject to complaint. The cooperation should take place within 14 days following the date of delivery of the relevant request to the authority. However a failure to meet that deadline has no direct consequences and can only be grounds for filing a complaint against the authority for its failure to act. Where many opinions or approvals are to be obtained, such provision may result in a significant prolongation of the procedure.

The Geological and Mining Law provides for different solutions. If the cooperating authority fails to meet the 14 days’ deadline, it will be deemed to have approved the draft decision. Such presumption is irrebuttable. Accordingly, if the approving authority issues its decision after the expiry of the 14 days’ deadline (e.g., a decision to refuse the approval), the authority seeking approval (the licensing authority) may not take such decision into account as it is bound by the presumption. This provision applies not only to the procedure for granting exploitation licenses, but also to those for granting licenses for the exploration of deposits.

b) a further clarification of the notion of a party to the license granting procedure

It is very important to define the circle of parties to the license granting procedure, especially where the mining activity is carried out over a large area. Essentially, the issue is whether the owners of real estate “under which” mining activity is carried out or which is affected by the anticipated impact of mining operations may be deemed to be parties to the license granting procedure. If the determination in this respect were to be made on the basis of the Code of Administrative Procedures, “any person whose legal interests or responsibilities are the object of the procedure” would be a party to the procedure. Such provision can give rise to many doubts as to interpretation, namely as to whether a given person claiming to be a party to the license granting procedure actually has any legal interests. When the number of parties to a procedure is increased, the procedure becomes excessively long and the license decision is more likely to be appealed against. Under the Geological and Mining Law, only owners (perpetual usufructuaries) of land within the boundaries of which mining activity will be carried out (i.e. land located within the mining area) are parties to the license granting procedure.

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c) making license decisions more permanent

The permanence of final administrative decisions as guaranteed by the Code of Administrative Procedures does not mean that such decisions are completely immutable. Under the Code, any decision may be challenged through extraordinary verification procedures, including invalidation of the decision, re-opening of the procedure, or revocation or amendment of the decision vitiated by defects that may not be the grounds for invalidation of the decision or re-opening of the procedure.

Accordingly, a mining undertaking that has obtained a final license decision could not be sure of the permanence of such decision under the Code. Someone could seek to challenge the decision many years since the commencement of the mining activity and after substantial funds have been invested into such business. While a decision vitiated by certain defects may not be invalidated if 10 years have passed since the decision was served, or if the decision had irreversible legal consequences, the mining undertaking could have invested substantial funds over that period of time. Further, the assessment of whether the vitiated decision had irreversible legal consequences was discretionary under the Code. Examples of many court decisions show that license decisions could be invalidated many years after the commencement of the mining activity. In many court decisions and legal literature one can find the view that the commencement of the mining activity, the building of the necessary infrastructure, etc. were not considered to be tantamount to the occurrence of irreversible legal consequences. As a result, business activity in the mining industry was bearing too much risk.

The Geologiccal and Mining Law modified the rules for the verification of final license decisions to provide that the commencement of the licensed activity is considered to be tantamount to the occurrence of irreversible legal consequences, therefore disallowing a person to re-open the procedure to invalidate and revoke or amend the license. In addition, the time period in which license decisions may be revoked as a result of re-opening the procedure has been limited. Currently, such decisions may not be revoked if one year has passed since the commencement of the licensed activity.

d) limiting the possibility for community organizations to participate in certain procedures

The participation of community organizations in license granting procedures as parties thereto has been limited in the Geological and Mining Law. Currently, if the license is preceded by an environmental conditions decision undertaken in a procedure in which the community was involved, the provisions on the participation of community organizations in the license granting procedure will not be applicable. Below we will discuss the requirement that an environmental impact assessment be performed before a license is granted. One of the most difficult stages of the environmental impact assessment procedure is the ensuring of the so-called “community participation”. The participation of community (environmental) organizations is a special form of community activity in the procedure for issuing the decision on the environmental conditions. Such organizations have the status of a party, hence they have a wide range of tools for making claims and requests and for blocking the procedure.

The legislator has allowed only those environmental organizations which have been carrying out statutory activities in the field of environment protection for a minimum of 12 months to participate in the procedure as a party. Indeed, environmental organizations have been established many times “for the needs” of a specific license granting procedure.

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Restrictions on foreign investment in mining

Under the Geological and Mining Law, there are no restrictions as to the persons who may carry out mining activity in Poland. In Poland, mining activity may be undertaken and carried out by both natural and legal persons having their registered offices in or being the nationals of, one of the European Union member states or the member states of the European Free Trade Association (EFTA). Such activity may also be carried out by foreign persons (legal or natural) from states that are not parties to the European Economic Area agreement, provided they can benefit from the freedom of establishment on the basis of agreements concluded between those states and the European Union and its member states. Such entities can operate on the same terms as Polish nationals.

Restrictions on mining hydrocarbons

As a result of its accession to the European Union, Poland has been included in the Community legal system. In particular, the Hydrocarbons Directive was adopted in order to facilitate and intensify the exploration and extraction of hydrocarbons within the Community, by ensuring equal and free access to such activities in the EU member states. Essentially, the Directive:

(a) introduced the principle that free and equal access to the pursuit of activities relating to the prospection, exploration and production of hydrocarbons should be ensured to all entities, primarily in respect of applying for an authorization for such activity.

(b) prohibits any discrimination between the entities applying for an authorization and the entities exercising the rights guaranteed by such authorization. The member states may refuse, on grounds of national security, to grant an authorization to any entity which is effectively controlled by third countries or third country nationals.

(c) provides that any member state may be authorized by the EU Council to refuse an authorization to any entity which is effectively controlled by a third country that is not granting Community entities treatment according to the principle of reciprocity.

The Polish legislators made use of the possibility of imposing restrictions on undertaking activities in the scope of exploration of hydrocarbon deposits and extraction of hydrocarbons from deposits by entities that are under corporate control of a third country or third country entities or nationals.

The Geological and Mining Law amendment bill (the so-called “amendment relating to hydrocarbons”) introduced certain restrictions on the possibility of obtaining licenses for exploration of hydrocarbon deposits and extraction of hydrocarbons from deposits.

Hydrocarbon licenses are granted through tender procedures. The tender procedure is preceded by a qualification procedure, the purpose of which is to identify the entities entitled to submit tenders. The qualification procedure examines whether a given entity is under corporate control of a third country or third country entities or nationals. Such an entity may be considered not to fulfil the conditions of the qualification procedure due to perceived threats to national security and may not be allowed to submit a tender. Any state that is not a member of the EU, EFTA or NATO is a third country. These restrictions only apply to undertaking and carrying out mining of hydrocarbons such as coal.

Restrictions on ability of foreign persons to buy land The carrying out of mining activities is often connected with the need to own land, especially for open-cast exploitation and infrastructure.

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Foreigners wanting to buy land in Poland face certain restrictions under the Acquisition of Real Property by Foreigners Act.

Foreigners wanting to acquire land (the right of ownership or the right of perpetual usufruct) are required to obtain a permit to make sure the transaction will be legally valid. Permits are issued in the form of a decision by the minister for internal affairs. A foreigner applying for such permit must prove he/she has ties with Poland. Circumstances which confirm such ties exist include, for example, a membership in a body which manages a company seated within the territory of Poland and doing business within the territory of Poland.

The permit is also required if a foreigner wants to buy shares or stocks in a Poland-based company which is the owner or perpetual usufructuary of land, where foreigners control more than 50% of votes at the shareholders’ meeting of the company.

The Acquisition of Real Property by Foreigners Act provides for a number of exceptions to the requirement to obtain the permit.

The restrictions imposed on real property transaction also apply to citizens and companies originating from countries which are contracting parties of the agreement on the European Economic Area. They have to obtain the permit if they want to acquire agricultural land or forest land or shares and/or stocks in a company which is the owner or perpetual usufructuary of such land. This restriction will remain in force until 1 May 2016.

Maximum utilisation The Geological and Mining Law provides for the protection of mineral deposits by imposing the obligation to mine mineral deposits in a manner which ensures maximum utilisation of the deposit, which is generally referred to as the obligation to “manage the mineral deposit in a rational manner”, and the obligation to disclose documented mineral deposits in studies of land use conditions and directions and in local zoning plans for communes/municipalities and provinces.

The obligation of rational mineral deposit management applies primarily to undertakings which exploit mineral deposits, yet it also applies to the public administration authorities involved in procedures relating to the award of decisions necessary in the mining activity (licenses, environmental decisions) and the authorities which approve or issue opinions on certain documents (the mining plant operations plan, mineral deposit management plan).

Exploration Tenements

Exploration may be carried out for mineral deposits controlled by mining rights granted by the State, or in relation to mining rights that run with the land.

The exploration of mineral deposits controlled under the mineral ownership rights requires a license under the Geological and Mining Law. Exploration of mineral rights that run with the land may be carried out with an approved geological work plan.

Terms

The area of the license to prospect for and explore mineral deposits cannot be greater than 1200 km2.

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Steps to acquire an exploration right

The application for the license must specify the scope and type of the works, including geological, and the technology to be used during such works, as well as the purpose of the works.

The exploration of minerals that are not controlled under the mineral ownership rights may be conducted on the basis of approved geological work plan. The geological work plans are approved by the Minister of the Environment, the Marshal of the Province or the district governor, depending on the type of the minerals being the object of the geological works.

The applicant is required to specify in the application for approval of the geological works plan what rights the applicant has with respect to the land parcel within whose borders the geological works are to be conducted. Such rights include not only the right of ownership or the right of perpetual usufruct, but also the land parcel lease, tenancy or use agreement.

Relationship with landowners - Exploration

If, to be able to conduct the mining activity, one needs to use another person’s land, and the land owners are unwilling to sell the land parcel, the mining undertaking has the option to acquire an interest in the ownership right (e.g. the establishment of limited rights in property or execution of a lease agreement) for a specified period of time on a fee basis. However, the use of land cannot involve the right to the benefits from the land. This right means in practice that one is able to demand a execution of an agreement giving the right to use land, including to seek its enforcement in a court of law. This applies to all land parcels, including parcels lying outside the borders of the mining area and/or the mining-affected area. The mining undertaking must, however, prove that the land parcels are essential for it to be able to carry out its activities. Such land parcels may be necessary, for example, in order to be able to erect infrastructure needed for the mining activity, noise barriers etc. If, following the exercise of the above-described right by the mining undertaking, the land parcels become unfit for the purposes for which they were used previously, the land parcel owner has the right to demand that the mining undertaking buy the affected land parcels.

With respect to hydrocarbons, the law provides for some additional rights to access agricultural land owned by the State Treasury. Mining undertakings holding a license to explore or extract hydrocarbons have the right to approach the Agricultural Property Agency and request that the Agency let them use, on a fee-basis, land parcels held by the Agency. The fees for the right to use the land are calculated based on the benefits lost by the Agency.

Obligations of holder - Exploration

The holder of an exploration licence must comply with the terms of issue and the Geological and Mining Law.

Holding tenements Rights to hold

Polish law does not specifically provide for holding tenements to bridge the gap between when exploration is finished and development starts.

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Development / Production tenements Tenements / rights available A license for the exploitation of a mineral resource must specify:

(a) the kind of, and the way in which mining activity is conducted;

(b) the area within the limits of which the activity is to be conducted;

(c) the duration of the license; and

(d) the date on which the licensed activity will start (if the time limit for the commencement of the activity cannot be specified by indicating a date, the conditions the compliance with which means the commencement of the activity should be specified);

(e) the boundaries of the mining area and the boundaries of the mining-affected area.

The license can also specify the following:

(a) the minimum degree of the use of resources;

(b) actions which are necessary for the rational management of the deposit; and

(c) the requirements for environmental protection.

Transfer of the license

The licensing authority may approve the transfer of a license to another entity with the consent of the undertaking to whom the license was granted. The entity which takes over the license must meet a number of conditions:

(a) it must demonstrate that it is able to meet the requirements related to conducting licensed activities and agree to take over all the conditions laid down in the license; and

(b) it must demonstrate that it has the right to use the geological information and the right to property (this does not apply to brown coal) within the mining area established in the license agreement.

Stricter rules also apply to the transfer of license rights to deposits covered by the mineral ownership right by way of general succession (other than for hydrocarbons). For deposits covered by the mineral ownership rights (other than hydrocarbons), the possibility to take over the rights to the license as a result of general succession on the basis of the Civil Code or the Code of Commercial Companies is excluded. Licenses relating to minerals covered by the mineral ownership right also do not pass to the purchaser of the company where they are bankrupt or insolvent.

Modification or revocation of the license

The provisions on granting a license apply mutatis mutandis to any amendment to the license.

The licensing authority may revoke the license if the mining undertaking:

(a) does not fulfil the conditions laid down in the license;

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(b) does not engage in, or permanently ceases to conduct, the activities referred to in the license, or conducts geological works in violation of the schedule included in the project of geological works;

(c) fails to remedy any identified infringements, in particular the ones concerning environmental protection or rational management of a deposit; or

(d) fails to fulfill the obligation to document the course of work, including geological works and their results.

A single case of negligence or infringement is not a condition for the revocation of the license. Practically, for a license to be revoked, there must be a very significant negligence or infringement on the part of the undertaking. Negligence or infringement of a less significant nature would need to occur over a prolonged period in order for a license to be revoked.

Terms of rights A license can be granted for up to 50 years. The minimum term of the license is 3 years, unless the license applicant sets a shorter term. A license for extraction of hydrocarbons is granted for no less than 10 years and up to 30 years. However, neither the license applicant nor the licensing authority has absolute discretion in setting the license term. The licensing authority will set the license term based on the expected duration of the deposit exploitation.

The license may be granted for the entire deposit or part of it. The license may be later expanded to include further parts of the deposit. The license is granted for a specified area called the mining area. The mining area is the space marked by the horizontal and vertical borders, i.e., it is described in 3D. The horizontal borders (on the ground surface) are described by providing coordinates of turn points, the vertical borders (underground) are described by providing elevations to which the borders reach the deepest part of the deposit.

The license expires:

(a) once the period for which it was granted expires;

(b) if it has become irrelevant (e.g., the depletion of the deposit prior to the expiry of the period for which the license was granted);

(c) in the case of surrender of the license; and

(d) in the event of the death of an entrepreneur who is a natural person or winding up of an undertaking which is a corporate body.

The revocation or expiry of the license does not relieve the existing undertaking of responsibilities relating to environmental protection and winding up of any mining facilities. The undertaking will be required:

(a) to secure the removal of the mining equipment, installations and facilities;

(b) to secure the unused part of a mineral deposit; and

(c) to take appropriate measures for environmental protection, which can include, for example, preventing the spread of contamination or land reclamation.

It is worth noting that the conditions for the revocation or expiry of a license are also regulated by the Act on Freedom of Business Activities. However, the provisions of this Act

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will apply only if a given condition is not regulated by the Geological and Mining Law. In this respect the Geological and Mining Law is, in fact, lex specjalis in relation to the Act on Freedom of Business Activities.

Security of the license granted with respect to hydrocarbons

Under the Geological and Mining Law, the license for prospecting, exploration and extraction of hydrocarbons is granted conditional on the provision of collateral for non-performance or misperformance of the obligations arising from the license.

The amount of the collateral is calculated as a percentage of the cost of geological works. However, the amount cannot exceed 20 % of these expenses.

Transition from exploration / holding right to mining right - Development / Production tenements

There are two types of ownership of mineral deposits in Poland. Some minerals are owned exclusively by the State Treasury. Other minerals run with the land.

Deposits of hydrocarbons, hard coal, methane occurring as an accompanying mineral, lignite, metal ores (save for bog iron ores), native metals, radioactive element ores, native sulphur, rock salt, potash salt, potash and magnesium salts, gypsum and anhydrite, precious stones (regardless of their location), and deposits of therapeutic waters, thermal water brines, are controlled under the mineral ownership rights vested exclusively in the State Treasury.

The other mineral deposits (other than the ones listed in the preceding sentence) are controlled under the land ownership right. This means the deposits are owned by the owner of the land.

Under Polish law the mineral ownership right is separate from the land ownership right. As a consequence, the land ownership right does not cover minerals controlled under the mineral ownership rights, even if they are elements of the land, i.e. are located just beneath the surface. The Polish legal system provides that if a mining undertaking acquires a mining license, it is permitted to extract minerals from underneath land parcels owned by third parties.

The State Treasury’s right to exercise mining ownership rights is limited to the right to grant a mining right.

The mining rights are established by an agreement that is concluded by and between the State Treasury and the mining-right holder; such agreement becomes effective the day the license is obtained. If the mining undertaking fails to secure a license within a year from the conclusion of the agreement establishing the mining right, the agreement terminates.

There are some elements that are required to be included in the agreement establishing the mining right, as follows:

(a) details of the area subject to the mining right which has been established (this area does not have to correspond to the borders of the deposit, however it must be defined in detail by 3D borders, both horizontally and vertically);

(b) the term of the mining right; and

(c) the level of fees for the grant of the mining right and the method of their payment.

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The Geological and Mining Law does not provide any guidelines for setting the levels of fees for the mining right. For the purposes of the Ministry of the Natural Environment, mineral deposit valuation experts have worked out a method for calculating the level of fees. The basis is the establishment of “the use value of the deposit”. The use value is calculated taking into account the volume of the deposit’s industrial resources (in the case of solid minerals) or the volume of the resources being extracted (in the case of crude oil and natural gas), the unit price of the raw material (commercial product obtained from the deposit) and the deposit utilisation factor. It should be stressed, though, that this fee calculation method is by no means a standard method.

Sometimes, the establishment of the mining right may be preceded by a competitive tendering process, in particular when more than one entity seeks its establishment.

A competitive tendering process is not used to sell the mining rights for hydrocarbons, as, in the case of hydrocarbon deposits, a competitive tendering process is organised to sell the license, and the mining rights are established obligatorily in favour of the entity which wins the license.

Also mining rights are not sold through a competitive tendering process in cases where the entity seeking the rights is the same entity which has explored the mineral deposit (hydrocarbons excluded), and such entity has documented the deposit in such degree of specificity so as to make it possible to prepare the deposit management plan and has obtained a decision on approval of the geological documentation. Such entity has the priority right to claim that the mining right be established in its favour. Such claim will expire after 3 years from the date of service of the decision on approval of the geological documentation. This is a form of guarantee for the entity which has laid out funds to prospect for and explore the deposit.

Foreign ownership restrictions and government participation

There is no express provisions on foreign ownership restrictions or government participation in the mining industry. However, foreign invested projects in the mining sector are subject to certain conditions as mentioned in section 2.

Steps to acquire a right - Development / Production tenements

The licensing authorities are:

(a) the Minister of the Environment — for licenses for prospecting, exploring and extracting minerals from deposits controlled under the mineral ownership rights and from deposits located within the limits of the marine areas of the Republic of Poland;

(b) Marshal of the Province — for other minerals;

(c) Starost of the District — when all of the following conditions are jointly met:

(i) the area of deposits (not controlled under the mineral ownership rights) is less than 2 hectares;

(ii) the extraction of a minerals is less than 20,000 m3 in a calendar year; and

(iii) the extraction will be carried out by the open-cast method without the use of blasting agents.

The granting of a license for the extraction of minerals from deposits requires approval of the commune head (commune mayor, city mayor) having jurisdiction over the place of business.

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If the activity is to be conducted in more than one commune, namely, if the mining area is located in several communes, the approval must be given by each commune head. The criteria of such approval and the consequences of a lack of such approval are discussed in section 2.

Detailed requirements as to the content of the application for a license and the documents that must be submitted together with the application to the licensing authority result from the Geological and Mining Law and the Act on Freedom of Business Activities.

Relationship with landowners - Development / Production tenements

Refer to “Relationship with landowners - Exploration”.

The more extensive rights to use other persons’ land parcel are afforded to mining undertakings which hold the license to extract hydrocarbons, hard coal or brown coal. Such undertakings have the right to demand a sale of the land parcels, in whole or in part, which are located within the mining area, to the extent necessary in order to be able to pursue the licensed activity.

Obligations of holder - Development / Production tenements The extraction of minerals may cause damage to the land located within the area of impact of the mining plant (mining damage).

If there is a conflict of interests between the mining undertaking and the land owner, the Geological and Mining Law generally resolves such conflicts in favour of mining undertakings. The Geological and Mining Law stipulates that the land owner cannot object to hazards posed by the operations of the mining plant which is run in compliance with law. The land owner may, however, claim reparation of the damage caused by the mining plant operations or demand that measures be taken to prevent such damage.

Mining undertakings bear civil liability if a causal link is found to exist between the damage and the mining plant operations.

Damage can be repaired by both payment of compensation and restoration to the previous condition (provision of goods of the same type). It is up to the aggrieved party to decide how the damage caused by the mining plant operations is to be repaired. The reparation of the damage by restoration to the previous condition may be performed by the mining undertaking or by the aggrieved party who, upon the mining undertaking’s consent, may carry out the repair work through its own efforts at the cost of the mining undertaking and subject to the terms and conditions to be set down in an agreement.

Claims for reparation of mining damage are pursued under the civil law. One important derogation from the general rules stemming from the Civil Code is that claims relating to damage caused by the mining activity become statute barred after five years from the day of becoming aware of the damage, and claims can be pursued in the court of law on the condition that all possibilities for settlement have been exhausted. This condition can be deemed to have been satisfied after the mining undertaking has expressly refused to settle or has failed to respond to the aggrieved party’s request for settlement within 30 days from the date of its receipt. If, during such time limit, the mining undertaking takes de facto actions leading to reaching a settlement, the possibilities for settlement will not have been deemed exhausted, and therefore the aggrieved party will not be entitled to pursue its claims in the court of law.

The liability for the damage rests with the undertaking which runs the mining plant operations which have caused the damage. If it is impossible to establish who has caused the damage,

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the liability for the damage rests with the mining undertaking which is in charge on the day the damage occurred. If no undertaking, or its legal successor, liable for the damage is found, the liability for the damage rests with the State Treasury which is represented in such cases by the mining supervision authority. The liability is risk based, hence it is independent of the illegality of the activity. It is up for the mining undertaking to prove it is not liable for the damage which has occurred.

The above described regulations apply to mining damage that occurred on or after 1 January 2012. If damage occurred prior to 1 January 2012, the law then in force applies (i.e., the Geological and Mining Law of 1994).

Damage to agricultural and forest land can be repaired only by performing land reclamation work in accordance with the legal regulations providing for the protection of these types of land.

The practice in Poland shows that in the majority of the cases the mining damage is liquidated without resorting to court action, which is beneficial to both parties.

Key Issues Taxes

Entities conducting mining activities are subject to all the tax obligations arising under separate provisions, on the same terms as the other business entities. Additionally, they are obliged to pay charges specific for the industry.

The charges include:

(a) license fee;

(b) exploitation fee;

(c) remuneration for establishment of a mining right; and

(d) resource rent.

An undertaking which has obtained a license for prospecting or exploring mineral deposits is obliged to pay a license fee, calculated as the product of the fee rate and the area of the land covered by the license, expressed in square kilometers. Fee rates vary depending on the mineral and in the case of hard bituminous coal and uranium ore amount to PLN 558.56 per 1 km2, brown coal – PLN 223.43 per 1 km2, the other minerals the deposits of which are subject to mineral ownership rights (except for hydrocarbons) – PLN 111.72 per 1 km2, hydrocarbons – PLN 210 per 1 km2.

The fee rate for licenses for exploring deposits or for combined activity of prospecting and exploration is twice the amount of the above rates. The charge is paid on a one-off basis, within 14 days of the date when the license decision has become legally binding. If the ordinary term of license is extended, the license fee is charged again. An undertaking which obtained a license for extraction of minerals also pays an exploitation fee.

The exploitation fee is determined as the product of the rate and the amount of the mineral extracted in the settlement period. The amounts of the rates of exploitation fees for different minerals are specified in an attachment to the act and are subject to annual indexation by the inflation rate. The settlement period consists of 6 months, between 1 January and 30 June and 1 July and 31 December.

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The amount of the exploitation fee due for the settlement period is established by the undertaking on its own and then, within one month following the period, paid by it without call to the bank accounts of: the commune (60%) where the activity is conducted and of the National Fund for Environmental Protection and Water Management (40%). In the case of hydrocarbons allocation of the exploitation fee is different: 60% of the fee goes to the commune, 15% to the district, 15% to the province and 10% to the National Fund. Provisions referring to allocation of the exploitation fee with respect to hydrocarbons are to enter into force on 1 January 2016.

If the undertaking fails to meet the obligation of payment of the due fee, the licensing authority may determine the amount of the due fee using the rate applicable in the settlement period for which the fee is due.

The exploitation fee is payable for extracted minerals regardless of the fact whether or how the minerals were put to use.

Penalty payments that may be imposed on mining undertakings include an additional payment and an increased payment.

Additional payments are imposed on undertakings carrying out mining activity in gross violation of the license terms and conditions or the approved geological work plan, by the licensing authority or the geological administration authority. Additional payments are charged regardless of any other payments and fees.

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Russia Author’s Summary Author(s) Alexey Frolov and Alexander Gomonov

Summary Russia is one of the largest mineral producers in the world and mineral resources are an important part of its wealth. The country has almost all types of minerals and mining takes place in almost all regions of the country, the most active being the South Urals, East Siberia and Far Eastern regions. Russia holds some of the world’s richest mineral deposits: it has the world’s second-largest coal reserves, as well as important reserves of metals, including gold, silver, platinum group metals, nickel and diamonds. All Russian subsoil resources in the ground are owned by the Russian state, irrespective of who holds the title to the relevant land plot or the relevant subsoil license. Rights to extract subsoil resources can be granted under subsoil licenses, which usually grant ownership of the extracted resources to the license holder.

Mining is one of the country’s most important industries, but unlike the oil and gas industry, it currently supplies primarily the domestic market and processing is largely conducted within Russia.

Legal framework for mining

The Russian Constitution provides that the use of subsoil resources falls within the joint competence of the federal and regional State authorities. However, in practice, regulation is mostly performed by the federal authorities. The regional authorities have competence over subsoil plots of a local character.

The principal law regulating the mining industry in Russia is the Law on Subsoil Resources dated 21 February 1992, as amended (the Subsoil Law). The Subsoil Law covers the principal terms and conditions for prospecting, appraisal, exploration, mining and protection of subsoil resources.

The main piece of legislation regulating operations with precious metals and gemstones in Russia is the Federal Law on Precious Metals and Gemstones, dated 26 March 1998, as amended (the Precious Metals Law). The Precious Metals Law provides the general legal framework for the processing, use and disposal of precious metals and gemstones.

The legal system Russia’s legal system is civil law based.

Ownership of minerals

All Russian subsoil resources in the ground, until extracted, are owned by the State. The State grants the mining rights to explore and extract resources to private parties through subsoil licenses. Licenses give the license holder title to the extracted minerals.

Regulation of different minerals The legislative regime, in general, is the same for all minerals. However, certain rules may differ depending on the type of minerals (e.g., certain specific rules apply to precious metals, gemstones, radioactive minerals, coal, etc.).

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Oil and gas

The exploration and production of oil and gas are also regulated by the Subsoil Law.

Restrictions on foreign investment in mining Foreign companies are prohibited from directly holding mining rights with respect to strategic deposits, which include the following:

• subsoil plots containing deposits and showings of uranium, diamonds, high-purity quartz, the yttrium group of rare earths, nickel, cobalt, tantalum, niobium, beryllium, lithium, or the platinum group of metals;

• subsoil plots containing the following reserves, as evidenced by the Russian State Register of Reserves: hard-rock gold reserves in excess of 50 tons or copper reserves in excess of 500,000 tons;

• subsoil plots located in inland sea waters, territorial sea waters or on the Russian continental shelf;

• subsoil plots that can only be developed using land used for defense and security.

Nevertheless, foreign companies may hold mining rights for strategic deposits through their Russian subsidiaries. Acquisition by foreign companies of 25% or more of the voting shares in, or other form of control over, Russian companies holding mining rights for strategic deposits require the preliminary consent of the Russian government. Foreign countries, international organizations and legal entities under their control are subject to stricter rules, which prohibit them from acquiring control over strategic deposits (e.g., directly or indirectly acquiring 25% or more in companies holding licenses for strategic deposits is prohibited and the direct or indirect acquisition of more than 5% requires a special clearance).

Environmental considerations The key Russian environmental law is the Federal Law on Environmental Protection dated 10 January 2002, as amended (the EP Law). The EP Law establishes the environmental rights and duties of individuals and legal entities, provides for the regulation of and control over environmental protection and sets out a general framework for environmental impact assessment.

In addition to the EP Law, the Land Code and the Federal Law on State Regulation for Ensuring the Fertility of Agricultural Land dated 16 July 1998, as amended, contain a substantial number of environmental and land protection requirements. Other environmental statutes of importance include the Water Code and the Forest Code, which establish the environmental rights and duties of individuals and legal entities with respect to the use of water resources and forests and the general framework for the assessment of environmental impact in these areas, and the Federal Law on Industrial and Consumption Waste dated 24 June 1998, as amended, which regulates waste disposal procedures and provides for measures to reduce the environmental impact thereof.

With a few exceptions, an environmental review is not mandatory in Russia for mining projects. However, license holders must obtain other environmental licenses and permits (e.g., license for waste disposal, permits for discharge of pollutants with wastewater and for emissions into the atmosphere within established limits).

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Indigenous people considerations

Generally, the rights of indigenous people do not affect the acquisition or exercise of subsoil rights in Russia. However, in practice, Russian subsoil licenses often set out general social obligations toward the local and indigenous population and the rights of indigenous people may affect the acquisition and use of surface rights.

Exploration Tenements Legal entities and individuals may acquire rights to conduct geological survey (prospecting and appraisal) of mineral resources under a subsoil license for:

• geological survey (prospecting and appraisal) (geological survey license); or

• for geological survey, exploration and mining (combined license).

Terms

A geological survey license may be granted for a maximum period of 5 years for onshore plots (7-year geological survey licenses can be granted in certain Russian regions, for instance, Republic of Sakha (Yakutia), the Kamchatka Region, the Krasnoyarsk Region, the Khabarovsk Region etc.) and 10 years for offshore plots. A combined license can be issued for the life of the project. However, in practice such licenses are usually granted for 20- or 25-year terms and the exploration period under such licenses is usually restricted by similar timeframes.

Subsoil licenses can be extended if needed for completion of the work, provided there are no violations of the license terms and conditions by the license holder.

The area of the subsoil plot is determined by the licensing authorities and is indicated in the subsoil license.

Russian law provides for the following types of subsoil-use payments or fees related to geological survey: one-time payments, regular payments and fees for participation in tenders/auctions (in case of a combined license).

The Subsoil Law prescribes minimum and maximum rates of regular payments for different types of minerals with the total amount calculated on the basis of the area of subsoil use. Within this framework, Russian licensing authorities set specific rates, which are reflected in the corresponding subsoil licenses.

Steps to acquire an exploration right Geological survey (prospecting and appraisal) licenses are issued without a tender/auctionbased on an application of the interested party.

Combined licenses can be granted only through a tender/auction, except (i) when a combined license is issued to a holder of geological rights that made a commercial discovery under a geological survey license; and (ii) with respect to strategic deposits included by the Russian government in the list of strategic deposits to be licensed by a government decision without a tender/auction.

Subsoil licenses are issued by the Federal Agency for Subsoil Use (Rosnedra). Rosnedra is in charge of granting subsoil rights with respect to all onshore plots, except for strategic

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deposits. Rights to strategic deposits may only be granted based on a Russian government decision.

The overall timing for obtaining a geological survey or combined license is not prescribed by law and may vary significantly depending on the circumstances.

Relationship with landowners - Exploration

As a rule, for geological survey purposes, license holders should acquire the surface rights to relevant land plots. Surface rights are usually acquired after the subsoil license has been granted, to the extent that such surface rights are required. There are two options to choose from: lease rights and ownership rights. In practice, subsoil users usually hold lease rights. In certain instances, a geological survey may be performed without obtaining rights to the relevant land plot.

Obligations of holder - Exploration The standard general obligations of the subsoil rights holder include obligations to:

• comply with technical project documentation;

• maintain geological and other documentation;

• provide geological information and other data to Russian State bodies;

• perform closure and remediation; and

• ensure the safety of mines, etc.

In addition, specific obligations of license holders (such as basic work program obligations, key deadlines for completion of various types of work, etc.) are set in subsoil licenses.

License holders are entitled to relinquish their rights under a subsoil license. In this case, the license holder must fulfill all relinquishment-related obligations stipulated by the license (e.g., abandon or shut down all facilities, submit geological and other documents to the state authorities, etc.). The license holder is not obliged to make any payments to the State in relation to any of its unfulfilled work program obligations.

Holding tenements Rights to hold There are no such holding tenements in Russia. In practice, geological survey rights may be “converted” into mining rights if a commercial discovery is made. However, such conversion is not expressly guaranteed by law.

Development / Production tenements Tenements / rights available

Rights to conduct development of mineral resources may be acquired under a subsoil license for:

• exploration and mining (mining license); or

• for geological survey, exploration and mining (combined license).

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Terms of rights

Mining licenses and combined licenses can be issued for a term equal to the life of the project. However, in practice, such licenses are usually granted for 20- or 25-year terms and can be extended provided there are no violations of the license’s terms and conditions by the license holder.

The area of the subsoil plot is determined by the licensing authorities and indicated in the subsoil license and is further detailed in a mining allotment.

Russian law provides for the following types of subsoil-use payments (fees): one-time payments, regular payments and fees for participation in tenders/auctions.

Regular payments are applicable to geological survey and exploration work but are not applicable to mining activity (which is subject to a mineral extraction tax).

Transition from exploration / holding right to mining right - Development / Production tenements

The holder of a geological survey license that made a commercial discovery within the licensed plot is entitled to apply for a mining license. However, the granting of such a license is not expressly guaranteed by law and until such time as mining rights are granted, the license holder may not commence mining.

The holder of a combined license is usually required to complete its minimum program obligations related to geological survey (prospecting and appraisal) and start mining within specific deadlines prescribed by the license.

In case the holder of a combined license is a company under foreign control, exploration and mining operations under a combined license on a strategic deposit may only commence after completion of the geological survey of the entire subsoil plot, and commencement of exploration and mining on such plot is authorized by a Russian government decision. This is different from the general rule (applicable to other deposits) where exploration and mining under a combined license may be conducted simultaneously with a geological survey of a subsoil plot and does not require a specific authorization from the government.

Furthermore, if in the course of a geological survey, a Russian company with foreign participation or under foreign control makes a commercial discovery of a strategic deposit on the basis of a combined license, the Russian government may decide to terminate such license if the government determines that there is a threat to national defense and security. The existence of the threat is determined by the government and there are no publicly available criteria that may be used for such purposes. In this case, the Subsoil Law provides for the compensation of expenditure related to geological surveying and repayment of a one-off bonus for the grant of rights. Moreover, a premium may be payable by the State to the discoverer of a strategic deposit.

Foreign ownership restrictions and government participation

The restrictions applicable to the non-Russian companies holding mining rights in Russia are the same as those applicable to the exploration rights discussed above. As mentioned above, foreign companies are prohibited from directly holding mining rights with respect to strategic deposits but are generally allowed to do so through their Russian subsidiaries (except for the foreign states, international organizations and companies under their control).

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Steps to acquire a right - Development / Production tenements

Mining licenses as well as combined licenses can be granted only through a tender/auction, except (i) when a mining or combined license is issued to a holder of geological rights that made a commercial discovery under a geological survey license; and (ii) with respect to strategic deposits included by the Russian government in the list of strategic deposits to be licensed by the decision of the government without a tender/auction.

The overall timing for obtaining an exploration and mining or combined license is not prescribed by law and may vary significantly depending on the circumstances, but in general it usually takes 3-6 months after announcement of the respective tender/auction by the authorities.

Relationship with landowners - Development / Production tenements For exploration and mining purposes, license holders must acquire the surface rights to the relevant land plots. There are two options to choose from: lease rights and ownership rights. In practice, subsoil users usually hold lease rights.

Obligations of holder - Development / Production tenements

Subsoil licenses usually set out license holders’ obligations in terms of exploration, development and production milestones and volumes and other work program obligations. In some instances the licences require that such obligations be set out in respective work programs to be approved by the authorities. Russian licenses do not usually contain any minimum expenditure requirements. It is possible for a license to cover basic principles for preferential treatment of local suppliers and workforce.

Key Issues Export The export of certain precious metals, metallic minerals containing precious metals and gemstones is subject to certain limitations, e.g., export licensing, etc. In addition, gold and other precious metals mined in Russia must, with the exception of gold nuggets, be refined in Russia in one of the listed enterprises approved by the Russian government.

Further, under Russian law, the Russian federal and regional authorities have a right of first refusal to acquire refined precious metals, gold nuggets and gemstones.

Export of minerals from Russia is subject to Russian export customs duties at specific rates established for particular minerals.

Taxes The Russian tax system includes federal, regional and local taxes, in particular corporate profits tax, value-added tax, property tax, land tax, social security contributions, accident insurance contributions and others.

Generally, the same tax regime applies to domestic companies and foreign companies whose activities in Russia create a permanent establishment for Russian tax purposes. Otherwise, foreign companies are subject to Russian withholding tax with respect to certain Russian-sourced income such as dividends, interest, royalties and other similar income, subject to reduction or elimination under applicable double tax treaties. Income received from the provision of goods, work and services that creates no permanent establishment in Russia is not subject to the Russian withholding tax.

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As regards charges and taxes applicable specifically to mining companies, in addition to one-time and regular payments as well as fees for participation in tenders described above, mining companies are subject to the mineral extraction tax.

The mineral extraction tax is generally calculated on an ad valorem basis, that is, on the value of the minerals extracted from the subsoil based on the prices (excluding VAT and excise taxes) at which the extracted minerals are sold, subject to Russian transfer pricing rules, and effectively not lower than the market price.

Companies extracting minerals under a production-sharing agreement regime are subject to a special and entirely different tax regime.

Overlapping tenements Pursuant to the Subsoil Law, the subsoil area under a subsoil license is provided to a license holder as a “mining allotment” (i.e., a geometrized block of subsoil) or “geological allotment.”

A mining allotment is generally provided for the purpose of mineral extraction. A license holder granted a mining allotment has the exclusive right to use the subsoil resources within its boundaries. Any subsoil use-related activity within the boundaries of a mining allotment requires agreement with such license holder.

A subsoil plot granted for the purposes of geological survey is considered to be a geological allotment. Several license holders may concurrently perform operations within the boundaries of a geological allotment.

Usual structure of venture

There are two types of corporate vehicle commonly used in Russia: limited liability companies and joint stock companies.

Limited liability companies are often used as ventures for holding mineral rights in Russia, including as Russian wholly owned subsidiaries of foreign companies and joint venture companies (both holding and operating companies). They allow avoidance of the sometimes burdensome requirements of Russian securities legislation and are generally easier to capitalize and maintain compared to joint stock companies.

Operations in Russia are often structured through holding companies located in other jurisdictions with operating companies (license and asset holding companies) located in Russia.

Security of tenure The Subsoil Law sets out an exhaustive list of instances when subsoil rights cease to be effective automatically, and when they may be suspended, restricted or prematurely terminated by Rosnedra in an out-of-court manner. It should be noted that there are no clear administrative precedents establishing procedures for the application of regulations by civil servants. Thus, Russian authorities often have a certain latitude in interpreting subsoil use-related regulations. At the same time, license holders have the right to challenge any decision of the Russian State authorities affecting their mining rights in Russian courts.

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Protection for foreign investors

Foreign investments are regulated, inter alia, by the Federal Law on Foreign Investments in the Russian Federation dated 9 July 1999, as amended (the Law on Foreign Investments).

The Law on Foreign Investments guarantees foreign investors the right to invest and to receive revenues and profits from such investments, and sets forth the terms for foreign investors’ business activity in Russian territory.

The Law on Foreign Investments stipulates that foreign investors and investments must be treated no less favorably than domestic investments, with some exceptions.

Foreign investors are protected against nationalization or expropriation unless such action is mandated by a federal law. In such cases, foreign investors are entitled to receive compensation for any investment and other losses.

One of the most important features of the Law on Foreign Investments is the tax stabilization clause. For companies and projects that meet the criteria established by this clause, it prohibits increasing the rates of certain federal taxes until initial investments have been recouped (up to a maximum of seven years, unless this period is extended by the Russian government).

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Saudi Arabia Author’s Summary Author(s) Mohamed Hassan

Summary The mining industry in the Kingdom of Saudi Arabia has seen significant growth and investment over the past 10 years. Widely considered to be the third pillar of the Kingdom’s economy after oil and petrochemicals, mining is part of Saudi Arabia’s plan for economic diversification. Reports say that mining investors made a total of USD1.93 billion in profits in 2011. The reasons for this growth have been attributed to the Mining Investment Laws issued in 2004, increased government investment in supporting infrastructure and a reorganization of the Department of Mining and Mineral Resources.

The Mining Investment Laws have streamlined the process for companies (including those with foreign shareholders) to obtain a variety of exploration and exploitation licenses and have reduced taxes payable on income derived from mining activities. To support the mining industry, the Government of Saudi Arabia has made significant infrastructure investments, including the construction of a mineral railway line and increasing power and seaport capacities. With so much local, regional and international focus on the mining industry in the Kingdom, there will undoubtedly be interesting commercial and legal developments to follow.

Local Landscape Legal framework for mining Laws in the kingdom of Saudi Arabia

Shariah, or the traditional Islamic Law, forms the basis of the legal system in the Kingdom of Saudi Arabia. The Shariah is derived from the Holy Quran and the Sunna (words and deeds) of the Prophet Mohammed, as interpreted by influential scholars of Islamic jurisprudence. The Shariah consists of precepts that are often expressed as general principles. There are various schools of Islamic Law that interpret such precepts. The Hanbali school of Islamic jurisprudence is the most influential in Saudi Arabia and within the Hanbali school, there are majority and minority views on various issues, any of which may be applied in any particular case. Shariah is to a large extent an adaptable system of law, as evidenced by the fact that it has covered transactions from ancient times through the present.

The Saudi government supplements the Shariah through the issuance of statutes, regulations, decrees and circulars and the adoption of policy positions, all of which can be, and frequently are, changed from time to time to adapt to changed circumstances or to take into account other considerations. Examples of these enactments include, among others, the Companies Law, the Foreign Investment Law, the Capital Market Law, the Labor Law, and the Mining Investment Law. However, there is no civil or commercial code or other comprehensive statement of basic contractual principles. These matters are left to Shariah. Statutory enactments are subject to interpretation by the courts and by regulatory agencies, on the basis of Shariah and sometimes on the basis of internal circulars and policy statements that are not made available to the public.

Court system

The court system in Saudi Arabia consists of two main branches: the Shariah courts and the Board of Grievances. These are complemented by several special adjudicative committees which have been established by ministerial or royal decrees. Shariah courts are the courts of

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general jurisdiction and deal predominately with criminal, civil and family matters. The Board of Grievances was first established as an independent tribunal pursuant to Royal Decree No.7/138759 dated 1374H. In 1982, the present Board of Grievances Regulations was promulgated pursuant to Royal Decree M/51 dated 17/7/1402H and superseded the prior regulations. The Board of Grievances has broad general jurisdiction over all disputes to which the Government of Saudi Arabia is a party, whether such disputes arise in connection with an administrative ruling, a government contract, or other administrative acts and various other matters. The Council of Ministers, as of 1 January 1988, conferred upon the Board of Grievances jurisdiction over commercial disputes involving private sector parties.

Saudi courts and other adjudicatory authorities do not, in general, report their decisions and previous decisions of the courts and other adjudicatory authorities of Saudi Arabia are not considered to establish a binding precedent for the decision of later cases.

The Saudi system of law, while seemingly restrictive in many respects from a foreigner’s viewpoint, has nevertheless permitted a banking system to grow and flourish and local business to develop, to the point where fairly complex commercial transactions are now daily events and foreign investment in a number of key sectors has grown steadily over the last two decades.

Mining laws

The Ministry of Petroleum and Mineral Resources (Minpet), through the Deputy Ministry of Mineral Resources (DMMR), is the regulatory authority that oversees all mining-related activities in the Kingdom of Saudi Arabia. The Mining Investment Law1 and its implementing regulations (the Mining Regulations) are the main bodies of law governing mining in the Kingdom of Saudi Arabia (the Mining Laws). Pursuant to the Mining Investment Law, all natural deposits of minerals are owned by the State. Mineral ownership is transferred from the State to the licensee in compliance with the Mining Investment Law once it is extracted from the licensed area during the term of the license.2

The Mining Laws do not govern the extraction of petroleum, natural gas or their derivatives but do, however, apply to all other metallic and nonmetallic inorganic compounds (the Minerals and Metals).

Mineral licenses

The following types of license (the Licenses) are available under the Mining Investment Law:3

• reconnaissance license;

• exploration license;

• material collection license; and

• exploitation licenses, which include the following: mining license; license for raw material quarry; license for small mine quarry; and building materials quarry license.

1 Issued pursuant to Royal Decree 47/M dated 20/8/1425H 2 Mining Investment Law – Article 2 3 Mining Investment Law – Article 6

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Transferring and encumbering licenses

A license holder can apply to transfer4 or mortgage its license5 to (or in favor of) another person by submitting an application to Minpet, setting out:

• the type of license to be transferred/mortgaged;

• the reasons for transferring/mortgaging the license;

• details of the transferee/mortgagee; and

• the technical and financial capabilities of the transferee/mortgagee.

Pursuant to Articles 13 and 14 of the Mining Investment Law, the application review and approval process should take no more than 30 business days. In practice, however, it could require a longer time frame. If the license holder’s request to transfer the license is denied, the license holder can appeal before the Board of Grievances within 60 days of the date on which it was informed of the denial. The Mining Investment Law does not stipulate the time frame for appealing the denial of an application to mortgage a license.

Restrictions on foreign investment in mining Other than in relation to a reconnaissance license, a foreign license holder is required to establish a domicile in Saudi Arabia. Proof of domicile can be demonstrated by a lease agreement for an office or evidence of a permanent address in the Kingdom. The license holder may also appoint an agent or delegate to be its representative in Saudi Arabia.6 Pursuant to the Companies Regulations, however, a foreign entity doing business in Saudi Arabia is required to carry out such business through either (i) a subsidiary incorporated in Saudi Arabia or (ii) a branch established in the Kingdom.

Environmental considerations Whilst the Mining Laws and Regulations set out environmental protection requirements in relation to all types of license, the most stringent relate to exploitation licenses. An exploitation license holder must:7

• submit and abide by an environmental impact assessment in connection with its exploitation activity, approved by the Saudi Arabia Presidency for Meteorology and Environment;

• take all necessary precautions to protect water sources, the environment and wildlife;

• after the term of the license has expired, rehabilitate the area covered by the license; and

• preserve and report any archaeological artifacts it may find.

4 Mining Regulations – Article 12 5 Mining Regulations – Article 13 6 Mining Regulations – Article 28 7 Mining Investment Law – Article 27

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Exploration Terms Reconnaissance license

A reconnaissance license provides its holder with a non-exclusive right to perform preliminary geological sampling and chemical analysis of the minerals and metals in the licensed area.8 Sample extractions are not to exceed one ton without Minpet’s prior written consent. Reconnaissance licenses are generally issued for two years and are renewable for a further two years.

Renewals and extensions

One month prior to the expiry of the license’s term, the holder of an exploration license can apply for a renewal of the license for a period of not more than five years.9 The renewal fee for an exploration license is five thousand Saudi riyals.10

A license holder may request an extension of the license’s term if a force majeure event has (completely) prevented it from (i) undertaking the licensed exploration activities and/or (ii) complying with the Mining Laws and Regulations.11 A “force majeure event” is an event which was not anticipated at the time the license was issued and is not caused by either the license holder or the government.12

Steps to acquire an exploration right An applicant wishing to apply for an exploration license is required to provide the following information as part of its application to Minpet:13

• detailed information about the applicant;

• the minerals and metals to be explored for;

• the location of the area to be explored, accompanied by a plan showing details of the surface area and coordinates of the area;

• the requested duration of the license (not to exceed five years);

• the size of the area requested for exploration (not to exceed 100 square kilometers); and

• the expenditure plan for the exploration activities.

The application fee for an exploration license is five thousand Saudi riyals.14 Minpet’s decision to grant the license should be provided within 30 business days of the date on which the completed application has been submitted.15 In practice, however, the approval process could take longer.

8 Mining Regulations – Article 33 9 Mining Regulations – Article 46 10 Mining Regulations – Table 2 11 Mining Regulations – Article 46 and Mining Investment Law – Article 28 12 Mining Investment Law – Article 28 13 Mining Regulations – Article 38 14 Mining Regulations – Table 2 15 Mining Investment Law – Article 34

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Obligations of holder - Exploration

An exploration license authorizes its holder to use all proven scientific exploration techniques to explore the approved minerals and metals in the licensed area and permits the licensee to:16

• establish camps and facilities to store and protect the machinery and equipment used for exploration in the licensed area;

• use sand, gravel and similar materials in the manner that may be required to achieve the objectives of the license; and

• during the license’s validity period, apply for a mining license in connection with the minerals and metals discovered in the explored area.

An exploration license holder is required to:17

• invest in the exploration activities in accordance with an approved expenditure plan;

• take the necessary precautions to protect against the risks associated with the exploration activities including: environmental protection measures; health and safety protection measures as required by other Saudi Arabian laws; and measures to protect public and private property;

• inform Minpet of the location of its work teams;

• provide: half-yearly reports on the progress of the exploration activities and the amounts spent on such activities; and a final report at the end of the term of the license; and

• provide Minpet with technical records and samples obtained from the licensed area.

Development / Production tenements Terms of rights Renewals and extensions

One hundred and eighty days prior to the expiry of the mining license’s term, the licensee can apply for a renewal of the mining license for a period of not more than 30 years.18 The renewal fee for a mining license is ten thousand Saudi riyals.19

As is the case in connection with an exploration license, the holder of a mining license may request for an extension of the mining license’s term if a force majeure event has (completely) prevented it from (i) undertaking the licensed mining activities, and/or (ii) complying with the Mining Laws and Regulations.

Termination

Minpet may terminate a mining license if the license holder:

• fails to pay an amount due under the license within 150 days of their due date;

16 Mining Investment Law – Article 35 17 Mining Investment Law – Article 3 18 Mining Regulations – Article 58 19 Mining Regulations – Table 2

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• submits incorrect information to Minpet;

• within 60 days of receiving written notice from Minpet, fails to comply with the Mining Laws and Regulations and/or any terms of the mining license;

• within 60 days of receiving written notice from Minpet, fails to mitigate any situation that poses a health/safety risk to its employees or exposes the mineral/metal reserves to danger; or

within 60 days of receiving written notice from Minpet, fails to take the necessary precautions to preserve the environment, wildlife, archaeological artifacts and tourist sites.

Steps to acquire a right - Development / Production tenements

An applicant wishing to apply for a mining license is required to provide the following information as part of its application to Minpet:20

• detailed information about the applicant;

• the location of its financial headquarters;

• the particulars of mining technical support and services available to it;

• a works implementation program;

• the minerals and metals to be mined;

• the location of the area in which the mining activities are to take place, accompanied by a map showing details of the surface area and coordinates of the location;

• the requested duration of the license (not to exceed 30 years);

• the requested area of exploitation (not to exceed 50 square kilometers);

• a detailed technical report that includes the results of any exploration activities previously undertaken in the Licensed Area;

• a financial feasibility study;

• an environmental impact assessment; and

• the capital expenditure and investment plan necessary for implementing the licensee’s mining plan.

The application fee for a mining license is five thousand Saudi riyals.21 Minpet’s decision to grant the license should be provided within 60 business days from the date on which the completed application has been submitted.22 In practice, however, the approval process could take longer.

Relationship with landowners - Development / Production tenements

To the extent that the area covered by a mining license: includes land owned as private property established by a title deed; or if a third party has a legally established usufruct on 20 Mining Regulations – Article 59 21 Mining Regulations – Table 2 22 Mining Investment Law – Article 44

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the land, the holder of a mining license must, before exercising its rights under the mining license, enter into an agreement with the landowner or the beneficiary of the usufruct for a fair compensation for what that landowner or beneficiary could have earned from using the land and to compensate them for the danger that may threaten the land as a result of the licensed operations. Such agreement must be submitted to Minpet before the licensee commences its operations on the land.

If the mining project will require the use of land outside the licensed area, the licensee may be eligible to apply to Minpet for easement rights in relation to that land. The Mining Investment Law permits a mining license holder to apply for easement rights required to execute its operations on government-owned land outside the licensed area provided that these rights do not conflict with others’ rights on the concerned land.

The term “easement” is effectively defined in the Mining Investment Law to mean using that which exists on the ground outside the licensed area, including land, roads, railways, communication lines and pipes that may be required by the exploitation process by virtue of the mining license.

Easement rights include the right to utilize the following:

• roads of all types;

• different communication lines; and

• the surface and subterranean water necessary to execute the licensee’s operations provided that this does not violate the priorities stipulated in the laws and instructions regarding water preservation.

Easement rights are granted by virtue of a permit from Minpet, after Minpet’s coordination with other concerned government authorities.

Obligations of holder - Development / Production tenements

A mining license authorizes its holder to extract minerals and metals by means of mining and quarrying,23 and grants the licensee the following exclusive rights:

• to exploit the minerals and metals covered by the license in accordance with the following conditions:

(i) to produce and exploit the minerals and metals specified in the Mining License within the area stipulated by the license by drilling, excavation, mining, polishing, concentration, smelting and refining;

(ii) to transport, export and sell those minerals in their original or refined forms;

(iii) to construct, operate and maintain all mines, buildings, plants, pipelines, refineries and waste dumps within the Licensed Area;

(iv) to construct the required railways, highways, communication systems, power plants and other facilities necessary or suitable for achieving the purposes of exploration in the license area after obtaining written authorization from Minpet;

23 Mining Investment Law – Article 37

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(v) to undertake surveys and exploration in the Licensed Area after obtaining written authorization from Minpet; and

• to use rockfill, gravel, sand and similar materials within the license area as may be required to achieve the purpose of the license.24

A mining license does not give the holder the right of possession of any part of the licensed area, and does not authorize any right not explicitly stipulated.25

In addition to complying with the Mining Laws and Regulations, a Mining License holder must also comply with various terms and conditions set out in the mining license (some of which are also codified in the Mining Laws and Regulations) and these generally include:

• performing mining activities, using modern methods proven in the mining industry, in a way that preserves and does not waste natural resources;

• paying a rental fee of ten thousand Saudi riyals per square kilometer for the licensed area;

• paying a mining fee equal to the lesser of 25% of the licensee’s annual net income, and the income tax it is required to pay to the Department of Zakat and Income Tax;

• hiring (on a priority basis) local contractors and service providers to the extent that their level of performance, work quality and delivery times are comparable to those of a foreign contractor/service provider;

• purchasing (on a priority basis) locally manufactured goods, materials, equipment, machines and consumables if their quality and delivery time is comparable to those sourced internationally;

• hiring Saudi citizens and providing theoretical and practical training programs to such employees;

• submitting annual reports to Minpet that set out the progress of works performed, quantities of minerals exploited, financial expenditures, size of workforce, net profits, technical results of the mining activities undertaken and certification of compliance with the environmental impact assessment; and

• giving the Saudi government priority to purchase the mined minerals (an exception to this requirement is sometimes included in the license exempting existing sale arrangements).

Key Issues Export The holder of a mining license can export minerals in their original or refined forms. There have been cases, however, where Minpet has conditioned mining licenses on the sale of some of the minerals to domestic off-takers. To the extent that a license holder needs to facilitate the export of minerals with other government agencies, the licensee can submit an export request application to Minpet setting out:

• The type of license held, license number and date.

24 Mining Regulations – Article 56 25 Mining Investment Law – Article 37

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• The nature and weight of minerals exported.

• The reason for their export.

• Destination of export.

Upon processing the application, Minpet shall address the relevant government agencies to help facilitate the requested export.

Taxes

Lawyers do not generally provide tax advice in Saudi Arabia and the same is usually provided by tax specialists in accounting firms. Set out below is a brief summary of the Saudi Arabian tax regime. Anyone wishing to obtain Saudi tax advice should consult a licensed Saudi tax specialist.

The principal taxes applicable to corporations in the Kingdom of Saudi Arabia are income tax, Islamic tax on wealth known as Zakat and withholding tax. A tax regime was introduced in the Kingdom of Saudi Arabia in 2004 pursuant to the Royal Decree No. M/1 15/1/1425H (corresponding to 7 March 2004) (the Tax Law). The Tax Law imposes various forms of taxes on persons or entities based on their capacity and domicile.

Foreign shareholders of Saudi incorporated entities are subject to income tax in Saudi Arabia on their share of the income generated by that entity. Income earned by a Saudi branch of a foreign company is also subject to income tax. In the case of a “mixed limited liability company” (i.e., a company with Saudi and foreign shareholders) the interest of the Saudi party in a company is subject to Zakat and the net income earned by the foreign shareholder is subject to income tax (usually at a rate of 20%). Zakat is an Islamic tax on wealth, the calculation of which is fairly complex.

Payments to non-resident foreign companies (including dividends) are subject to withholding tax at varying rates depending on the type of payment.

Usual structure of venture

The legal framework set by the Mining Laws is considered to be one of the main reasons behind the increased growth in Saudi Arabia’s mining sector. Not only have the Mining Laws streamlined the process for obtaining exploration and exploitation licenses, they provide a clear framework through which mining investors (domestic and foreign) can understand their rights and obligations as license holders.

Usual structure of venture

There have been several mega mining projects in Saudi Arabia with significant foreign ownership. Such foreign investment is generally made via shareholding in a Saudi incorporated limited liability company.

Although foreign investors can own shares in Saudi joint-stock companies, the locally incorporated limited liability company is the most common form of incorporated joint venture vehicle pursuant to which foreign companies do business in Saudi Arabia. The formation of a limited liability company is fairly involved. The Saudi Arabian General Investment Authority (SAGIA) must approve the formation of a limited liability company in which a foreign party is to have an interest, by granting a license authorizing the foreign party’s investment in the company. SAGIA, by issuing the license, will also specify the objects which the company will be authorized to pursue. After SAGIA grants the abovementioned license, the Articles of Association of the limited liability company must be submitted to the Ministry of Commerce

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and Industry (MoCI) for its approval and then formally signed before a Notary Public, an official of the Ministry of Justice.

Some of the more salient features of a limited liability company are:

• A minimum of two (2) and a maximum of fifty (50) shareholders may form the company.

• The shareholders are liable for the debts of the LLC only to the extent of their capital shares.

• The minimum capital is SAR1 million (USD267,000) for industrial projects comprised of indivisible non-negotiable shares of equal value. SAGIA may, however, require greater capital investment as a prerequisite to granting an investment license.

Security of tenure

As discussed above, Minpet may terminate a license for breach of (i) the Mining Laws or (ii) the terms of that license. Article 21 of the Mining Investment Law sets out the following process by which Minpet may terminate a license:

• Minpet must notify the licensee of the reasons for its decision to terminate the license.

• If necessary, Minpet shall hear the testimony of the licensee within 30 working days of the termination notice.

• If Minpet is unconvinced by the licensee’s testimony, it shall issue a final termination decision.

A final decision by Minpet to terminate a license can be appealed before the Board of Grievances within 60 days of the date of the termination decision.

Protection of foreign investors

Projects undertaken in Saudi Arabia by foreign investors enjoy the same rights under Saudi law as those undertaken by domestic investors.26 That being said, however, the requirements which a foreign investor must satisfy to set up a business in Saudi Arabia are subject to change by SAGIA.

26 Article 5 of the Foreign Investment Law issued pursuant to Royal Decree 1/M dated 5/1/1421H

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South Africa Author’s Summary Author(s) Morne van der Merwe, Esme Ferreira and Janine Howard

Summary Mining remains an important sector and major contributor to economic activity in South Africa. According to a 2013/2014 Chamber of Mines of South Africa Report, the mining sector accounted for 12.6 % of total investment in the South African economy. Mining also directly accounted for 8.6 % of the Gross Domestic Product in 2013 and despite labour unrest in the mining industry, it still remains one of South Africa’s largest employers. The Mineral and Petroleum Resources Development Act 28 of 2002 (the MPRD Act) came into effect in 2004 and acknowledges that the country’s mineral resources belong to the nation. As such, the MPRD Act ushered the notion of custodianship and appointed the State as custodian of all mineral and petroleum resources in South Africa. The MPRD Act further specifies the role the mining sector has to play in transforming the South African economic landscape by ensuring the inclusion of historically disadvantaged South Africans in the mainstream of the South African economy.

The Broad-Based Black Economic Empowerment Charter for the South African Mining and Minerals Industry (the Mining Charter) has been developed to regulate black economic empowerment and economic transformation in the sector. With the advent of the Mining Charter, the ownership and control of mining companies by historically disadvantaged South Africans, community participation/upliftment and local beneficiation have become areas of focus in the granting and maintenance of mining and/or prospecting rights. Applicants for a mining or prospecting right must apply in the prescribed manner for such a right in compliance with the requirements of the MPRD Act and the Balanced Score Card contained in the Mining Charter. The MPRD Act also regulates the transfer of prospecting or mining rights, and in certain instances the transfer of interests held in the holders of prospecting or mining rights. Mining is subject to an array of Environmental, Labour and Health & Safety laws and regulations, which are administered by various State Departments such as the Department of Mineral Resources, the Department of Water Affairs, Department of Environmental Affairs and the Department of Labour.

Local Landscape Legal framework for mining

South Africa has a common law system, supplemented by a partially codified system in statute. The Constitution of the Republic of South Africa 1996 (the Constitution), enshrining civil rights, governs the application of the common law and statutes.

On 1 May 2004, the mineral and petroleum industry in South Africa entered a new arena, as the legislative system of mineral rights was ousted by a new order in which all mining and petroleum rights became the property of the people of South Africa, to be administered by the state as custodian.

Oil and gas activities are also regulated under the MPRD Act, although there are different rights which are applicable to oil and gas exploration.

The right to prospect and mine in South Africa is governed by Sections 17 to 23 of the MPRD Act.

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The Mineral and Petroleum Resources Development Amendment Act, No. 49 of 2008 (the Amendment Act), which was published on 21 April 2009, came into effect on 7 June 2013 barring a number of sections. These sections have since come into effect. When the Amendment Act came into force, it altered the way in which environmental considerations in the mining industry are administered and regulated. In terms of the Amendment Act, applicants for mining / prospecting rights are, amongst others, required to file the relevant environmental reports, now authorized in terms of the National Environmental Management Act, No. 107 of 1998 (the NEMA) and not the MPRD Act.

On the 27th of March 2014, the Mineral and Petroleum Resources Development Amendment Bill (the Bill) was approved by the National Council of Provinces which means it was cleared to be signed into law by President Jacob Zuma. However, in May 2014, the then newly appointed Minister of Mineral Resources, Ngoako Ramatlhodi, announced that the Bill was being sent to the National Council of Provinces, the National Assembly and the House of Traditional Leaders, for consideration.

In June 2014, Ngoako Ramatlhodi, requested President Jacob Zuma not to sign the Bill into law. Instead Minister Ramatlhodi stressed the need to review the Bill and referred it to be re-examined by a committee made up of Minister Ramatlhodi and the Ministers of Finance, Trade and Industry, Energy and Economic Development respectively. The Bill was therefore referred back to parliament and it is anticipated that an amended draft will be published during the latter half of 2015.

Restrictions on foreign investment in mining

Foreign investors can freely invest in South Africa. However, in terms of Regulation 14 of the Exchange Control Regulations, a South African resident company cannot issue or transfer shares to a non-resident without first obtaining approval from an authorized dealer in foreign exchange authorized by the Exchange Control Department of the South African Reserve Bank (Authorized Dealer). Therefore, on issue by the South African Subsidiary of shares to non-resident shareholders, the share certificates of the non-resident shareholders will have to be endorsed as “non-resident” by an authorized dealer. This non-resident endorsement will allow the non-resident shareholder to freely remit dividends and proceeds on the sale, abroad. Furthermore, when investing in South Africa, the transaction must be:

• at arm’s length;

• at market-related prices; and

• financed in a manner approved by the South African Reserve Bank (the SARB).

An acquisition of assets in South Africa is only subject to a review by the SARB if the consideration is not paid in cash.

All loans to a South African company from non-residents require prior SARB approval.

Environmental considerations

In terms of section 22 of the MPRD Act the applicant for a mining right is required to conduct an Environmental Impact Assessment (EIA). This is only required once the application for the mining right has been accepted by the Regional Manager. It is furthermore stated in the MPRD Act that this EIA, along with the Environmental Management Plan (EMP), must be submitted 180 days after the applicant received notification from the Regional Manager. It is worth noting that the EMP will generally contain the EIA.

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Acceptance of the application for a mining right does not however mean that the right has been granted. Section 23 of the MPRD Act, as amended by the Amendment Act stipulates the conditions for the granting of a mining right. In terms of this section the Minister must only grant the right if the applicant complies with all the statutory requirements. As such, it is clear that the mining right cannot be granted if an EIA and EMP have not been submitted within the requisite time periods as part of the process for the DMR to assess the mining right application.

However, the granting of a mining right or prospecting right is not synonymous with it becoming effective. This is because a mining right granted in terms of section 23 of the MPRD Act or a prospecting right granted in terms of section 17 of the MPRD Act, only becomes effective on the effective date. The “effective date” is defined to mean “the date on which the relevant right is executed”. A mining right or prospecting right is “executed” once it is signed on behalf of the applicant and the DMR in front of a Notary Public. During such execution process the DMR also signs the EMP and from this date a mining right or prospecting right is effective and lawful mining can commence on the relevant area.

As stated above, the Amendment Act has resulted in mining activities being brought within the ambit of the NEMA. The NEMA intends to integrate environmental management countrywide by establishing principles to serve as a general framework for environmental matters and by providing guidelines for the interpretation, administration and implementation of the NEMA and any other environmental laws. The NEMA places an obligation on right holders to take reasonable measures. Non-compliance with such a duty allows a competent authority to require that specified measure be taken. If such measures are not taken by the relevant regulated person, the competent authority may take those steps itself and recover the costs from various parties.

Certain activities have been promulgated as “listed activities” in terms of Government Notices 386 and 387 issued in terms of the NEMA, for such activities an applicant for a mining and/or prospecting right must also apply for an environmental authorization issued in terms of the NEMA.

The National Water Act 38 of 1996 (the NWA) controls the pollution of water resources and regulates water use, water use charges and the protection of water resources. It also administers the granting of water use licenses. Water users must apply for licenses in respect of a particular water use. The NWA also creates a duty of care regarding water resources similar to the duty imposed by the NEMA, with similar consequences for noncompliance.

In accordance with the internationally accepted environmental principle that the “polluter pays,” as well as the provisions of section 43 of the MPRD Act, the holder of a prospecting right or mining right or the previous holder of an old order right or previous owner of works that has ceased to exist, remains responsible for any environmental liability, pollution, ecological degradation, the pumping and treatment of extraneous water, compliance to the conditions of the environmental authorization and the management and sustainable closure thereof, until the Minister has issued a closure certificate in terms of the MPRD Act.

Indigenous people considerations The Constitution, inter alia, provides for a common citizenship for all South Africans. The Constitution places an obligation on the South African government to take legislative and other measures to achieve land, water and related reform in order to redress the consequences of past racial discrimination and to implement a procurement policy. This procurement policy provides for categories of preference in the allocation of contracts (for government procurement) and protection or advancements of persons disadvantaged by

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unfair discrimination in the past. As a result of these obligations, the government has introduced black economic empowerment (BEE) at a legislative level, with industry-specific charters, in an effort to provide previously disadvantaged individuals with access to property, business opportunities and other benefits.

The MPRD Act’s BEE provisions: The MPRD Act defines a historically disadvantaged South African (HDSA) as any person, category of persons or community, disadvantaged by unfair discrimination before the Constitution took effect; any association composed of such persons (or a majority of such persons) or a juristic person other than an association, in which such persons own and control a majority of the issued capital or members’ interest and are able to control majority of the members’ votes.

Section 2(d), read with Section 100 of the MPRD Act, set out that the means of achieving the government’s objective of redressing historical inequalities, is by way of a charter for the mining industry, together with a scorecard to measure compliance. The first of such charters, the Broad-Based Socio-Economic Empowerment Charter for the South African Mining Industry, was published in 2002, and has since been superseded by the 2010 Charter, which is dealt with below and referred to as the “Mining Charter”.

General BEE legislation and the codes: During 2000, the first of a number of statutes aimed at implementing the obligations created by the Constitution was promulgated in the form of the Preferential Procurement Policy Framework Act, No. 5 of 2000. This was followed by the Broad-Based Black Economic Empowerment Act, No. 53 of 2003 (the BEE Act). Following the promulgation of the MPRD Act, the Mining Charter (the was published in 2002 and then amended in 2010 in terms of the provisions of Section 100(2)(a) of the MPRD Act.

The main mechanisms introduced in the BEE Act to ensure that these socio-economic strategies are implemented are the Codes of Good Practice (the Codes). The Codes were issued by South Africa’s Minister of Trade and Industry and were gazetted on 9 February 2007. The Codes specify empowerment levels consistent with the objectives of the BEE Act.

In October 2013 these Codes were updated and these “new Codes” came into effect on 1 May 2015.

The Mining Charter

The Mining Charter stands in a unique position compared with charters of other industries. As mentioned above, the Mining Charter was published under Section 100(2)(a) of the MPRD Act and was therefore not promulgated in terms of the BEE Act. The MPRD Act refers to the requirements in the Mining Charter in considering applications for, inter alia, mining rights. As such, compliance with the requirements in the Mining Charter is important for both mining and prospecting right holders as well as applicants for such rights.

As stated above, the Mining Charter as we know it today is the result of amendments made to the previous charter. As such, the coming into force of the Mining Charter demonstrated changes in the mining industry which were both interesting and disconcerting.

While the objectives of the Mining Charter remained largely unchanged, the manner of achieving these objectives was altered somewhat. By way of example, the Mining Charter introduced the concept of “meaningful economic participation.” The effect of this inclusion is that the so-called trickle dividend, which had been incorporated into a number of recent HDSA-related mining transactions, is now mandatory. Thus, irrespective of the funding arrangements put in place to allow the HDSA participation to occur, the HDSA participants must receive a portion of any dividend declared over the life of the transaction.

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The Mining Charter also stipulated that all mining and prospecting right holders had to be 26% owned by HDSA’s by 2014 and the only offset for this provided by the Mining Charter is against the value of beneficiation occurring in accordance with the provisions of Section 26 of the MPRD Act. In calculating the offset, the continuing consequences of previous transactions are included, taking into account the market share as measured by attributable production units. This offset is limited, however, to a maximum of 11%.

By 2010 mining companies were obliged to ensure that they procured 40% of their capital goods, 70% of their services and 50% of their consumer goods from BEE entities. With immediate effect, multinational suppliers of capital goods were likewise obliged to contribute 0.5% of their South African mining companies’ annual income into a social development fund to be utilized for the socio-economic development of the community. The above targets exclude any non-discretionary procurement expenditure.

On the employment front, mining companies are required to ensure workplace equity, and diversity achieves an HDSA level of 40%, with representation at all levels of management and core and critical skill levels. Mining companies are additionally required to contribute to human resource development (over and above the already mandatory Skills Levy). From 2010, 3% of the annual payroll was to be contributed and thereafter, the levy increased by 0.5% until 2014 when it became 5% of the annual payroll. The intention behind this levy is to support South African-based research in order to find solutions and develop initiatives for better exploration, mining, processing and technological efficiencies.

Whereas under the Mining Charter, mining companies were to establish measures to improve the standard of living of its employees; under the 2010 Charter, mining companies were obliged to implement measures to ensure that by 2014 hostels are converted into family units, with an occupancy rate of one person per room and facilitate home ownership options for all employees in consultation with organized labour.

The needs of the community must likewise be considered on a more immediate basis, with projects undertaken by the mining companies in line with integrated development plans, the cost of which should be proportional to the mines investment in the area.

From the perspective of sustainable development and mining industry growth, every mining company is obliged to implement the environmental management and industry health and safety provisions of the “Stakeholders’ Declaration on Strategy for Sustainable Growth and Meaningful Transformation of South Africa’s Mining Industry of June 2010 and in Compliance with All Relevant Legislation.”

The overall effect of the 2010 Charter is to place the full responsibility for compliance with the national empowerment policy at the doorstep of the mining industry with the threat of suspension or cancellation of rights as a consequence for the failure to comply.

The sectoral charters, such as the Mining Charter have been given until 1 November 2015 to be aligned with the “new Codes”. Accordingly it is anticipated that the Mining Charter will be amended in the coming months to mirror the “new Codes”.

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Exploration Tenements For purposes of conducting exploration activities, an applicant must hold a prospecting right.

Terms The usual terms and conditions relate to the holder’s obligations in terms of the MPRD Act as discussed in Obligations of a holder.

The Minister may, in terms of Section 47 of the MPRD Act, cancel or suspend a prospecting right in the event that the holder thereof:

• conducts the relevant activity contrary to the provisions of the MPRD Act;

• breaches any material term or condition of the relevant right, permit or permission;

• contravenes its approved environmental management program; or

• has submitted any incorrect, inaccurate or misleading information in connection with any matter required to be submitted in terms of the MPRD Act.

In the event that the Minister is considering such suspension or cancellation, the Minister must first give notice to the holder and afford the holder a reasonable opportunity to demonstrate why the right, permit or permission should not be suspended or cancelled. The Minister must also direct the holder to take specific corrective action to remedy the alleged contravention, breach of or failure to comply with the MPRD Act. In the event that the holder fails to comply with such directions and having considered the representations made by the holder, the Minister will be entitled to suspend or cancel the relevant right, permit or permission. Section 51 of the MPRD Act echoes this sentiment, in that in the event the Minerals and Mining Development Board (Minerals Board) makes a recommendation that the minerals mined under a right are not being mined optimally, or that the general welfare objective is not being adequately addressed or being harmed by the process of mining, the Minister must again direct the holder of the rights to take immediate corrective action; failing the Minister may again suspend or cancel the right.

Steps to acquire an exploration right The process commences with the relevant application being made in the prescribed manner and against the payment of the prescribed non-refundable fee. The application must be accepted if it is the first such application received in time that meets with the requirements for the relevant right applied for. If the application does not meet with the relevant right’s requirements, it must be rejected and returned to the applicant within 14 days.

If the application is accepted by the Regional Manager, the Regional Manager must within 14 days:

• require that an environmental management plan be submitted; and

• require that an environmental impact assessment be submitted,

• in addition to the obligation to consult with interested and affected persons.

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Where a prospecting right application meets the requirements of Section 17 of the MPRD Act, which include:

• Demonstrable access to financial and technical abilities to pursue the prospecting activities optimally

• The estimated expenditure is compatible with the proposed prospecting operation and duration of the prospecting work program

• The ability to conduct the prospecting activities in a safe manner

• Without causing unacceptable pollution or ecological and environmental damage or degradation

• The applicant is not in contravention of the provisions of the MPRD Act,

• the Minister must grant the application for a maximum period of five years. A prospecting right can only be renewed once for a further period of three years.

The Minister must refuse to grant an application where it does not comply with the requirements of Section 17 of the MPRD Act or if the grant will result in some form of exclusionary or anti-competitive act.

While BEE participation is not a requirement of the MPRD Act as amended by the Amendment Act requires BEE participation and the Mining Charter and its requirements are a relevant consideration for all applicants

It takes approximately six months to be granted a prospecting right; however, in some instances, it has taken longer.

Relationship with landowners - Exploration

Subject to the 21 days’ written notification to landowners and lawful occupiers of the land forming the subject of a mining or prospecting right as required in terms of section 5A of the MPRD Act, and the consultation of such landowners and lawful occupiers in terms of the NEMA, the holder of a mining or prospecting right is, in terms of section 5(3) read with section 54 of the MPRD Act entitled to, inter alia, enter the land; bring machinery, plant and equipment onto the land; build, construct and lay down infrastructure which may be required for purposes of prospecting and mining; prospect and mine, use water, drill boreholes and carry out any other function ancillary to mining and prospecting.

A common misconception is that the entitlement to use the land automatically entitles the landowner or occupier to compensation. While habitually some form of compensation is offered to landowners and occupiers, the entitlement to compensation is in fact limited to loss or damage caused by the holder of the relevant right and there is no general entitlement to compensation. Section 54 of the MPRD Act specifically sets out that where the landowner or lawful occupier and the mineral rights holder cannot agree on the compensation for loss or damage caused, the matter may be referred to the regional manager for attempted resolution, failing which the matter must be referred for final resolution by arbitration. A landowner or lawful occupier may not prevent or deny access to the land only by reason of the fact that no agreement as to compensation has been reached.

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Obligations of holder - Exploration

Once granted, the holder of the prospecting right is obliged to:

• lodge the right for registration in the Mineral and Petroleum Titles Registration Office within 30 days of the date on which the right becomes effective (or is renewed). The Amendment Act seeks to extend this period to 60 days, however, this is one of the provisions of the Amendment Act which has not become effective yet;

• commence with prospecting activities within 120 days;

• conduct prospecting activities in accordance with its prospecting work program on a continuous basis;

• comply with the provisions of the prospecting right and the environmental management program;

• pay prescribed fees and royalties to the state;

• obtain specific authority to remove bulk samples or dispose of the minerals recovered during prospecting activities for own account; and

• comply with the BEE requirements provided for in the 2010 Charter.

The holder of the prospecting right is entitled (in terms of Section 18 of the MPRD Act) to:

• apply for and be granted a renewal of the prospecting right provided the renewal meets with the requirements of Section 18 (note only one such renewal will be granted and for a period of three years). Provided that the application for renewal has been lodged prior to the expiry thereof, the prospecting right will remain valid until the renewal application is finally dealt with;

• apply for and be granted a mining right for the same mineral in the same area; and

• remove and dispose of minerals (subject to authorization in terms of Section 20) to which the right relates.

Holding tenements Rights to hold South Africa does not have holding tenements or any other right similar to a holding tenement.

Development / Production tenements Tenements / rights available For purposes of conducting production activities, an applicant must hold a mining right.

Terms of rights

A Mining Right is usually granted for a maximum period of 30 years and may be renewed for further periods not exceeding 30 years per renewal.

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Once a renewal application has been lodged and provided it has been lodged prior to the expiry of the relevant mining right, the mining right will remain valid until the renewal application has been finally dealt with.

Once a mining right is obtained, the holder is obliged to pay royalties to the state as provided for in the Mineral and Petroleum Resources Royalty Act 28 of 2008 (the Royalty Act) and the associated Mineral and Petroleum Resources Royalty (Administration) Act 29 of 2008 (the Administration Act).

The Royalty Act and the Administration Act were promulgated on 17 November 2008 with the commencement of certain sections being deferred (by means of the Taxation Laws Amendment Act, No. 17 of 2009 and the Taxation Second Amendment Act, No. 18 of 2009) to 1 November 2009 and 1 March 2010 respectively. The Royalty Act provides that any person (whether natural or juristic) who “wins” or “recovers” a mineral resource (or on whose behalf such mineral resource is won or recovered) is obliged to pay a royalty for the benefit of the National Revenue Fund in respect of the transfer of that mineral resource. Transfer of a mineral resource includes the first disposal, export, consumption, theft, destruction or loss of a mineral resource, other than by way of flaring or other liberation into the atmosphere during exploration or production. Subsequent transactions in respect of a mineral will not attract the payment of a royalty. The royalty is determined by multiplying the gross sales of the extractor in respect of that mineral resource during the year of assessment by the applicable royalty rate for that year of assessment. The floating royalty rate for refined mineral resources will not exceed 5% and unrefined mineral resources will not exceed 7%.

The royalty rate is determined in accordance with the following formula:

𝑅𝑅 = �0.5 + 𝐸𝐸𝐸𝐸𝐺(𝑅(𝑜𝑜 𝑈𝑅))

�

Where: RR = the royalty rate applicable EBIT = earnings before interest and tax G = gross sales in respect of the mineral resource R = refined resource multiplier of 12.5 UR = unrefined resource multiplier of 9

Where a mineral is transferred other than in accordance with the provisions of Schedule 1 or Schedule 2 of the Royalty Act, a deeming provision may be applicable to the gross sales of the party who has won the mineral.

Transition from exploration / holding right to mining right - Development / Production tenements A prospecting right can only be renewed once for a period of three years. After such renewal, the holder must apply for a mining right.

Foreign ownership restrictions and government participation Foreign investors can freely invest in South Africa. However, in terms of Regulation 14 of the Exchange Control Regulations, a South African resident company cannot issue or transfer shares to a non-resident without first obtaining approval from an authorized dealer in foreign exchange authorized by the Exchange Control Department of the South African Reserve Bank (Authorized Dealer). Therefore, on issue by the South African Subsidiary of shares to non-resident shareholders, the share certificates of the non-resident shareholders will have to be endorsed as “non-resident” by an authorized dealer. This non-resident endorsement

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will allow the non-resident shareholder to freely remit dividends and proceeds on sale abroad. Furthermore, when investing in South Africa, the transaction must be:

• at arm’s length;

• at market-related prices; and

• financed in a manner approved by the South African Reserve Bank (the SARB).

An acquisition of assets in South Africa is only subject to a review by the SARB if the consideration is not paid in cash.

All loans to a South African company from non-residents require prior SARB approval.

Steps to acquire a right - Development / Production tenements The initial application follows the same steps as is set out in 5.3 subject to the requirements of Section 23 of the MPRD Act being met (which includes the conduct of mining in accordance with a mining work program, financial and technical ability and the ability to conduct mining safely and without causing unacceptable ecological and environmental degradation and damage and BEE participation as well as compliance with a social and labor plan), the right is granted for a maximum period of 30 years.

Once granted, the holder of a mining right is obliged to:

• lodge the mining right for registration in the Mineral and Petroleum Titles Registration Office within 30 days of the date on which it becomes effective or is renewed. This period is likewise being extended by the Amendment Act to 60 days; however, this is one of the provisions of the Amendment Act which has not become effective yet;

• commence with mining activities within 12 months from the effective date of the mining right;

• actively conduct mining activities in accordance with the mining work program;

• comply with all relevant legislation in connection with the conduct of mining activities and its environmental management program;

• comply with its approved social and labor plan and submit annual reports on compliance with section 2(d) and (f) of the MPRD Act, as well as the social and labor plan;

• pay royalties to the state; and

• comply with the provisions of the 2010 Charter.

Relationship with landowners - Development / Production tenements

If the Minister accepts the application for a mining right, he must direct the applicant to notify and consult with interested and affected parties within 180 days from the date of notice. The same applies where the Minister has accepted an application for a prospecting right although this consultation must take place within 30 days of the date of the notice by the Minister.

The landowner or lawful occupier must also be given 21 days’ written notification in terms of section 5A of the MPRD Act.

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Once the mining right is granted to the applicant, the right holder is required to consult with landowners and lawful occupiers in terms of the NEMA. , The holder of a mining or prospecting right is, in terms of section 5(3) read with section 54 of the MPRD Act entitled to, inter alia, enter the land; bring machinery, plant and equipment onto the land; build, construct and lay down infrastructure which may be required for purposes of prospecting and mining; prospect and mine, use water, drill boreholes and carry out any other function ancillary to mining and prospecting. A common misconception is that the entitlement to use the land automatically entitles the landowner or occupier to compensation. While habitually some form of compensation is offered to landowners and occupiers, the entitlement to compensation is in fact limited to loss or damage caused by the holder of the relevant right and there is no general entitlement to compensation.

Section 54 of the MPRD Act specifically sets out that where the landowner or lawful occupier and the mineral rights holder cannot agree on the compensation for loss or damage caused, the matter may be referred to the regional manager for attempted resolution, failing which the matter must be referred for final resolution by arbitration. A landowner or lawful occupier may not prevent or deny access to the land only by reason of the fact that no agreement as to compensation has been reached.

Obligations of holder - Development / Production tenements

Once granted, the holder of the prospecting right is obliged to:

• lodge the right for registration in the Mineral and Petroleum Titles Registration Office within 30 days of the date on which the right becomes effective (or is renewed). The Amendment Act seeks to extend this period to 60 days, however, this is one of the provisions of the Amendment Act which has not become effective yet;

• commence with prospecting activities within 120 days;

• conduct prospecting activities in accordance with its prospecting work program on a continuous basis;

• comply with the provisions of the prospecting right and the environmental management program;

• pay prescribed fees and royalties to the state;

• obtain specific authority to remove bulk samples or dispose of the minerals recovered during prospecting activities for own account; and

• comply with the BEE requirements provided for in the 2010 Charter.

The holder of the prospecting right is entitled (in terms of Section 18 of the MPRD Act) to:

• apply for and be granted a renewal of the prospecting right provided the renewal meets with the requirements of Section 18 (note only one such renewal will be granted and for a period of three years). Provided that the application for renewal has been lodged prior to the expiry thereof, the prospecting right will remain valid until the renewal application is finally dealt with;

• apply for and be granted a mining right for the same mineral in the same area; and

• remove and dispose of minerals (subject to authorization in terms of Section 20) to which the right relates.

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Key Issues Export The state or government does not purport to have ownership of any portion of the minerals once mined. In terms of Section 12(2) of the Precious Metals Act, 2005, no person may export any unwrought or semi-fabricated metals of the platinum group except with the written approval of the Minister. Such approval must be granted subject to the promotion of equitable access to and the orderly local beneficiation of such metals. The MPRD Act doesn’t contain a definition for “beneficiation.”

Taxes The main financial obligation of a mining company to the government (other than normal corporate tax and value-added tax) is to pay royalties in terms of the Royalty Act, as discussed in Terms of rights.

South African companies, and non resident companies deriving income from a source in South Africa, are subject to the corporate tax rate of 28% on their taxable income. For corporate tax purposes, miners potentially qualify to deduct certain capital expenditures which would otherwise not be deductible, subject to certain conditions.

In addition, capital gains tax (CGT) applies both to South African resident entities as well as non-South African resident entities on the taxable capital gain made on the disposal or deemed disposal of property in South Africa. With regards to non-South African resident entities, CGT applies in relation to the following assets:

• immovable property (e.g. mining rights, land and buildings etc.), or any right or interest in immovable property, situated in South Africa;

• shares in a company where 80% or more of the market value of those shares is attributable to immovable property (e.g. mining rights, land and buildings etc.), in South Africa and the non-South African resident holds directly or indirectly 20% or more of the shares in the company; and

• assets of a permanent establishment (for example, a branch of a foreign company) situated in South Africa.

CGT is levied at a rate of 66.6% of the corporate tax rate applicable to companies (i.e., an effective CGT tax rate of 18.6%).

Dividends tax (DT) replaced Secondary Tax on Companies on 1 April 2012. DT must be withheld from dividends declared by a South African entity at a rate of 15%. Certain exemptions do apply in the case of domestic retirement funds, public benefit organizations and domestic companies.

It should be noted that South Africa is a party to Double Taxation Agreements (DTAs) with a number of other countries. In terms of these DTAs, non-South African residents are offered relief from international double taxation. DTAs themselves never impose tax. Its purpose is to allocate taxing rights. The effect of the DTAs in certain instances is that the DT and/or the CGT rates applicable to non-South African residents in South Africa may be reduced and any taxes actually paid/levied in South Africa will serve as a credit against taxes that may arise in the non-South African resident’s country of residence.

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Usual structure of venture

As prospecting and mining rights are not transferable without ministerial consent, as discussed below, one of the generally utilized methods of investing in a South African mining project is to acquire shares in the company holding the prospecting or mining right. However, currently the transfer of a controlling shareholding in a company holding the prospecting or mining right also triggers the provisions of Section 11 of the MPRD Act, which requires the consent of the Minister.

Further, and as more fully discussed in section 4, by 2014, 26% of the shareholding in all mining ventures in South Africa had to be held by HDSAs so as to meet the ownership target contained in the Mining Charter.

Protection for foreign investors South Africa has enormous potential as an investment destination, offering a unique combination of a highly developed, first-world economic infrastructure with an emerging market economy.

South Africa has sound economic policies, a favorable legal and business environment, world-class infrastructure and access to markets, industrial capability and cutting-edge technology, all of which make foreign investment in South Africa easy, and can protect such investments.

Moreover, South Africa is a signatory to various Bilateral Investment Protection Agreements (BITs) with various other countries. The protections contained in these agreements include duties to pay market value compensation in case of expropriation or nationalization, to provide full protection and security and fair and equitable treatment to foreign investors and investments, and to treat foreign investors and foreign investments no less favorably than domestic investors and investments.

With regard to the BITs, South Africa has been examining this regime and in 2010 the Department of Trade and Industry (DTI) undertook a review. The outcome of this review was that most of South Africa’s BITs, are structured to favour foreign investors. The DTI therefore concluded that the BITS must be reviewed.

In light of this, South Africa embarked on a review aimed at restructuring the present BIT structure. This involved introducing new legislation to replace the BITs. On 1 November 2013, the DTI published the first draft of the Promotion and Protection of Investment Bill for public comment (the BITs Bill). The BITs Bill has proved to be very controversial and has, as its most basic aim, the replacement of the BITs with a piece of legislation.

This has the outcome of affecting the rights presently afforded to investors in terms of the BITs by:

• removing the assurance of full market value compensation where investors are subject to expropriation, instead investors will be provided with compensation that is ‘fair and equitable’ in accordance with the Constitution of the Republic;

• removing the obligation on the South African government to enter into international arbitration in the event of a dispute, instead the DTI will facilitate mediation or a South African court could be approached;

• not providing for the ‘fair and equitable treatment’ of investors; and

• allowing the legislation to be altered unilaterally by the South African Parliament.

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Multiple commentators have criticized the BITs Bill in its present form for the narrowing of protections afforded to investors. In addition, the Bill presently offers no greater protections to investors than the Constitution already did and in this way is stripping away the benefits that were offered by the BITs.

Transfer and pledging of mineral licenses

Section 11 of the MPRD Act, as it reads at present, sets out that other than in the instance of a change of a controlling interest in a publicly listed company and the encumbrance by mortgage of the relevant right in favor of a bank or financial institution (in which event a sale in execution will still trigger the consent requirement referred to below), a prospecting right or a mining right, or an interest in such right, or a controlling interest in a company or close corporation holding the right, may not be ceded, transferred, let, sublet, assigned, alienated or otherwise disposed of in the absence of the written consent of the Minister. The consent must be granted if the transferee is capable of carrying out and complying with the obligations, and terms and conditions of the respective right.

The Amendment Act had the effect of expanding the involvement of the Minister in mining transactions in that in terms thereof the consent of the Minister would be required for any transfer of mineral rights held by an unlisted company or close corporation or the transfer of a controlling interest in a listed company that holds a mineral right.

Any attempted transfer which does not comply with the provisions of Section 11 will be void and may result in the suspension and/or cancellation of the right in question.

Mine health and safety The Mine Health and Safety Act, No. 29 of 1996 (Health and Safety Act), as amended by the Mine Health and Safety Amendment Act, No. 74 of 2008 (Health Amendment Act) (which was necessitated by a spate of serious mine accidents and, except for sections 16 and 24, came into effect on 30 May 2009), was promulgated pursuant to and adopted as a result of the recommendations of the Leon Commission of Inquiry into the Safety and Health in the Mining Industry conducted in 1994.

The Health Amendment Act attempts to eradicate ambiguities in the Health and Safety Act and strengthen the enforcement, offenses and penalty provisions while providing greater harmony with its surrounding legislation, including the MPRD Act.

The basic premise of the Health and Safety Act is that government, employers and employees in the sector must all buy in to governance and health and safety issues that apply to the sector.

Employers are required to develop and implement systems that will timely identify, assess and control health and safety standards so that as much as possible, accidents (whether or not life-threatening) will not occur. Additionally, mines must be designed, constructed, equipped and operated in a manner that allows for a safe working environment.

The employer is also required to make certain statutory appointments in terms of the Health and Safety Act (and its accompanying regulations).

Compliance with the provisions of the Health and Safety Act lies with the Chief Inspector of Mines, who is obliged to compile and distribute health and safety information, advise the Minister on relevant issues, and appoint a medical inspector as well as determine annual inspection plans and reports on mine health and safety. The Health Amendment Act extends the Chief Inspector’s powers to requiring all mines to prepare and implement health and safety management systems as well as a hazard management system.

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Where an Inspector has reason to believe that an employer has failed to comply with the provisions of the Health and Safety Act, or in circumstances where there has been an accident in which a person has been killed, the Inspector may issue such instructions as he deems necessary, including halting the operations of the mine as a whole, or in part. This cessation order will only be lifted once a presentation has been made to and approved by the Inspector of Mines, which demonstrates the specific steps taken by the employer to implement the instructions given.

Where an accident has occurred on a mine, an inspection will be carried out to determine the cause. This is mandatory where a death, serious injury, illness or health-threatening occurrence has taken place or where it is suspected (on a reasonable basis) that the Health and Safety Act is not being complied with.

An employer is obliged to report the event within 30 days to the Principal Inspector of Mines. No person may tamper with the site of an accident, unless it is necessary to ensure the safety of any person, or assist in evacuating an injured or deceased person from the area. An enquiry will be held into any accident or occurrence which caused (or could have caused) the death of any person. Such inquiries are held in public (unless the presiding officer determines otherwise). A copy of the presiding officer’s report must be submitted to the Chief Inspector of Mines and to the party/ies that requested the inquiry be conducted. The report will contain remedial action to be taken and recommendations for sanctions that may be levied against the employer. Administrative fines of a maximum of R1 million, and criminal sanctions of imprisonment not exceeding five years and/or a fine of not exceeding R3 million may be applied.

On the 15th of November 2013 a revised version of amendments to the Mine Health and Safety Act were published in the Government Gazette. These amendments have not yet come into force but there has been much discussion about what many commentators feel is an excessive widening of ministerial discretion.

In terms of the proposed amendments, the Minister may declare what work is to be deemed hazardous and what environmental condition or substance is a health hazard. In addition to this, the Minister is also accorded the power to declare any provision of the Occupational Health and Safety Act (not ordinarily applicable to mining companies) applicable to a mine.

In terms of benefits to be derived from the proposed amendments, commentators have praised that there is a distinction made between employees of an operator and employees of the mining right holder. The present position is that anyone working on the mine is deemed to be employed by the mining right holder.

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Spain Author’s Summary Author(s) Xavier Junquera and Janira Rojano

Summary Spain has very diverse geological deposits and resources in its territory, which results in a high volume of different kinds of mining production. This mining wealth positions Spain, within the European Union, as the 6th largest coal producer, the 3rd for copper ore, one of only three States that produce nickel ore and the leading producer of gypsum and spar-fluorine. Its production of ornamental rock is also very important, particularly in the case of slate.

Regarding the geographic distribution by sub-sectors, energy products are found in six Autonomous Communities. In Aragon, coal mining comprises 45% of the total value of its mining production. In Asturias, Catalonia, Castilla y León and Castilla La Mancha, mining of energy products represents between 22% and 33% of production value. Mining of metals accounts for 77% of the total value of mining in Andalusia, 68% in Extremadura and more than 40% in Asturias.

The main regulations governing the legal system for explanation and use of sites for mineral mining and other geological resources are the Spanish Mining Act 22 of 21 July 1973 and the Royal Decree 2857 of 25 August 1978, which approved the General Regulations for the Mining System.

However there are other regulations that deal with specific aspects of the mining sector. In this respect, the Spanish Mining Promotion Act 6 of 4 January 1977 provides the basis that governs the exportation of raw mineral materials and the mining taxation system. Regarding the environmental impact of mining in Spain and the different measures aimed at its protection, the most relevant are the Royal Decree 975 of 12 June 2009 on Management of Industrial Mining Waste and Protection and Restoration of the Area Used for Mining Activities, Act 16 of 1 July 2002 on Prevention and Control of Contaminated Substances and Act 26 of 23 October 2007 on Environmental Responsibility.

The foregoing notwithstanding specific regulations can also be found at the local level in Spain, which is divided into municipalities, provinces and autonomous communities, which is based on the principle of independence of nationalities and regions therein and hence each of these territorial bodies is granted certain regulatory powers.

Legal Framework for mining

All natural resources and other geological resources existing both in national territory and in territorial waters or the continental platform are assets in the public domain and the State can directly undertake or assign their explanation and production. Similarly, the State can reclaim areas when the use of the mineral deposits and geological resources may be of special interest for economic and social development or for national defence.

Mineral deposits and other geological resources are classified in the following three Sections in the Spanish Mining Regulations:

(a) Resources of low economic value, those with geographical restrictions for marketing and those which are used in infrastructure and construction work and other uses that do not require any further processing.

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(b) Mineral water (terrestrial or maritime), thermal water, subterranean structures and accumulations consisting of waste from the activities regulated by the Spanish Mining Act.

(c) Other mineral deposits and geological resources not included in any of the previous sections.

The type of permit required depends on the classification of the mineral deposit or geological resource and on the kind of activity that will be carried out on the mineral deposit or geological resource.

However, the following items are excluded from the scope of application of both the Mining Act and the Mining Regulations: (i) exploration and production of liquid and gaseous hydrocarbons; (ii) exploration and production of radioactive minerals; and (iii) the mining of minerals with low technical and economic importance, whatever the classification may be, carried out by the owner of the land where they are located, for the latter’s exclusive use, and not requiring any mining technique to be applied.

Restrictions on foreign investment in mining

Following Spain becoming a Member State of the European Union, all restrictions on foreign investment in mining were removed. Any natural or legal person, regardless of their nationality, may obtain authorisations and permits to enable them to develop mineral deposits or other geological resources within Spain.

Environmental legislation

The mining regulations stipulate that the holders of mining rights are liable for all the damage caused by their work and those caused to adjacent areas, and have obligations under the Spanish Environmental Liability Act 26/2007 and Royal Decree 975 of 12 June 2009 on Management of Industrial Mining Waste and Protection and Restoration of the Area Exploited by Mining Activities. The measures, procedures and guidelines aim to prevent or reduce as far as possible any adverse effects to the environment and, in particular, to the water, air, soil, fauna, flora and landscape, as well as the risks to human health that could be caused by the exploration and exploitation of mineral deposits and other geological resources.

In this respect, the main regulations relating to the environment prescribe that companies exploiting mineral deposits must submit a plan to the competent mining authorities for rehabilitation of the natural area used for mining work, which must contain the following:

• A detailed description of the area where the mining work will be performed;

• The planned measures to restore the natural area used for the exploration of mineral resources;

• The planned measures to restore the services and facilities used for exploration and exploitation of mineral resources;

• A waste management plan; and

• The execution schedule and estimated cost for the rehabilitation work.

Once it has been verified that the relevant requirements have been duly met, the competent authorities must authorise this rehabilitation plan, with or without amendments, at the same time as the exploration permit is granted or with the authorisation or exploitation concession.

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In addition, once authorisation for the rehabilitation plan has been obtained, the following two financial guarantees must be provided in order to begin the mining work to ensure fulfilment of the contents of the authorised rehabilitation plan:

• A financial guarantee for rehabilitation of the natural area used for exploitation, preparation, concentration and beneficiation of mineral resources; and

• A financial guarantee that the conditions have been met that were imposed in the authorisation for the management and rehabilitation plan for the natural area affected by the facilities and mining waste.

Royal Decree 975/2009 determines that, for any aspect that is not regulated by these specific regulations, the Spanish Waste and Contaminated Soil Act 22 of 28 July 2011 will be applicable. In this respect, regarding the mining waste management plan that must be included with the aforementioned rehabilitation plan, it should be noted that this law obliges initial producers or owners of waste to treat it themselves, assign the treatment of their waste to a third party trader or else deliver their waste to a public or private waste collection company.

Finally, before building, assembling and transferring facilities for the mineral industry, an integrated environmental authorisation must be obtained from the body appointed by the Autonomous Community in the territorial area where the facilities are located.

Exploration Tenements Any natural or legal person that intends to obtain authorisation, a permit or a concession for exploration or exploitation of a deposit or a resource must file an application in the relevant Provincial Department of the Spanish Ministry of Industry and Energy. In addition, in cases when the work exceeds 25 metres below the surface on dry land or any depth underwater, as well as obtaining the required authorisations, the same Department must also be notified with at least 15 days prior notice of the date the work will begin. This notification must also be sent to the Spanish Geological and Mining Institute, a body that may require the persons concerned to regularly notify it of the geological and mining data obtained during the work.

For the development of resources under Sections A or Section B, see the chapter on Exploitation.

Exploration Permits Section C

Exploration permits grant the holder a right to conduct studies and perform work aimed at detecting or defining one or several resources included in Section C within the defined perimeter and for the valid term thereof, according to the approved project. Similarly, if the exploration proves that they can be rationally used, a right is also granted for the relevant exploitation concession.

First of all, in order to obtain a exploration permit the land must be available and able to be registered. In this respect, available lands are considered those included within the perimeter of a zone reserved by the State or regarding which no application has been made for an exploration permit or exploitation concession nor has one been granted. Moreover, land that can be registered is deemed to be an area of the minimum required size.

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The application for an exploration permit must be filed by means of a request personally made by the applicant or the latter’s representative to the Provincial Department of the Spanish Ministry of Industry and Energy, which must contain the following:

• The full name or company name of the applicant, such person’s residence and address;

• Name to be given to the exploration permit; and

• Location, limits and size of the land.

In addition, the applicant must submit the following documents within 60 days from the date of the application:

• Documents proving that the applicant meets the conditions to hold mining rights;

• The final classification of the land referred to in the application;

• The exploration project, containing an explanatory report on the general exploration plan intended to be implemented, the exploration schedule, an estimate of the investment, implementation term and location plans; and

• An economic financing study and the guarantees offered for its viability.

Within 8 days from the date the documents are submitted, the Provincial Department will adopt a decision on the final acceptance of the application and a public information period will begin. After this, the whole file will be processed and a decision with due grounds will be adopted.

Exploration permits are granted for the term requested, but such period cannot exceed three years; however they may be extended for a further period of three years by the Provincial Departments of the Ministry of Industry.

In cases when the land becomes available due to a reserve granted in favour of the State or because an exploration permit or exploitation concession has expired, the exploration permit will be awarded by means of a public tender.

The holder of an exploration permit must begin the work promptly once the lands can be occupied, and within a term of 4 months must submit a work plan for the first year and an updated work plan must be filed every year thereafter.

Development / Production tenements Tenements / rights available Exploitation Permits Section A

The use of the resources included in Section A : (i) if they are located on privately owned lands, are deemed to belong to the landowner, (ii) if they are located on land owned by the State, Province or Municipality, their holders may directly use them or assign them to third parties and (iii) if they are located on lands of public domain and use, they are for common use.

However, in all these cases, in order to exercise the right to use these resources, authorisation for exploitation must be obtained before starting the work from the relevant

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Provincial Department of the Spanish Ministry of Industry and Energy or, in the cases when this is specified, from the Local Corporation.

In order to obtain authorisation for exploitation, an application must be filed containing the applicant’s full name or company name and address, as well as the name given to the exploitation. This application must include the following:

• Documents that accredit that the applicant meets the requirements to be considered as a holder of mining rights;

• Documents that accredit the right to use;

• A report and plan showing all the data related to the site of the deposit, the production forecast will be obtained, the purpose for which it is intended to be used, the time the work will take and an exploitation schedule.

The holder of the authorisation for exploitation is allowed 6 months or, if an extension is granted, a maximum of 1 year, counted from the notification such authorisation is granted to start the relevant work, otherwise it will be declared that the authorisation for exploitation has expired.

Moreover, the start of the work must be notified to the Provincial Department or, if need be, the Local Corporation, providing information about the appointment of the Technical Manager who will be responsible for such work.

When a term of 10 months has elapsed, counted from the start of the work, and subsequently on an annual basis, the holder of the authorisation must submit a work plan in four copies for the following year to the Provincial Department or Local Corporation and such plan will be verified within a term of 2 months. A copy of this plan is sent to the Higher Council of the Spanish Ministry of Industry and Energy and another to the General Directorate of Mining and Construction Industries.

Exploitation Permits Section B

The system of authorisations varies for Section B, depending on the nature of the resource and whether mineral and thermal water, deposits from non-natural sources or subterranean structures are involved.

Mineral and thermal water

First of all, a declaration of the condition of the mineral in the water must be obtained from the Ministry of Industry, according to a proposal made by the General Directorate of Mining, with a prior report from the Spanish Geological and Mining Institute and the Higher Council of such Department. In addition, if medicinal mineral water is involved, a binding report must also be issued by the Directorate General of Health.

Within a term of 1 year, counted from the date the condition of the mineral in the water has been declared, the owners, if the water is located on privately owned land or the applicants for the declaration, if the springs are located on publicly owned land, are entitled to a pre-emptive right to use such water.

However, in order to be able to exercise these rights for use, an application must be filed for the required authorisation in the relevant Provincial Department of the Ministry of Industry, including the following documents:

• Documents that justify its capacity to hold mining rights;

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• The general project for use;

• The estimate of the investments to be made;

• An economic study of the project financing;

• Assignment of the protection perimeter, specifying the use that will be made of the water.

In turn, the Provincial Department will submit the file to the General Directorate of Mining, which, after a previous report has been issued by the Spanish Geological and Mining Institute and, when applicable, the Directorate General of Health of the Spanish Ministry of Public Works and Agriculture, will authorise the use, with or without the necessary amendments to the project submitted.

Deposits created by mining waste

First of all, a declaration must be obtained that this deposit has been categorised as a resource included in section B). This declaration may be requested by the party concerned or officially by the Provincial Department of the Spanish Ministry of Industry and Energy.

The holder of the mining rights resulting in mining waste produced from research and mining work is entitled to a pre-emptive right to the use thereof. However, for such purpose, an application for authorisation must be filed in the relevant Provincial Department of the Spanish Ministry of Industry and Energy and such application must include the data about the applicant, the location and limits of the resources that are intended to be used, along with the following documents:

• Documents accrediting the right to use;

• Documents justifying the applicant meets the required conditions to hold the rights; and

• A report, with due grounds, about the work intended to be carried out.

In addition, the following documents must be provided within a term of two months:

• A mining schedule and forecast annual production;

• Project of the mining facilities to be provided;

• An economic study specifying the plan for the investment to be made; and

• The forecast social improvements.

In turn, the Provincial Department will submit the file to the General Directorate of Mining, which will authorise the use or return the project for its rectification.

In any case, the work for the use of waste must start within a maximum term of 1 year, counted from the notification of authorisation being granted, unless there is an extension in this term.

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Subterranean structures

An authorisation must be obtained in order to use subterranean structures. For such purpose, an application must be filed in the relevant Provincial Department of the Spanish Ministry of Industry and Energy, specifying the following:

• The data related to the person or enterprise applying for the authorisation;

• Description and exact location of the structure;

• Geological formations involved, structural context of the area and justification that such area is watertight;

• Type of use, kind of product or waste that is intended to be stored and system for temporary or permanent use;

• Term of the authorisation requested; and

• Perimeter or volume of protection considered necessary.

Once the application has been filed, the Provincial Department will order a verification inspection. After this, the file is submitted to the General Directorate of Mining and Construction Industries, so that the latter determines whether such structure can be classified in Section B). If such classification is approved, the party concerned must provide the following documents:

• Documents proving that the applicant meets the conditions to hold mining rights;

• Documents that justify the applicant’s technical and economic capacity;

• Report justifying the suitability of such use;

• Project for use; and

• Proposal for compensation to third parties for the assets or rights that may be affected.

After prior report has been issued by the Geological and Mining Institute of the Higher Council of the Ministry of Industry and the Inter-Ministerial Commission for the Environment, the General Directorate of Mining will authorise the use for a maximum term of 90 years.

In this respect, it should be pointed out that, for the three types of resources included in this Section B, the mining regulations state that, if the pre-emptive rights are not exercised, the use will either be granted to the person that submitted the file or, if this is not possible, the use will be awarded by means of a public tender.

Exploitation Permits Section C

Exploitation concessions are granted to the holder of the right to use for all the resources included in Section C that are within its perimeter, except for those reserved for the State.

In the same way as for exploration permits, in order to obtain an exploitation concession, the land must be available and able to be registered.

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The mining exploitation concessions are granted for a term of 30 years, which can be extended for a further two terms of the same length of time, in other words for a maximum term of 90 years. However two different kinds of concessions may be granted.

Firstly, there are direct exploitation concessions, for which an application may be filed for a concession of available lands that are able to be registered with no need to previously have obtained an exploration permit. However, for such purpose, this must be related to a resource included in Section C that is considered sufficiently well-known and its rational use is deemed viable or, if the resources are sufficiently well-known the mining rights for them have expired and there is data and proof to enable their exploitation to be defined due to technological improvements or new market prospects.

In order to obtain a direct exploitation concession in the aforementioned cases, an application must be filed in the relevant Provincial Department containing the following:

• The full name or company name of the applicant, such person’s residence and address;

• Location, limits and size of the land;

• The name assigned to the requested concession; and

• Specification of the mineral resources the object of the application.

This application must include the following documents:

• Documents proving that the applicant meets the conditions to hold mining rights; and

• A technical report justifying the admissibility of the application as a direct concession.

Similarly, the applicant must submit the following documents within 60 days from the date approval is notified of the exploitation concession process:

• Final classification of the land requested;

• A feasibility study and a project for use of the resource, which must include a report, general exploitation schedule, the facilities and machinery to be used and location plans for the work and facilities; and

• An economic financing study and the guarantees offered for its viability.

Once the processing of the file has been completed and after being submitted for public information, it will be sent to the General Directorate of Mining and Construction Industries that will refuse or approve the concession after a prior report has been issued by the Spanish Geological and Mining Institute.

Secondly, exploitation concessions may be granted based on exploration permits. In this case, as soon as it is proven that the exploration involves a resource included in Section C, within the valid term of the exploration permit, the holder thereof may apply for an exploitation concession for part or all of the land included in the perimeter of such exploration.

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In order to obtain the exploitation concession, an application must be filed in the Provincial Department in which the land requested is specified. In addition the following documents must be provided:

• A detailed report on the geological nature of the deposit and the exploration work conducted along with the results obtained;

• A feasibility study and project for the use of the resources, which must include a report on the exploitation system, a diagram of the infrastructure, work schedule, estimated investments to be made and an economic study of its profitability and the financing sources.

Once the relevant verification of the land has been conducted by the Provincial Department, the file will be submitted to the General Directorate of Mining, which will approve or refuse the exploitation concession.

The holder of a exploitation concession must start the work for use within 1 year from the date when the concession is granted. In addition, within six months, a plan must be submitted of the work and facilities to be carried out in the first year, which afterward must be provided on an annual basis.

Priority between different resource classifications

Where an application is made for the proposed use of the same resources within Section A, Section B and Section C, before granting any authorisation, the Ministry of Industry must make a decision on the compatibility or incompatibility of the work proposed under each classification. If the work is determined as incompatible, the Government must specify which proposal has the greatest public interest or utility and that must be given priority.

Key Considerations Taxes

The applicants for exploration permits and direct / assigned exploitation concessions are responsible for paying the expenses incurred to process these permits.

However, in order to promote and develop the use of raw mineral materials, Spanish companies are granted capital subsidies and loans, although they must be reimbursed once the objectives sought by them have been achieved.

The holders of mining rights for mineral deposits and other geological resources must pay a royalty as consideration for the mining area, where the resources has a significant economic value, where no marketing restraints have been imposed, resources that are not directly used in infrastructure or construction work or that do not consist of mineral water, thermal water or subterranean structures.

Certain activities for exploration, exploitation or beneficiation of deposits, because of their nature or importance in the public interest, may be subject to certain tax benefits, such as free amortisation over 10 years, a reduction of up to 95% in the tax rates or a reduction in the taxable base for an amount equivalent to those assigned as a depletion factor; however, these reduced amounts in the taxable base as a depletion factor must be invested in activities related to the mining sector in the following 10 years.

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Effects of the expiry of exploitation concessions

When an authorisation, permit or concession for any of Sections A, B or C terminates, due to the term for which it was granted having expired or for any other reason, such as waiver, breach of the commitments or the resource being depleted etc., if the holder proposes to vacate the site, it must hand over the site in a proper and safe condition. A vacating holder must notify the Provincial Department of the Spanish Ministry of Industry and Energy which, after prior verification, will authorise the holder to vacate the site or will any impose conditions it deems necessary.

Once the holder has been authorised to vacate the site, it may freely dispose of the machinery and facilities it owns. However, the State may prohibit these assets being removed if this could harm the future exploitation of the deposit. As consideration in such cases, the holder may be entitled to receive compensation in the manner stipulated in the Spanish Compulsory Expropriation Act.

Construction licenses

If it is intended to set up an establishment to be used for the preparation, storage or beneficiation of resources, authorisation must first be obtained from the General Directorate of Mining and Construction Industries.

For such purpose, an application must be filed in the relevant Provincial Department of the Spanish Ministry of Industry and Energy, which must include the following:

• A project for setting up the establishment;

• An economic and financial study; and

• A schedule for building these facilities, which must specify the dates planned for carrying out each phase.

After receiving the documents, the relevant Department will submit the file to the General Directorate of Mining and Construction Industries that will adopt a decision, after a prior report has been issued by the Spanish Geological and Mining Institute.

Compensation to landowners Albeit with certain special features, in general the holder of a tenement over a mineral deposit or geological resource can apply under the Spanish Compulsory Expropriation Act for an order to occupy the land required for the site of the relevant work, facilities and services, after the required declaration of public utility, or temporary tenancy of the lands.

Export restrictions The Spanish Mining Promotion Act 6 of 4 January 1997, in general terms, specifies the process for exporting raw mineral materials, according to the provisions in the National Raw Mineral Material Supply Plan, the National Energy Plan and the National Uranium Exportation Plan. The government plans to issue regulations on the minimum level of processing that must be achieved for certain raw mineral materials to obtain the relevant exportation licence; and the Spanish Ministry of Trade may create export sectors for surpluses of mineral substances or those for which there are no consumers in the domestic market. As to the date of this chapter, the Spanish Ministry of Industry, Energy and Tourism has not issued any regulations for the mineral export sector and there are no restraints on these export activities in Spain.

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Sweden Author’s Summary Author(s) Sofia Törnroth Nyberg and Albert Danielsson

Summary For several hundred years Sweden has been an important mining country. One company still in operation is the Stora Kopparbergs Bergslags AB, formed in the thirteenth century. The mineral-rich areas of Sweden provide an important resource for further exploration. The mining legislation has developed to provide easy access to the mining and exploration areas, while providing safeguards for the environment.

Sweden has an extensive geological database and one of the world’s largest drill core sample databases available for research.

In the EU, Sweden is the largest producer of iron ore, the second-largest producer of silver, gold, lead and zinc and the third-largest producer of copper. Sweden plays a leading role in metallurgical research and development as well as in the development of advanced and ecological underground mining.

Investment opportunities in the sector range from greenfield exploration, mining project development/participation, joint R&D projects within mining/metallurgy as well as complementary service providers in a strongly growing market.

In recent years exploration has attracted interest from Swedish and foreign companies and the number of related companies at the Stockholm Exchange and OTC markets have grown (source: Swedish Trade and Invest Council).

Local Landscape Legal framework for mining

Sweden is a civil law country and mining operations are regulated mainly by two acts: the Minerals Act (Minerallagen [1991:45]) and the Environmental Code (Miljöbalken [1998:808]).

The Minerals Act regulates the exploration and exploitation of certain mineral deposits. The Minerals Act defines the minerals to which it is applicable, which are referred as “concession minerals”. Concession minerals are divided into three categories: traditional ores, certain industrial minerals and oil, gas and diamonds. Other minerals and other kinds of rock, gravel and sand are excluded from the Minerals Act and are normally referred to as landowner minerals. As regards concession minerals, exploration activities require an exploration permit and the exploitation of mineral deposits requires an exploitation concession, regardless of ownership of the land on which the exploration/exploitation work is intended to be conducted. There is thus no requirement that the applicant own the land for which a permit is being sought. Applications for exploration permits and exploitation concessions are made to the Mining Inspectorate (Bergsstaten) and permits as well as applications may be transferred following consent by the Mining Inspectorate.

Restrictions on foreign investment in mining

There are no restrictions on foreigners obtaining exploration permits or exploitation concessions in Sweden or other foreign mining investments.

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Environmental considerations

Because mining operations are environmentally hazardous activities, they must also comply with the environmental legislation, most importantly the Environmental Code. Also the Act on Ancient Monuments and Finds (lagen [1988:950] om kulturminnen m.m.) may be applicable, as it contains provisions on permits for interventions at the sites of ancient monuments.

The Environmental Code applies to all activities that are potentially detrimental to human health, or the natural or cultural environment or deplete biological diversity. In addition, the Environmental Code applies to all kinds of impacts on the natural environment, regardless of the size. The provisions apply also where the operations and measures are also covered by other legislation, in which case the Environmental Code applies in addition to such rules and regulations.

Under the Environmental Code, establishments, operations, and in some cases even mere modifications of environmentally hazardous activities of a certain magnitude require an environmental permit. All use of land, buildings or facilities that, in one way or another, causes emissions to land, air or water, or involves the risk of detriment to human health or the environment are environmentally hazardous activities. Furthermore, the term relates to all environmental impacts, regardless of whether they are local, regional, national or global. In consequence, mining operations require an environmental permit. A permit can be obtained through an application to the Environmental Court (Mark-och miljödomstolen) or the Environmental Assessment Delegation (Miljöprövningsdelegationen) at the County Administrative Board (Länsstyrelsen), who will make an environmental assessment of the operations. The preparations required before an application can be submitted are onerous and the procedure to obtain an environmental permit normally takes several years.

A permit will only be granted where the applicant can show required knowledge of the potential environmental impact of the mining operations and to prevent environmental damage. The application must contain a description of the environmental impact of the operations and the possibilities of limiting such impact. This requirement, the “knowledge requirement,” is not static but changes over time, depending on scientific developments, new technology and environmental changes. This means that operators must maintain a detailed knowledge both of the operations, the area in which the operations will be or are undertaken, the impact on the area, and technology and scientific developments.

More specific provision on the operations that require permission and the requirements for such permissions can be found in the Ordinance on Environmentally Hazardous Activities and The Protection of Public Health [1998:899] (Förordningen om miljöfarlig verksamhet och hälsoskydd).

A fundamental part of the permission procedure deals with the handling and disposal of waste from the mining operations. The EU directive on the Management of Waste from Extractive Industries (2006/21/EC) was implemented in Swedish legislation on 1 September 2008 through the Extractive Waste Ordinance (Utvinningsavfallsförordningen [2008:722]). The Extractive Waste Ordinance defines certain waste facilities as hazardous facilities, for which the operator is obliged to maintain a strategy to prevent major accidents as well as a system for the execution of such strategy. The operator must also have an internal contingency plan, specifying the actions to be taken at the facility in the event of an accident. Whether or not a waste facility will be regarded as hazardous depends on criteria such as the risk of a grave accident occurring or whether or not the facility contains waste that has been classified as dangerous.

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Indigenous people considerations

There are no specific limitations in respect of the rights of the indigenous Sami population, but the assessment of whether or not an exploration permit or an exploitation concession shall be granted will include an assessment of any conflicting interests, such as, inter alia, the risk of disturbing Sami reindeer herds or cultural heritage.

Exploration Tenements An exploration permit means that the holder obtains access to certain land for exploration work for the purpose of locating concession mineral deposits. Normally, an exploration permit will give the holder monopoly on the exploration work within the applied area; only in exceptional cases may a competing exploration permit be granted for the same area as an already existing exploration permit, and in such cases only for different minerals than those covered by the already existing permit. An exploration permit also gives a preferential right to a subsequent exploitation concession in the area.

Terms

An exploration permit may not normally be granted for an area that is subject to a recently expired permit; at least one year needs to pass between the expiry of an old permit and the granting of a new permit. It is also a condition that the exploration work does not damage the environment or land use.

According to the Minerals Act, the Mining Inspectorate will grant an exploration permit if it has reason to assume that exploration in the area for which permission is sought can lead to a discovery of a concession mineral. As regards oil, gaseous hydrocarbons or diamonds, an exploration permit will only be granted where the applicant can show a suitability for such specific exploration work. There is no requirement that the applicant owns the land for which a permit is being sought; it is sufficient that the applicant can show that it has the capacity to conduct exploration operations. There are, however, certain limitations; exploration permits will, inter alia, not be granted for national parks and also normally not close to, e.g., housing areas, public roads, railways, canals or airports, electric power plants, industrial plants, burial grounds or habituated buildings. An exploration permit will not also be granted within 1,000 meters from a concession area with an operating mine (except to the holder of such concession). If, however, a concession has been granted for the area but the holder of such concession has not commenced the mining operations within three years from the granting of the concession, an exploration permit can be issued for the same area up until the concession holder begins the mining activities.

In order to obtain an exploration permit, the applicant must be able to show that there is a certain degree of likelihood of a successful discovery of concession mineral deposits being made within the area for which the permit is sought. A permit will not be granted if it is obvious that the applicant does not have the possibility or intention to conduct appropriate exploration, or if the applicant has previously shown to be unsuitable to conduct exploration work.

Once granted, an exploration permit is valid for a period of three years from the date of issue. After that, the permit may be extended upon the holder’s application for a period of not more than three years. Such extension, however, requires that exploration operations have been conducted within the permit area. The permit may be extended even if exploration operations have not been commenced as long as the holder can present credible excuses for this, and can also show that it is likely that exploration work will be commenced during the applied extension period. Only in exceptional cases can a permit be further extended

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and in such case normally not for more than a total of four years. In extreme cases, a permit can be extended by a further maximum of five years. This means that the longest possible valid period for any one permit is 15 years.

Before commencing exploration work, the permit holder must prepare a work plan containing a description, a map with real-estate boundaries and a timetable of the intended work, contact details, an assessment of the impact the operations may have on public interests and private rights including, inter alia, the current use of the area by others. The work plan must also contain details about the objective of the work plan in general, and instructions regarding the possibility for other parties to affect the work plan etc.

The work plan shall be written in Swedish and shall upon request from (for example, from a landowner) be translated into Finnish, Meänkieli or Sami. The duty to translate the work plan applies in areas where those minority languages are spoken according to the Act on National Minorities and Minority Languages (lag [2009:724] om nationella minoriteter och minoritetsspråk).

Upon request from a relevant party (for example, a landowner, or other party whom the work may affect) a notice about when the work will commence must be sent to such a person.

The plan must be communicated to all landowners and other affected parties. If, after such communication, no objections have been raised within a certain prescribed time (no less than two weeks), the plan will become effective. If objections are raised, the work plan may nevertheless become effective by an agreement between the applicant and any objecting party. If the applicant and the objective party or parties cannot reach an agreement, the Chief Mining Inspector (Bergmästaren) can examine the work plan in a specific review procedure and may, in connection therewith, set up certain conditions for the exploration work. However, the work plan must fulfil the requirements as stated in the Minerals Act. The effective workplan shall subsequent be sent to the Chief Mining Inspector, the local municipality and The County Administrative Board.

A party seeking to explore a certain area for minerals also has to submit financial security for the compensation of potential damage and encroachment from the exploration work. Before any work can start, a security amount (not less than SEK10,000 but in practice higher amounts) has to either be deposited with the Swedish Mining Inspectorate or be guaranteed, for example through a bank guarantee.

If an exploration permit is terminated without an exploitation concession having been granted for the area, the permit holder must, if he is carrying on exploration work professionally, no later than three months thereafter provide a report of exploration performed to the Mining Inspectorate. The report must contain the following information:

• parties who conducted the exploration work

• kind of exploration carried out

• extent of the exploration

• results

In addition, the applicant must attach a map of the explored area to the report.

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Steps to acquire an exploration right

An application for an exploration permit must be made in writing and filed with the Mining Inspectorate, to the attention of the Chief Mining Inspector. The application must contain, inter alia, the following information:

• The concession mineral or minerals that the applicant wants to explore.

• The geographic area/areas covered by the application.

• Why there are reasons to assume that exploration of the geographic area could lead to the discovery of the concession mineral.

• The impact on public and private interests that the planned operations may have and measures that, in the applicant’s opinion, are necessary for the protection of public interests or private rights.

The application fee for an exploration permit is SEK 500 for every 2,000 hectares of exploration area. In addition, there is an annual exploration fee. The exploration fees are related to the area of interest. For the first three years, the holder also has to pay a fee in the amount of SEK 2 per hectare as regards diamonds, oil and/or gaseous hydrocarbons and SEK 20 per hectare as regards other minerals. The minimum fee is, however, SEK 100.

If the permit period is extended, the fee for the years four to six is SEK 2 per hectare and year for diamonds, oil and/or gaseous hydrocarbons and SEK 21 per hectare and year for other minerals. The minimum fee is SEK 200. If the permit period is further extended, higher fees apply. The fees are payable to the Mining Inspectorate in connection with the submission of the permit application and all fees must be paid in advance. If an area becomes reduced during the exploration, the fee will be correspondingly reimbursed.

Development / Production tenements Terms of rights

Before concession work is commenced, the Mining Inspectorate must determine the land within the concession area that the concession holder may use for exploitation of the mineral deposit; “designation of land” (markanvisning). The cost for the designation process is covered by the concession holder. The Mining Inspectorate’s decision will also cover the land, within or outside the concession area, which the concession holder may use for activities related to the exploitation.

In addition, mining operations may not be commenced before a building license has been granted by the local municipal authority and the municipality has announced that the mine may be put into service. This may require several meetings and extensive correspondence with the local building board (Byggnadsnämden).

Tenement effects

As mentioned above, a mining company does not have to own the land on which the mining operations are conducted. However, mining operators usually acquire the designated land from the landowners. If this is the case, the designated land may have to be separated from the existing property. This is done by means of an application for partition of property (fastighetsdelning) to the Swedish Mapping, Cadastral and Land Registration Authority (Lantmäteriet).

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However, concession work may not be commenced before the Mining Inspectorate has designated the land within the concession area that may be utilized for the exploitation of the mineral deposit. If the landowner and the concession holder agree, or if the concession holder owns the land, the Mining Inspectorate will normally confirm their agreement/the suggested designation in its decision. If, however, no agreement can be reached, the Mining Inspectorate will hold hearings with affected parties and evaluate what land is required/affected by the concession work and designate land in accordance therewith. The Mining Inspectorate’s decision will also designate the land, within or outside the concession area, that the concession holder may use for activities related to the exploitation operations. The concession holder bears the cost for the designation process.

Effects of the expiry of exploitation concessions

When an exploitation concession expires, the concession holder loses the right to conduct mining operations on the designated land. Furthermore, upon expiration of the concession, the concession holder will lose the right to the minerals covered by the concession that have not been brought to the surface. Minerals that have been brought to the surface or that have otherwise been taken care of may remain within the area for the benefit of the concession holder for a period of maximum two years after the expiration of the concession. After this two-year period has lapsed, the concession holder will forfeit his right to any material not yet removed. As regards minerals that have been mined or extracted but not brought to the surface or otherwise been similarly taken care of, the concession holder will lose any rights upon the expiry of the permit. Minerals to which the concession holder forfeits his right under this section, and which are not covered by a new exploration permit or exploitation concession, will accrue to the owner of the property.

Upon expiry of a concession, the holder is also responsible for restoration work. It follows from the Minerals Act that the holder must take any restoration measures necessary, and remove all constructions that are not necessary for the mining plant’s durability and strength (such as drill hole casings and safety fences), which items the concession holder instead loses its right to and must be left at the site.

It thus follows from the Environmental Code that anyone having conducted activities that are detrimental to the environment or human health is liable until any damages or nuisances have been reasonably remedied. Insofar as remedy cannot be made, the concession holder may instead have to provide monetary compensation.

Transition from exploration / holding right to mining right - Development / Production tenements When a mineral deposit has been found and there is reason to assume that it could be economically exploited, an exploitation concession can be sought from the Mining Inspectorate. A concession covers a certain area, the size of which is decided from, inter alia, the extent of the deposit and the purpose of the concession.

Normally, a concession will be granted where the following conditions are met:

• The area contains a mineral deposit that has potential to be economically exploited.

• The location and nature of the deposit is not of such kind as to render a concession inappropriate in that area.

As regards concessions for oil and gas, there is an additional requirement that the applicant must show to be appropriate for the exploitation of such deposit.

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Foreign ownership restrictions and government participation

There are no restrictions on foreigners obtaining exploration permits or exploitation concessions in Sweden or other foreign mining investments.

Steps to acquire a right - Development / Production tenements

An application for an exploitation concession must also be in writing and be filed with the Chief Mining Inspector. Such application must contain information on, inter alia, the following:

• The concession mineral or minerals to be exploited

• The geographic area and the time period for the intended concession work

• The properties affected by the application and the names and addresses of the property owners as well as of other affected parties known to the applicant

Because the Environmental Code is applicable on mining operations, an Environmental Impact Assessment (Miljökonsekvensbeskrivning or EIA) must be attached to an application for a concession.

The application fee is SEK 80,000 for each concession area. The fee is payable to the Mining Inspectorate in connection with the submission of the permit application and must be paid in advance.

Applications for environmental permits

The procedure for obtaining an environmental permit normally takes several years and contains the following main elements:

• Consultations with the applicable County Administrative Board (Länsstyrelsen), applicable supervisory authorities and private persons and companies that will be affected by the mining operations. Usually, it is also required that consultations are held with other governmental authorities that may be affected (such as the Mining Inspectorate), the local municipality (kommun), and organizations and the public.

• Preparation of an EIA. This document sets out the direct and indirect effects the intended operations may have on humans and the environment.

• The filing of the application, as well as the EIA, to the deciding body. This is normally the Land and Environmental Court (Mark-och miljödomstolen) or the Environmental Assessment Delegation (Miljöprövningsdelegationen) at the County Administrative Board (Länsstyrelsen), depending on the nature and magnitude of the mining operations. More detailed information on which authority will try the application can be found in the 1998 Ordinance on Environmentally Hazardous Activities and The Protection of Public Health.

• The Land and Environmental Court/Environmental Assessment Delegation evaluates the application and refers it to applicable authorities and affected parties for their consideration.

• The Land and Environmental Court/Environmental Assessment Delegation issues its decision.

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Relationship with landowners - Development / Production tenements

In addition to the application fees, the holder of an exploitation concession must pay an annual “minerals fee” to the landowners and to the state. The fee is 2 per mille of the average value of the concession minerals mined, of which 1.5 per mille is payable to the landowners (to be distributed among them in proportion to their share of the concession area) and the remaining 0.5 per mille is payable to the state. The state uses the income from these fees for the research of sustainable development of mineral resources.

A mining company does not have to own the land on which the mining operations are conducted.

Key Issues Export

Information on export restrictions concerning specific minerals and/or specific countries can be obtained from the following Swedish authorities:

• Swedish Civil Contingencies Agency (Myndigheten för samhällsskydd och beredskap)

• Swedish Agency for Non-Proliferation and Export Controls (Inspektionen för strategiska produkter)

• Swedish Chemicals Agency (Kemikalieinspektionen)

• Swedish Customs (Tullverket)

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Turkey Author’s Summary Author(s) Muhsin Keskin, Gül Incesulu and Berkay Özlüdil

Summary Although dependent on imports for some major commodities such as iron, the Republic of Turkey (Turkey) possesses vast mineral resources and is one of the world’s richest countries in terms of mineral variety. Turkey’s primary target minerals are gold, silver, copper, chrome, lignite and coal. The Turkish Constitution and the Mining Code provide that all natural resources, including mines and related exploration and exploitation rights, are subject to the exclusive ownership and disposition of the Turkish State, without regard to ownership of the real property where these natural resources are located.

Turkish citizens and legal entities are entitled to engage in mining operations by virtue of exploration and operation licenses and operating permits granted by the General Directorate of Mining Affairs (the General Directorate). An exploration license grants the license holder the right to carry out exploration activities; and in case a presence of minerals is detected within the exploration license area, the license holder is entitled to an operation license for such reserve. Issuance of an operation license is not sufficient to start extracting ore. Upon issuance of the operation license, mining license holders must obtain all necessary environmental permits, such as the environmental impact assessment, as well as access rights to the underlying land. The operation license, by itself, does not grant rights to the underlying land, and the license holders must lease, or else, gain rights (such as ownership or usufruct rights) over the area to be used for mining activities.

The Prime Ministry’s Circular No. 2012/15 of 16 June 2012 requires private entities to obtain permission from the Prime Minister’s office to utilize state-owned lands. As a result, in addition to regular mining licenses and permits, mining operations on state-owned lands will be subject to the Prime Ministry’s permission.

The license holder is entitled to operate the mine only upon the issuance of the required environmental permits and land-use rights. The General Directorate will issue an operation permit in the name of the license holder for an area of potential or proven reserves, which grants the right to extract ore. Operation of a mine without environmental permits and an operation permit may lead to administrative fines, cancellation of the operation license or even criminal liability in some cases.

Investment and production have increased in the sector over the last decade with the liberalization of Turkish mining regulation, the privatization of a number of state-owned enterprises and new investment incentives.

The Mining Law underwent a major amendment on 4 February 2015 (the 2015 Amendment), changing several key provisions and concepts, including the transferability of mining licenses, reporting of mining activities, supervision of mines, license fees and mining operation activities. The Mining Activities Regulations have yet to be amended in line with the 2015 Amendment, creating some ambiguity in the implementation of the recent Mining Law changes.

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Local Landscape Legal framework for mining The Turkish Constitution (the “Constitution”) provides that all natural resources and related exploration and exploitation (mining) rights belong to the state, without regard to the ownership of the real property where the natural resources are located (the Site).

Turkey is a civil law country. The Constitution and the Turkish Civil Code (No. 4721) (the Civil Code) set general rules in relation to the ownership of natural resources, whereas the Mining Code (No. 3213) (the Mining Code), the Regulation on Mining Operations published in the Official Gazette (No. 27751) 6 November 2010 (the Mining Operations Regulation), and other implementing regulations govern mining operations in Turkey. Natural persons and legal entities can engage in mining operations under exploration and operation licenses and operating permits granted by the General Directorate under the Mining Code. The Mining Code also regulates the establishment of usufruct rights and site easements on real estate registered with mining licenses. The Civil Code, furthermore, decrees limiting private ownership of mines to be in the public interest.

The Ministry of Energy and Natural Resources (the MENR) and the General Directorate are the main regulatory and supervisory authorities for mining operations. While the MENR sets out the general rules and policies for mining operations, the General Directorate is mainly responsible for day-to-day operations, including granting licenses relating to mining rights, supervising mining operations and taking necessary measures to support exploration and operations.

Under the Mining Code, all substances in the earth’s crust that have an economic value (except petroleum, natural gas, geothermal and water resources, for which exploitation is subject to other legislation) are classified as minerals. The mining laws categorize minerals in five groups, each subject to different treatment for licensing purposes:

• Group I (a): sand and gravel used in construction and road works.

• Group I (b): brick and roofing tile clay, cement clay, pozzolanic rocks, rocks used in the cement and ceramic industries, and minerals not classified under the other groups.

• Group II (a): rocks used in crushed form that are derived from calcite, dolomite, limestone, granite, andesite, basalt, and that are used to produce aggregate, ready-made cement or asphalt.

• Group II (b): stones produced in block such as marble, travertine, granite, andesite, basalt, and stones used for decorative purposes.

• Group II (c): stones such as calcite, dolomite, limestone, granite, andesite, basalt used in integrated cement, limestone and calcite crushing facilities.

• Group III: salts in solution and obtained from the sea, lakes and spring water, carbon dioxide gas (except for geothermal, natural gas and areas having petroleum) and hydrogen sulphide (provisions of the Petroleum Law are reserved).

• Group IV (a): several minerals listed under the Mining Law including boron, sodium, lithium and calcium.

• Group IV (b): ores listed under the Mining Law that are mainly energy sources such as coal, lignite and anthracite.

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• Group IV (c): metals listed under the Mining Law, including gold, silver, platinum, copper, zinc, iron, manganese, nickel and other minerals, and rare earth minerals such as cerium, rubidium and bismuth.

• Group IV (ç): radioactive minerals and materials that contain elements such as uranium, thorium and radium.

• Group V: precious gem stones, including diamond and sapphire.

All mining rights and operations, including the transfer, acquisition and cessation of mining rights and related encumbrances, must be registered with the General Directorate and recorded in the mining registry. The mining registry is public. Mining rights are only valid if they are registered in the mining registry.

Restrictions on foreign investment in mining

Only (i) Turkish citizens, (ii) legal entities incorporated under the laws of the Republic of Turkey or (iii) state agencies and authorized state-owned enterprises, their subsidiaries and affiliates, and other public entities, are permitted to engage in mining operations in Turkey (Eligible Parties). Foreign mining companies wishing to engage in mining operations in Turkey, therefore, must do so through subsidiaries established under the laws of the Republic of Turkey. Under Turkish law, there is no distinction between domestic and foreign capital Turkish companies. Companies established in Turkey with foreign capital can hold mining rights in a manner equivalent to domestic capital companies.

There are no prohibitions, restrictions or requirements for foreign investors engaging in mining activities in Turkey through a Turkish company, except with respect to real estate. Turkish companies with direct or indirect foreign shareholding of over 50% are restricted from acquiring real estate in strategic locations or locations close to military bases. They must obtain prior clearance from the relevant government. In case of an acquisition, a notification must be made within one month following the buyout if the target company holds any real estate.

Even if the relevant real estate is located in a location that is not restricted as described above, Turkish companies with foreign shareholding still need to make a filing to the government to determine whether the real estate is in a restricted area. However, this is a straightforward process.

Under Decree No. 32 on the Protection of the Value of Turkish Currency, persons residing outside of Turkey can freely transfer funds in Turkish currency or foreign exchange into Turkey from abroad. Funds in Turkish or foreign currency can be freely remitted abroad from Turkey via banks.

Environmental considerations

The main regulations governing environmental issues in Turkey are the Environmental Law published in the Official Gazette (No. 18132) 11 August 1983, the Environmental Impact Assessment Regulation published in the Official Gazette (No. 29186) 25 November 2014 (the EIA Regulation) and the Environmental Permit and License Regulation published in the Official Gazette (No. 29115) 10 September 2014. The principal regulatory authorities that administer environmental legislation are the Ministry of the Environment and Urban Planning (the Ministry of Environment), the Ministry of Forestry and Hydraulic Works (the Ministry of Forestry) and the local directorates of the Ministry of Environment and Ministry of Forestry.

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The Mining Code and its secondary regulations require license holders to obtain environmental permits in accordance with the relevant legislation for sites where mining operations are performed.

Failure to comply, depending on the severity of the noncompliance, may result in the suspension of operations at the Site, as well as administrative penalties, cancellation of the mining license and criminal liability in some cases.

Mining license holders must obtain a unified environmental permit under the Environmental Permit and License Regulation and an approved environmental impact assessment depending on the classification of the mining project in question. Under the EIA Regulation, certain mining operations may either be subject to (i) an environmental impact assessment report (an EIA Report) or (ii) qualification criteria after which the Ministry of Environment decides whether an EIA Report is necessary (the Qualification Criteria), following an application by the project owner.

An EIA Report is required for the following mining operations:

• Open-pit mining with a surface area of 25 hectares or more.

• Open-pit coal production with a surface area of 150 hectares or more.

• Enrichment facilities using biological, chemical, electrolytic or thermal processes.

• Waste and tailing ponds.

• Crushing, sifting and washing facilities for Group I (a) and Group II (a) mines with a capacity of more than 400,000 tons/year.

Other mining operations are subject to the Qualification Criteria, including: all mine extraction works that are not automatically subject to the EIA reporting requirement; marble cutting; processing above the threshold; and extracting and processing decorative stones above the threshold.

In addition to the environmental permits and approvals explained above, other permits may be required depending on the specific conditions of the Site (the Additional Permits). Additional Permits include permits required for mining in military and security zones, municipal areas for which a zoning plan has been drafted, areas with protected cultural and natural objects, wildlife protection areas, pasture areas, potable and utility water basins and state-owned areas. In certain areas, other authorities (such as the Ministry of Forestry for mining operations in forests) grant permits in accordance with special laws. Additionally, a property owner’s written approval is required if mining operations are to be carried out within 60 meters of private buildings or within 20 meters of privately owned lands.

Indigenous people considerations There are no requirements or distinctions applicable to indigenous people or similar ethnic or other groups.

Exploration Tenements Obtaining an exploration license is the first step required to engage in mining operations, save for the operations of Group I, Group II (a) and Group II (c) minerals. An operation license can be issued directly for these minerals. All operation and exploration licenses are

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issued by the General Directorate, except the operation license for Group I minerals which is granted by the local administration.

Exploration licenses for Group II (a), Group II (c) and Group III can only be obtained through a tender held by the General Directorate. Group V minerals have a different licensing procedure. The General Directorate issues an exploration certificate for Group V mines.

The size of the area for which the exploration license or certificate will be granted (the Exploration Area) varies depending on the group of the mine. The General Directorate may grant exploration licenses up to (i) 10 to 20 hectares for Group I, (ii) 100 hectares for Group II (b), (iii) 500 hectares for Group III, (iii) 2,000 hectares for Group IV and (iv) 1,000 hectares for Group V. If exploration operations for Group III and Group IV mines are conducted completely offshore, the General Directorate may grant an exploration license for up to 50,000 hectares.

Steps to acquire an exploration right

• A request for an exploration license is addressed to the General Directorate.

• An applicant must first submit the standard forms, including information on the applicant and the site for which an exploration license is requested.

• On the same day, the General Directorate informs the applicant whether the site is available for exploration. If the site is available, the General Directorate issues a document setting out the available areas on the site, reserving them for the applicant for two months.

• An applicant must submit completed standard forms, which include information about the applicant and the requested site. During that period, the applicant must submit further documents regarding the identity of the applicant, technical specifications of the project, such as the preliminary survey report and the exploration work plan, proof of the financial capability of the applicant, and the license fee.

If the General Directorate approves the documents, it issues an exploration license and registers the license at the mine registry. The exploration license becomes effective upon registration.

Term The term of an exploration license is limited to the aggregate of the pre-exploration, general exploration and detailed exploration periods, depending on the type of the mineral. Exploration operations occur in three periods:

• Pre-exploration Period: During the one-year pre-exploration period, the license holder must complete the minimum exploration activities. The license holder must submit a pre exploration activity report to the General Directorate at the end of the period, and documents evidencing its investment costs. “Minimum exploration activities” are not defined under the Mining Code, but license holders during the pre-exploration period typically carry out systematic exploration methods, including sample collection through drilling, geologic map surveying and geophysics studies, to find deposits within the Exploration Area. Following the General Directorate’s positive evaluation of the activity report, the license holder is entitled to commence general exploration.

• General Exploration Period: The general exploration period is two years for Group IV minerals and one year for other groups. During this period, the license holder must complete its general exploration activities. At the end of the general exploration

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period, an exploration activity report and documents evidencing investment costs must be submitted to the General Directorate. Additionally, license holders for all groups, except Group IV mines, must also apply for an operation license by the end of this period. The General Directorate may grant four years for a detailed exploration period to holders of licenses for Group IV minerals, upon submission of the activity report and proof that sufficient investment has been completed.

• Detailed Exploration Period: The detailed exploration period is a four-year period during which the license holder must explore the proven reserves granted only to Group IV minerals. The proven reserves must be documented in a detailed exploration report, along with the investment costs. Following the General Directorate’s evaluation, the license holder may apply for an operation license.

The 2015 Amendments have introduced the feasibility period, which can only be granted to Group IV (b), (c) and (d) minerals. Holders of licenses for these groups can apply to the General Directorate if additional time is needed to conduct feasibility studies for the mining project. The feasibility period is two years.

The General Directorate may allow an exploration license holder to (i) conduct market research, pilot works and development operations after the license holder applies to the General Directorate with an exploration activity plan, and (ii) obtain and ship samples for testing from the minerals extracted as a result of exploration activities.

Relationship with landowners - Exploration The Mining Code provides that in the event there are privately owned lands in an exploration license area, the license holder can request from the General Directorate the establishment of a usufruct right over this land, with a mechanism similar to expropriation. The license holder may also chose to lease or purchase such land.

If the land is owned by the Turkish Treasury or is under the disposition of the state, the license holder must sign a lease agreement or an usufruct right agreement with the State. Rental income or adequate compensation amounts will not be collected for mining operations performed on sites owned by the Treasury or under the disposition of the state.

Obligations of holder - Exploration The exploration license holders must pay an annual license fee to the General Directorate. 70% of the licence fee constitutes the fee paid to the General Directorate and 30% of the license fee is deposited as an environmental compliance guarantee. Exploration license fees are calculated based on a matrix considering the size of the exploration license area, the phase of the exploration license (i.e., pre-exploration, general exploration or detailed exploration) and the coefficient; exploration license fees range approximately from TRY 1,000 (~USD 360) to TRY 5,000 (~USD 1,800). License fees are adjusted annually using the adjustment rate in the Tax Procedure Code.

Prior to the 2015 Amendment, exploration license holders were required to deposit a certain amount of cash to the General Directorate as security for their compliance with the laws and environmental obligations. The General Directorate had the authority to confiscate this security upon certain violations of the Mining Code. The 2015 Amendment has cancelled this security obligation. Instead, the 2015 Amendment imposes high monetary fines for Mining Code violations.

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Holding tenements Terms of rights - Holding Tenements There is no particular system for holding tenements to bridge the gap between completing exploration and starting development. If the exploration license holder fulfills its obligations under the Mining Code, it may obtain an operation license upon an application.

Development / Production tenements Tenements / rights available

Mining operation rights under the Mining Code include preparation for the construction of facilities, production, sale and further exploration. In order to be entitled to operate a mine and extract ores, an exploration license holder must obtain (i) an operation license for proven, potential and possible reserve areas, whereby they continue to explore potential and possible reserves and (ii) an operation permit to mine proven reserve areas.

Operation License: For Group II (b), Group III and Group IV minerals, the license holder is required to apply to the General Directorate in order to obtain an operation license before the end of the exploration license period. An operation license for Group, I Group II(a) and II(b) are obtained without first obtaining an exploration license. Exploration certificate holders wishing to exploit Group V minerals must obtain an operation certificate.

Operation Permit: Following the issuance of the operation license, the license holder must (i) determine the potential or proven reserve, (ii) obtain all required environmental permits for the mining project and (iii) secure the land-use rights for the land required for the mining project. Upon fulfillment of these conditions, the General Directorate will issue an operation permit to the license holder. The license holder may have more than one operation permits within the same operation license area, if there are more than one underlying potential or proven reserves. An operation certificate is sufficient for Group V minerals to be operated and a separate operation permit is not required.

The possible reserves in the operation license area must be converted to potential or proven reserves within five years for Group IV, and within three years for Groups I, II, III and V. If possible reserves have not been converted to potential or proven reserves within the time allowed, the unconverted possible reserves are excluded from the scope of the operation license.

Steps to acquire a right - Development / Production tenements

An exploration license holder may proceed to obtaining an operation license (or the operation certificate in case of Group V minerals) if it has complied with the following requirements (the Criteria to Proceed):

• Periodic Activity Reports: Mining right holders must submit a resource and/or reserve report to the General Directorate, including information on (i) the operations carried out during the relevant period and (ii) resources or reserves and quality.

• Minimum Activity Requirement: Mining right holders must satisfy the minimum activity requirements set forth under the mining laws which, generally, include collecting and analyzing samples from the surface, surveying maps, drilling operations and three-dimensional modeling of resources or reserves.

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• Minimum Investment Requirement: Mining right holders must submit financial documents demonstrating the total investment made, which must not be less than the minimum investment amount set forth in the mining laws.

• Feasibility Report Requirement: If the license holders qualify for the feasibility period for Group IV (b), (c) and (d) minerals, after the expiration of the two-year feasibility period, the license holder must submit a feasibility report.

Applications vary depending on the mineral group:

• Group I (a): Special provincial administrations (or the governorships in metropolitan municipalities) grant operation licenses for group I (a) minerals through tenders, unless the site is privately owned. If the site is privately owned, after obtaining the approval of the landowner, Eligible Parties apply to the special provincial administration to obtain an operation license. Special provincial administrations grant operation licenses after an estimated price determined based on the type, reserve and location of the mineral is paid.

• Groups I (b), II (a) and II (b): Applicants must submit an exploitation work plan within two months after the payment of the tender fee.

• Groups II (b), III, IV, V and VI: Applicants meeting the Criteria to Proceed are only required to submit an operation work plan and a document indicating the fees have been paid until the expiration of the exploration license term.

Following the issuance of the operation license and within three years thereafter, the license holder must submit to the General Directorate the land-use permits / agreements, the environmental and administrative permits and the EIA decision of the Ministry of Environment, for an operation permit.

Terms of rights

The respective terms of Group I (b), II, III and IV mining licenses may be issued for at least 10 years and are determined based on the proven and potential reserves and their work plans. At the operation license holder’s request, the General Directorate may extend the term based on a new exploitation work plan. The General Directorate considers certain facts, including whether (i) the license holder has made the necessary investment for adequate operation of the reserve, (ii) the license holder constructed the necessary facilities, and (iii) the license holder’s previous operations have been conducted in compliance with the previous work plan. The operation license cannot exceed (i) 30 years for Group I minerals, (ii) 40 years for Group II Mines and (iii) 50 years for Group III, Group IV and Group V minerals. The MENR can extend the total operation period for Group I and Group II minerals. For Group III, Group IV and Group V minerals, the Council of Ministers can extend the total operation period. The term of the operation permit, is the same as the underlying operation license.

An operation certificate, which is granted to Group V minerals for operation, is issued for a five-year term, which may be extended upon request, provided sufficient reserves exist, the new project is approved and the certificate holder has conducted production operations throughout the term of the operation certificate.

Government participation Pursuant to the Mining Code, state bodies, state agencies and authorized state-owned enterprises their subsidiaries and affiliates, and other public entities can engage in mining

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operations. In particular, the Mineral Research and Exploration Institution can carry out mining exploration operations along with scientific works relating to mining.

Relationship with landowners - Development / Production tenements

The Mining Code provides that in the event there are privately owned lands in an area subject to a pending mining license application, the relevant lands can either be (i) purchased, (ii) leased, (iii) expropriated (applicable only for the operating period) or (iv) an usufruct right can be established over the land. Upon failure to reach agreement with the landowner, the license holder must apply to the MENR for expropriation of the land, provided the license holder will bear the related cost and the MENR decides the expropriation of the land is required for the public benefit.

If the land is owned by the Turkish Treasury or is under the disposition of the state, the license holder must sign a lease agreement or usufruct right agreement with the State. Rental income or adequate compensation amounts will not be collected for mining operations performed on sites owned by the Treasury or under the disposition of the state.

Special regulations apply to special environmental protection areas, national parks, wildlife protection and development areas, coastal areas subject to protection under the Coastal Law, first-degree prohibited military zones, areas marked in a zoning plan as first-degree protected areas, forestry lands, olive groves, agricultural lands and pastures. Each of these areas has its own laws restricting their utilization by private persons and companies. While most of these areas (such as forests, agricultural lands and pastures) can be used for mining operations with the administration’s prior approval and/or licensing process and certain fees, others (such as prohibited military zones and coastal areas protected under the Coastal Law) are off-limits.

Obligations of holder - Development / Production tenements

An operation license holder must submit information on its annual operations and sales on the forms specified in the mining laws, together with production maps setting out production details and a resource/reserve report (if exploration operations have been carried out). The General Directorate may impose an administrative fine of TRY 30,000 if the license holder fails to submit the required information.

An operating permit holder must, at a minimum, commence preparatory works at the mine within one year of obtaining the operating permit. Operating permit holders must engage in production for at least three of the five years from the issuance of the operating permit, and total production must not be less than 10% of the annual production specified in the exploitation work plan (the Production Requirements). If the Production Requirements are not satisfied, the General Directorate may impose an administrative fine of TRY 50,000, and failure to remedy the failures after the fine will result in revocation of the license.

The 2015 Amendment replaced the annual operation license fees and security obligations with a universal operation license fee. Operation license fees are calculated based on a matrix considering the type and group of the minerals, the operation license area and the coefficient. 70% of the licence fee is deposited to the General Directorate and 30% of the license fee is deposited as environmental compliance guarantee. License fees are adjusted annually using the adjustment rate in the Tax Procedure Code. The operation license fees for 2015 are:

• Group I (a): from TRY 15,000 (~USD 5,400) to TRY 20,000 (~USD 7,200);

• Group I (b): from TRY 18,000 (~USD 6,480) to TRY 20,000 (~USD 7,200);

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• Group II (a) and (c): from TRY 18,000 (~USD 6,480) to TRY 150,000 (~USD 54,000);

• Group II (b): from TRY 20,000 (~USD 7,200) to TRY 30,000 (~USD 10,800);

• Group III: from TRY 15,000 (~USD 5,400) to TRY 30,000 (~USD 10,800);

• Group IV: from TRY 20,000 (~USD 7,200) to TRY 70,000 (~ USD 25,200); and

• Group V: from TRY 10,000 (~ USD 3,600) to TRY 20,000 (~ USD 7,200).

A license holder must pay a royalty to the state. State royalties are collected at rates over the pithead sale price. The pithead sale price declared by the license holder cannot be lower than the market price, which the General Directorate announces every year. The pithead sale price for run-of-mine ores is calculated by subtracting the cost of the enrichment process and transportation (including the amortisation of the machinery and equipment) from the sale price.

The state royalty rates are:

• Group I (a): 4%

• Group I (b): 4%

• Group II (a) and (c): 4%

• Group II (b): 4%

• Group III: 1% for spring salts; 5% for the remaining minerals

• Group IV: the rate for gold, silver, platinum, copper, zinc, lead, chromium, aluminium and uranium oxide is calculated based on the matrix provided in the Mining Code. This structure provides an increasing state royalty rate proportional to a mineral’s declared price in the London Metals Exchange. For example, for gold, if the dollar price/oz. of gold is below USD 800, the state royalty is 2%, while if the price of gold increases above USD 2,251, the state royalty will be 16%.

• Group V: 4%

There are certain incentives under the Mining Code regarding state royalties. With the exception of Group I, Group II (a) and Group II (c) minerals used in construction, if minerals are processed in Turkey in a license holder’s plant, a 50% exemption from royalty payments applies. Additionally, Group IV (c) minerals that are processed into metals in the license holder’s integrated plants are subject to a 50% exemption from royalty payments.

An exploitation work plan includes an undertaking to rehabilitate the site after the license expires in accordance with environmental laws. The operation license holder must also deposit an environmental guarantee before requesting an operating permit. An operating permit will only be granted after the applicant obtains all necessary additional permits.

A license holder wishing to relinquish an area must rehabilitate this area, taking all necessary health and safety measures to ensure the area does not pose a danger to nearby residents. Unless otherwise provided in the mining laws, if a license holder who has carried out production operations wishes to relinquish an area, it must submit health, safety and environment-related reports and maps relating to the licensed area to the General Directorate and Ministry of Environment (the provincial directorate). After the license holder starts the rehabilitation program, they are required to report to the Ministry of Environment (i)

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annually on the execution process of the rehabilitation program, and (ii) within five business days if they fail to carry out their obligations under the rehabilitation program. If the licensed area has not been fully rehabilitated, the General Directorate and Ministry of Environment may, after inspection, grant the license holder additional time to complete the rehabilitation. If the license holder fails to complete the rehabilitation within the time allowed, (i) the General Directorate may call on the guarantees, and (ii) the Ministry of Environment may impose a monetary fine (TRY 11,619 for 2015) on the license holder.

Key Issues Taxes

As explained under sections Obligations of holder - Exploration and Obligations of holder - Development/ production tenements and license fees differ for exploration and operating licenses. An operation license holder must also pay royalties to the state collected from extracted minerals and determined by the pithead sale price.

There are certain value-added tax and corporate tax advantages for different groups of minerals. Under the Value-Added Tax Law, deliveries made to individuals or legal entities engaging in gold and silver exploration and extraction operations are exempt from value-added tax. Council of Ministers Decree No. 2012/3305 provides that all mine operations benefit from the following incentives: value-added tax exemption, customs duty exemption, corporate tax advantages, social security premium support for 10 years, interest support and land allocation. These incentives do not apply to investments in operations relating to Group I minerals, investments in crushed stone and mining operations to be carried out in Istanbul. Under the amendments introduced to Council of Ministers Decree No. 2012/3305 on 15 February 2013, power plants using domestic coal can also benefit from these incentives.

Overlapping tenements

No more than one license will be issued for the same group of minerals on a site. Licenses for different mineral groups, however, can be granted for a single site. Additionally, if mining operations overlap with an investment realized for the public interest, the investor or mining right holder can apply to either the General Directorate or to a committee constituted by the Ministry of Development (the Committee). The General Directorate or the Committee will resolve the issue after inspecting the area and communicating with the relevant parties and the General Directorate, depending on the mine type and the project status. The Committee must have a minimum of three members, including ministers from ministries overseeing responsibilities for mining operations.

Usual structure of venture

In Turkey, the most common types of structure of ventures used by private parties conducting mining operations do not differ from other sectors. Joint-stock companies (JSCs) and limited liability companies (LLCs) are the most preferred structures. This is because JSC and LLC shareholders are only liable for the JSC/LLC’s obligations to the extent of their capital contributions to share capital, except where LLC shareholders are liable for public debts to the extent they cannot be recovered from the company. Both JSCs and LLCs can be incorporated by one or more shareholders. JSCs, however, require a more sophisticated corporate governance structure compared to LLCs.

Only JSCs can carry out an initial public offering and have their shares listed on Turkey’s only stock exchange, Borsa Istanbul (formerly Istanbul Stock Exchange) while LLCs shares cannot be offered to the public or listed on Borsa Istanbul.

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Security of tenure

Security of tenure is granted to private parties through mining rights provided by the General Directorate by virtue of the mining licenses.

Protection for foreign investors

Under the Foreign Direct Investment Law (No. 4875), foreign and local investors are treated equally, and all entities incorporated in Turkey under the laws of the Republic of Turkey are deemed Turkish companies, no matter their shareholding. Additionally, there are bilateral investment treaties in force that provide a number of guarantees to nationals of countries that are a party to the treaties. The right to resolve investment disputes by international arbitration in the absence of an arbitration agreement is afforded by these treaties. Turkey has also entered into bilateral treaties for the avoidance of double taxation with 80 countries.

Restrictions on exports/government take

The Ministry of Economy is entitled to restrict or prohibit exportation on the grounds of an extraordinary event affecting the market, e.g., shortage of goods subject to export, public safety, public moral, health, environmental protection or protection of items having an artistic, historic or archaeological value. Furthermore, under Law No. 2840 Regarding the Processing of Certain Minerals, boron minerals can only be explored and processed by the state, and the provisions of the Mining Code are not applicable to boron minerals. Law No. 3284 on Restricting the Export of Certain Scrap Metals provides restrictions on exporting scrap metal, such as iron, copper and tin.

Transfer of licenses

Mining licenses can be transferred to Turkish citizens and companies established under Turkish laws for mining purposes with General Directorate and MENR approval. The Mining Code does not establish the criteria for such approval, but the criteria are expected to be set out by a future secondary regulation. The transferee becomes the mining license holder after the transfer of the license in question. The transferee assumes all obligations and rights granted to the license in question under the mining legislation. Prior to the transfer of a license, all the remaining duties and fees for the license and the guarantee for compliance with environmental obligations must be deposited, and state royalties must be paid. The transferee is required to apply to the General Directorate for the transfer of the license and must pay a transfer fee twice the exploration or operation license fee equal to amount (as the case may be) and a declaratory document stating the transferee has the financial capability to cover the respective amounts provided under the mining legislation for different types of mining projects.

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Ukraine Author’s Summary Author(s) Serhiy Piontokovsky and Olyana Gordiyenko

Summary The Ukrainian mining industry is regulated by certain laws adopted by the Verkhovna Rada (the Parliament) in accordance with the Constitution of Ukraine, as well as by various governmental regulations. There also exists a number of instructions and orders of the specialized agencies subordinated to respective governmental authorities. Mining rights are generally accrued on the basis of special permits for subsoil use issued by the licensing authority (the State Service on Geology and Subservice of Ukraine) to the winners of respective auctions or persons exempt from the mandatory auction procedure. Mining rights may also be accrued on the basis of concluded production sharing agreements as well as joint activity agreements with existent holders of special permits for subsurface use. The conduct of mining operations also necessitates obtaining relevant environmental permits, as well as permissions from different supervising bodies in course of respective activities.

During the last year we have observed an increase in interest in the search for new energy sources, resulting in several major trends related to investment in the mining industry. One of the main trends was investing in non-conventional hydrocarbons. The Ukrainian government is improving legislation on production sharing agreements by introducing significant legal, regulatory and economic incentives for developers of Ukrainian non-conventional hydrocarbons.

Another major trend is investing in Ukraine’s coal industry. This trend emerged in late 2012 due to an increased interest in Ukrainian coal mines and was followed by the Ukrainian Parliament adopting the Law of Ukraine on Peculiarities of the Privatization of Coal Extraction Enterprises, which envisages a wide range of incentives for further commercial activities of such privatized enterprises.

Local Landscape Legal framework for mining

Mining activity in Ukraine is regulated by applicable laws adopted by the Verkhovna Rada of Ukraine (the Parliament), in accordance with the Constitution of Ukraine, as well as by various governmental regulations.

The principal laws regulating subsurface use in Ukraine are the Code of Ukraine on Subsurface of 27 July 1994 (the Subsurface Code)(which sets forth the principal terms and conditions for subsurface use and for the protection of subsurface resources), the Mining Law of Ukraine of 6 October 1999 and the Law of Ukraine on Production-Sharing Agreements of 14 September 1999 (the PSAs Law). There are also other legislative acts that stipulate environmental, labor and security regulations applicable to mining activities in Ukraine.

The following regulatory bodies supervise compliance with mining legislation in Ukraine:

• the Ministry of Ecology and Natural Resources of Ukraine, which supervises the use and protection of subsurface resources;

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• the State Service on Geology and Subsoil of Ukraine (the “State Geology Service”), which coordinates mining works; and

• the State Service on Mining Supervision and Industrial Safety of Ukraine, which supervises geological study, production and protection of subsurface resources.

Other agencies charged with overseeing aspects of the mining industry include territorial departments of the abovementioned bodies, municipal councils and local executive bodies.

Who owns the minerals?

Rights to minerals in the subsoil are in exclusive ownership of the Ukrainian people, represented by the State, and can only be granted for use.

Please note that Ukrainian legislation provides a clear distinction between surface rights and subsurface mineral rights. Surface rights comprise ownership and use rights to the land, while subsurface rights may exist only as a use right and not ownership. Subsurface use rights are generally granted under special permits for subsurface use (the “Permit”).

As for extracted minerals, the Subsurface Code provides that the owner of the Permit has the right to dispose of the natural resources extracted under the relevant permit, unless otherwise provided by the applicable legislation or by the Permit.

Does the same regime apply to all minerals?

Use of mineral resources is conducted in accordance with general procedure. However, specific provisions apply for oil and gas, gas (methane) of coal deposits, uranic ore, precious metals, precious stones, organogenesis precious stones and semi-precious stones, and groundwater. Depending on their significance, all minerals are also divided into those of local and national significance, with a simplified procedure for obtaining rights to use minerals of local importance.

Oil and Gas The oil and gas sector is regulated by, inter alia:

• the Law of Ukraine on Oil and Gas, providing for key issues related to exploration, production and transportation of oil and gas, licensing of the abovementioned activities and certain environmental issues;

• the Law of Ukraine on Pipeline Transport, which regulates hydrocarbons transportation issues, defines types of pipeline transport along with their relative significance, and provides for statutory rights and obligations of pipeline operators;

• the Law of Ukraine on Legal Status of Lands of Restricted Areas of High-Pressure Pipelines Objects, which establishes the legal and organizational basis of lands in restricted areas with high-pressure pipelines, as well as basis for commercial activity at such areas; and many additional subordinated legislative acts regulating specific and procedural issues related to the exploration and extraction of hydrocarbons; and

• the Law of Ukraine on Framework of Natural Gas Market Functioning, which establishes the principles of operating the natural gas market, fixes the scope of permitted State control in Ukraine’s gas sector and regulates relations between natural gas suppliers and consumers.

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What are the restrictions on foreign investment in mining?

Article 13 of the Subsurface Code clearly envisages that foreign legal entities and citizens may exercise subsurface use rights on the same basis as the Ukrainian entities. However, in practice, foreign mining companies may face various legal obstacles in obtaining all necessary licenses and permits, due to the somewhat ambiguous legislation and its conflicting interpretation by Ukrainian authorities.

Therefore, a foreign company seeking to engage in the exploration and/or extraction of minerals on the territory of Ukraine may have to establish a Ukrainian subsidiary. Normally, such subsidiaries are established as limited liability companies or joint stock companies. There are no restrictions in respect of the maximum permissible percentage of foreign investments in the charter capital of a Ukrainian company engaged in mining activities.

However, Ukrainian legislation envisages that a Ukraine-based mining company, which is wholly owned by a foreign company, may own in Ukraine only non-agricultural land (i) within a populated area in case such company acquires an already-constructed real estate object or it will further construct real estate objects for conducting commercial activity in Ukraine; and (ii) outside of a populated area in case such company acquires an already-constructed real estate object.

The process of entry of a foreign legal entity into the Ukrainian mining market, especially if a Ukrainian legal entity is established, will be regarded as foreign investment. Foreign investments fall under specific legal regulations and investors are granted several benefits, where such investments are duly registered. The benefits to foreign investors1 include State guarantees for the protection of foreign investments (i.e., prohibition of nationalization or requisition, unless such are made for the purpose of rescue operations in case of natural calamity, accidents, epidemics, etc.).

Investment protection is also one of the basic grounds of the Energy Charter Treaty, ratified by Ukraine. Ukrainian legislation does not separately regulate the issue of funding of mining activities and mining companies are free to choose their funding options. In practice, Ukraine-based mining companies would typically use, among others, loans from shareholders, loans from banks, issuance of securities and public offerings. In this context, it should be noted that under Ukrainian law, the Permits are not transferable and, therefore, cannot be used to secure the mining company’s financial and other obligations.

Environmental considerations

Under Article 24 of the Subsurface Code, subsurface users are obliged to ensure safety of people, property and environment. Rights of subsurface use will be terminated if the methods of use influence the condition of the subsoil, lead to pollution of environment, or are harmful to human health.

In case of exhaustion of mineral reserves or it is determined to be inexpedient or impossible to further develop the deposit, specific procedures of conservation and remediation of the mineral deposits must be performed.

Indigenous people considerations

There are no requirements to employ only local citizens. Legal entities performing mining activities are free to employ foreigners, which are equal in their rights and obligations with local citizens, except for the necessity to obtain work permits.

1 Article 1 of the Law of Ukraine “On Regime of Foreign Investment” of 19 March 1996 defines foreign investors as legal entities, established under foreign legal order, which conduct investing activity in Ukraine.

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However, in the case of setting up a Ukrainian company, the founders must appoint the top manager of the Ukrainian company. It is strongly recommended that a Ukrainian citizen is appointed as a director, at least for the initial temporary period of two to three months.

Exploration Pursuant to Article 2 of the Law of Ukraine on State Geological Service of Ukraine, geological exploration is defined as “special work and research aimed at obtaining information on the subsurface to meet the needs of society.” Geological exploration may include a stage such as research and industrial development of deposits of minerals of national significance (i.e., stage at which the extraction of a limited amount of minerals is conducted in order to determine the minerals’ value, refinement of geological and technical parameters required to assess minerals’ amount and justification for selecting a rational method for further minerals extraction).

Tenements What tenements/rights are available for exploration?

Under the Resolution of the Cabinet of Ministers of Ukraine (the CMU) No. 615 “On Approval of Procedure of Issuance of Special Permits for Subsurface Use” of 30 May 2011 (the Ruling on Permits), subsurface use rights for geological exploration are granted in the form of the Permit.

Subsurface users are entitled to perform geological exploration, including research and industrial development of deposits, in accordance with the conditions of the Permit and within a determined area. Moreover, subsurface users exercise priority right on prolongation of subsurface use.

Geological exploration may be conducted on account of State budget or private exploration enterprises and is subject to state registration with the State Scientific and Industrial Enterprise “State Informational Geological Fund of Ukraine” (the Geoinform).

Terms

Exploration permits are issued, in general, on an auction basis to winners of such auctions, for a requested term within established periods. In particular, on:

• geological survey of mineral deposits, including scientific and industrial development of deposits (for up to five years), geological survey of oil and gas fields, including industrial development onshore and in an exclusive economic (maritime) zone (for up to 10 years); and

• geological survey of oil and gas deposits, including scientific and industrial development of hydrocarbons with further extraction of oil and gas (for the validity terms of the Permits for geological survey and extraction, but a maximum of 20 years for onshore and 30 years for continental shelf and exclusive economic (maritime) zone.

The law requires that conditions of subsurface use on geological exploration be set forth in an agreement, concluded between the State Geology Service and the subsurface user.

Rights granted under a Permit may not be bestowed, sold or otherwise disposed to other legal entities or individuals. Transfer of such rights to the charter capital of the legal entity or their contribution to joint activity is also prohibited.

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The Permits may be prolonged (not more than two times), or re-issued (e.g., in case of a change of name of the Permit holder).

A fee for obtaining the Permit shall be calculated depending on the applicable procedure of its issuance. Please see Steps to acquire an exploration right for more details.

Moreover, as mentioned above, geological exploration may include such stage as research and industrial development of deposits, which is conducted under the decision of the Ministry of Ecology and Natural Resources of Ukraine and may not exceed a three-year period.

The decision on scientific and industrial development of oil and gas deposits is taken by the Ministry of Energy and Coal Industry of Ukraine. The term of such development shall not exceed one year.

Subsurface use must start within two years from the first day of the validity of the Permit (180 days for oil and gas deposits, one year for gas (methane) of coil deposits).

The steps to acquire an exploration right

Under the Ruling on Permits, Permits are issued by the State Geology Service separately for each type of use.

As mentioned above, permits are issued to winners of auctions for a requested term within established periods.

Auctions are held by the State Geology Service in accordance with Ruling of the CMU No. 594 “On Adoption of Order of Holding Auctions on Sale of Special Permits on Subsurface Use” of 30 May 2011. An agreement on sale and purchase of the Permit is required and concludes with the winner of auction within five business days after holding the auction.

In certain cases, the Permits may be granted without an auction. Decision on the issuance of the Permit without an auction shall be taken within 60 days after the submission of the application with attached documents in full (30 days for coal mines, defined as “small” by legislation).

Relationship with landowners - Exploration

Land rights in Ukraine are regulated by the Land Code of Ukraine, adopted by the Law of Ukraine of 25 October 2001 (the Land Code). Land allocated for the use of subsurface is referred to industrial land and can be provided for mining activities to a subsurface user holding the Permit.

A land plot may be used on the basis of: (i) ownership right, or (ii) right of use.

Foreign legal entities may acquire ownership rights to land plots in the non-agricultural category, on which their immovable property is situated (within or outside the population center) and within population centers, for construction of objects related to conducting commercial activities in Ukraine.

To purchase a land plot, a foreign legal entity is required to register a permanent representative office, which is entitled to conduct commercial activities in Ukraine.

Importantly, the Land Code does not provide for the right of private land ownership with respect to the Ukrainian companies with 100% foreign investment. Therefore, only joint companies, founded with the participation of Ukrainian and foreign legal entities and individuals, may acquire ownership rights to land plots in the non-agricultural category,

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according to general procedures provided for Ukrainian and foreign legal entities. The state or municipal land can be sold to the said joint companies only subject to the approval of the Cabinet of Ministers of Ukraine.

Use right on a land plot in Ukraine may be exercised either through (i) permanent use of a land plot, which may not be granted to foreigners or foreign legal entities, or (ii) lease of a land plot.

Lease rights on a land plot of state or municipal property shall be sold on a competitive basis (land bidding), except for cases foreseen by the Land Code. A land plot of a private property may be leased under a lease agreement between the owner and the leaser.

Obligations of holder - Exploration According to the Subsurface Code, subsurface users are obliged to, inter alia:

(a) use subsurface in accordance with purposes, for which it was granted;

(b) secure completeness of geological exploration, reasonable, complex use and protection of subsurface;

(c) secure safety of people, property and environment; and

(d) reduce land plots, which are disturbed during subsurface use, to condition suitable for their further public use, etc.

Obligations of the subsurface user arise from the moment of obtaining the Permit or from the moment the PSA becomes effective, except if set forth otherwise by such agreement.

Holding tenements Rights to hold The Ruling on Permits envisages that a legal entity/person, who has conducted geological exploration of a deposit, quantifies the reserves of such explored deposit and obtained the acknowledgment of the count in the State Commission on Mineral Reserves of Ukraine, has the right to be granted, on a non-auction basis, a Permit for the extraction of minerals from the relevant subsurface plot.

Terms of rights - Holding Tenements

The legal entity/person willing to obtain a Permit for the extraction of minerals on a non-auction basis upon ground, shall file with the State Geology Service the application accompanying all documents, prescribed by the Ruling on Permits. The State Geology Service shall consider the application of the applicant within 60 days starting from the date of the receipt of the full package of documents.

In the event of a positive decision by the State Geology Service, the applicant shall pay the fee for the issuance of the Permit within 45 days following the date of rendering the decision. The amount of such fee is defined on a case-by-case basis and is determined in accordance with the original selling price of the Permit to be sold in the auction, which in turn is determined in accordance with Resolution of the CMU No. 1374 of 15 October 2004.

The Ruling on Permits also envisages that in case of the refusal of the State Geology Service to issue the Permit, such decision may be challenged in the prescribed manner (i.e., with the competent court).

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Development/production tenements Tenements rights available The law requires that extraction of minerals be performed under the Permits, according to approved projects and plans, rules on technical exploitation and subsurface protection, as previously approved by the Ministry of Ecology and Natural Resources of Ukraine and the State Mining Supervision and Industrial Safety Service of Ukraine, or by permanent commission (for extraction under the PSA).

Terms of rights

The procedure of issuance of the extraction permits, in general, is the same for exploration permits. However, extraction permits are granted for the following terms:

• extraction of minerals (for up to 20 years);

• extraction of oil and gas at a continental shelf and in an exclusive economic (maritime) zone (for up to 30 years)

The scope of rights under extraction permits, renewal conditions and other terms, in general, are similar to that described in Section 4.2. above.

Transition from exploration/holding right to Development / Production tenements The law requires that subsurface use be started within two years from the first day of the validity of the Permit (180 days for oil and gas deposits).

Foreign ownership restrictions and government participation For details on foreign ownership restrictions, please refer to Restrictions on foreign investment in mining.

Commercial activities in the mining sector are controlled by the State Geology Service through scheduled and unscheduled audits, depending on degree of danger of activities and through right of such body to suspend or annul a Permit.

The steps to acquire a right - Development / Production tenements

The procedure for issuance of extraction permits, in general, is the same as for exploration permits.

Relationship with landowners - Development / Production tenements

A subsurface user is required to obtain rights on a land plot, within which extraction of minerals is intended to be performed. The procedure for obtaining such rights is similar regardless of the type of minerals (please see section Steps to acquire a right - Development/production tenements).

Apart from rights on a land plot for extracting minerals, a subsurface user must obtain mining allotment, i.e., rights on a particular subsurface area, which will be granted to the subsurface user by the State Mining Supervision and Industrial Safety Service of Ukraine or, in respect of areas with minerals of local significance, by local self-government bodies.

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Obligations of holder - Development / Production tenements

Subsurface users may be bound by quotas for the extraction of particular types of mineral established by the CMU.

Subsurface users are also obliged with the State registration of geologic information with the Geoinform.

Subsurface users are obliged to ensure the safety of mining works, and arrange medical examinations, qualification and re-qualification of employees. Specific requirements are foreseen for the professional qualification of the managing board.

The law also provides for certain types of obligatory insurance applicable to mining activities.

Key issues Usual structure of venture

Mining activities in Ukraine are usually conducted by legal entities in the form of limited liability companies and joint stock companies. As indicated, foreign legal entities are not required to establish a local subsidiary. However it may be practical to do so given the needs of day-to-day activities and interaction with State authorities, inter alia, for taxation purposes.

At the same time, foreign legal entities are required to establish permanent representative offices in Ukraine for obtaining ownership rights on land plots or performance of PSAs.

Transition from exploration to production Upon the completion of a geological survey of a deposit, all discovered mineral reserves are subject to State expertise, which certifies sufficiency and completeness of their geological survey. Such expertise is carried out by the SCMR pursuant to the estimation procedure, and established by the applicable legislation.

If, according to the report, the mineral reserves are estimated and approved as geologically surveyed, such reserves are further registered in the State Balance of Mineral Reserves, and only then may be transferred for industrial development, (i.e., extraction).

Security of tenure Rights of subsurface use are protected by law and can be restricted only in cases provided by legislation. Damages inflicted by breach of subsurface users’ rights shall be reimbursed.

Protection for foreign investors Guarantees for investment activities in mining depend upon the form of such activities. Investment activities in Ukraine are usually conducted (i) through corporate joint ventures (usually in the form of a limited liability company or a joint stock company with foreign investment), (ii) under duly-registered joint activity agreements without an establishment of legal entities, or (iii) under PSAs (specific for mining sphere).

The most beneficial regime for the protection of foreign investments is conducting a mining activity under agreements on sharing of output of mining activities of a PSA. An investment under a PSA is specifically regulated by the PSA Law.

For the duration of a PSA, the investors enjoy, inter alia, the following incentives:

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• the investor and its subcontractors are exempt from licensing and quota requirements when importing the equipment necessary for their performance under the PSA; the same applies when such equipment is shipped out of Ukraine upon the termination of the PSA; such equipment is also not subject to the value-added tax (VAT) or customs duties (with the exception of customs fees);

• any product obtained by the investor is subject to VAT when sold within Ukraine, but it is not subject to any VAT, other taxes or customs duties when exported out of Ukraine;

• depreciation rates, other than those provided by the applicable legislation, may be established in the PSA;

• profits received under the PSA are exempt from the profit repatriation tax;

• funds received under the PSA are exempt from any restrictions on conversion into Ukrainian or foreign currency, and may be repatriated abroad under the terms and conditions of the PSA; any requirements for the mandatory sale of foreign currency are not applicable to such funds;

• during the period of the PSA validity, rights and obligations of an investor will be regulated under the legislation in force at the time of the PSA signing;

• employment of foreigners in Ukraine, engaged by the investor in and by post (specialty) defined by the PSA, shall be made without work permit; and

• forcible withdrawals of funds from bank accounts opened in Ukraine by the investor in order to finance its operations under the PSA are not permitted.

Overlapping tenements

Separate Permits shall be obtained for each type of subsurface use. At the same time, there are no restrictions in holding different types of permits simultaneously.

One applicant may obtain a permit for extraction of one type of minerals from several closely-located deposits, if expediency of joint development is confirmed by the SCMR. Activities on geological exploration and extraction of different types of minerals may be conducted within one subsurface plot under several permits.

Restrictions on exports of minerals. Government imposts Export of minerals is restricted by licensing requirements and quotas, except for export under PSAs. Export of crude oil and natural gas of Ukrainian origin, silver, gold and some other valuable minerals requires an export license.

The CMU annually establishes export quotas, in particular, for crude oil (in the amount of 0 tons for 2015, which means that currently, there is no possibility to export crude oil of Ukrainian origin) and natural gas of Ukrainian origin (amount for 2015 was not defined as of July 2015). However, no licensing requirements or quotas are applicable to activities under the PSAs.

Export operations are subject to export duty, which shall be calculated on the basis of a custom cost of exported goods.

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Charges and taxes

According to the Subsurface Code, a subsurface user shall be charged with:

• payment for the use of subsurface with purpose related to extraction of minerals;

• payment for the use of subsurface with purpose not related to extraction of minerals;

• rent fee for extraction of oil, gas and gas condensate; and

• fee for the issuance of the Permit.

Rent fee is charged for the amount of hydrocarbons extracted in a reported period and depends on the depth of the deposit and its location. Use of subsurface under a PSA is subject to payment of fees provided by such PSA.

Additionally, ecologic tax in established rates shall be paid for the pollution of environment by legal entities which do not carry out commercial activities, budget, public and other entities, institutions and organizations, permanent representative offices of non-residents, including those performing representative functions for such non-residents or their founders.

Latin America

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Argentina Author’s Summary Author(s) Adolfo Durañona and Pablo Alejandro Rodriguez

Summary The current investment climate in Argentina has been challenging due to claims by provincial and federal authorities to increase the national take (e.g., royalties, taxes, export duties), a restrictive current exchange control policy, import restrictions and restrictions on the remittance of dividends abroad.

In Argentina the federal and the provincial states are the owners of first-category minerals (such as potash, lithium, gold, silver, copper and other minerals) located in their respective territories. Under federal law, except for certain cases, federal and provincial governments are not permitted to explore or exploit mining areas. Rights to do so are reserved for private parties. Rights are granted on a first-come basis and exploration permits grant their holders the right to transform that right into a mining concession. Both federal and provincial laws apply to mining projects located in provincial territories. Title to a mining property does not include ownership of the relevant surface land. Mining operations trigger environmental obligations and procedures, which are administered by the relevant provincial or federal environmental authorities.

Local Landscape Legal framework for mining

Argentina is a federal country and its provinces hold original domain over the natural resources located in their territories. Nevertheless, jurisdiction is shared between the federal government and the governments of the provinces. Therefore, mining is regulated by the National Constitution, the Mining Code, federal laws and decrees, and the legislation enacted by each of the Argentine provinces (particularly, the mining procedural codes).

The provincial governments are the grantors of mineral rights (exploration permits and exploitation concessions) and they must grant the rights on any vacant area to the party that first applies to them.

The Mining Code (federal legislation) divides minerals into three categories. In the first category (hard minerals, lithium, potash, uranium etc.), the owner of the surface land does not have any priority or right on those minerals. In the second category (mainly construction materials), the surface owner has certain priorities on those minerals and in the third category (other construction materials), the surface owner is also the owner of those minerals.

Argentina has a civil law legal system.

Although the oil and gas industry has its own regulatory framework, it is not greatly different from that applicable to mining. The same ownership regime applies and the national and provincial governments share jurisdiction. The main difference is that a mining exploitation concession (hard minerals) is considered to be real estate (a perpetual right) but an oil and gas exploitation concession is granted for 25 years with the right to a 10-year extension.

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Restrictions on foreign investment in mining

The Mining Code and the applicable legislation do not include any particular restrictions on foreign investment in the mining industry.

Environmental considerations

Before commencing exploration, and at each stage of a mining project, the tenement holder must submit an environmental impact report. The report is filed with the provincial authority, and must include the actions that the company will take to protect the environment. The report must be updated every two years.

The provincial authorities are entitled to issue regulations to supplement those of the federal government.

Companies are liable for any environmental damage caused by themselves, their employees, contractors or subcontractors.

Indigenous people considerations

In 1992, Argentina issued a law adhering to the OIT Convention 169/1989 on indigenous people. In general, projects are giving greater consideration to the rights of indigenous peoples.

Exploration Tenements

Mining areas may only be explored pursuant to an exploration permit granted by the provincial authorities.

Terms The areas covered by an exploration permit are divided in units, with each unit comprising 500 hectares. One exploration permit may include up to 20 units (i.e., 10,000 hectares). A company or individual is not allowed to hold directly, or through its shareholders, more than 20 exploration permits or more than 400 units per province (i.e., a company or an individual may not hold exploration permits covering more than 200,000 hectares in any one province).

Each exploration permit is for a term of 150 days for the first unit and for a further 50 days for each additional unit. Exploration permits cannot be renewed and the holder of an exploration permit cannot request another permit covering the same or part of the area covered by the exploration permit after it expires, for a period of one year from the expiration date.

In the case of hard minerals (such us gold, copper, and silver), the exploration fee is AR$1,600 (approximately, USD180) for each exploration unit (500 hectares), regardless of the term of the exploration permit. Currently, the fee for a 10,000-hectare permit is AR$32,000) (approximately, USD3,555).

Steps to acquire an exploration right

An application must be filed with the relevant mining authority, together with: (i) the geographical coordinates of the requested area/s; (ii) the names of the surface landowner and of the applicant; (iii) a description of the work to be done, including the estimated investment and equipment; and (iv) a sworn statement indicating that such request does not violate any provision of the Argentine Mining Code. Additionally, such application must

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include evidence of payment of a provisory exploration fee, which is reimbursed (totally or partially) if the exploration permit is denied or granted for a smaller area.

Upon filing of the application, the relevant mining authority: (i) registers the application; (ii) notifies the surface landowner that an application has been filed; and (iii) publishes an official notice in the Official Gazette of the place where the exploration permit is requested.

If no opposition is filed, the mining authority grants the exploration permit immediately, and from the application date, all discoveries (even those made by third parties) belong to the holder of the exploration permit. In general, the granting of the permit takes at least six months but the applicant has exclusivity from the filing of the application.

Relationship with landowners - Exploration Exploration permits do not include ownership of surface land, but mining activities (first category of mining rights) have priority over the rights of surface owners. Thus, in theory, after a proper guarantee covering potential damages is delivered, the surface owner cannot restrict mining activities. If a surface owner denies access, the mining authority can be requested to grant an easement, but in practice, to avoid delays, surface owners and mining companies try to agree on an access agreement.

Obligations of holder - Exploration

The holder of an exploration permit must release an area equal to half of the area exceeding four units (i.e., 2,000 hectares), 300 days as from the date the relevant exploration permit becomes effective. Similarly, 700 days from the effective date the holder must release an area equal to half of the area remaining from the first release, excluding the four units.

Within 90 days from the expiration of an exploration permit, the mining authority may request the former holder of the permit to file all information and technical documentation on the respective area obtained during the term of the exploration permit.

If such information is not filed, the holder can be subject to sanctions equivalent to double the exploration fee paid for that area.

No minimum exploration investment is required.

Holding tenements Rights to hold Under an exploration permit, the holder is exclusively authorized to explore for a limited time. Provided the holder complies with the regulatory requirements and discovers a potential mineral deposit, the holder is entitled to file a written request (declaration of discovery). The declaration of discovery allows the holder to start the procedure to obtain an exploitation concession.

Other conditions

Not applicable.

Terms of rights - Holding Tenements The holder is protected from the registration with the relevant mining authority until conversion into an exploitation concession as described separately.

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Development / Production tenements Tenements / rights available A mineral deposit can only be legally exploited by means of an exploitation concession, or, if a provincial company holds the rights, through an exploration and exploitation agreement with that company.

Terms of rights

An exploitation concession grants the holder a perpetual property right to the mine subject to two conditions: (i) payment of an annual fee; and (ii) compliance with the investment plan. Failure to comply with these obligations can lead to the forfeiture of the concession.

The area covered by an exploitation concession is divided into units. The number and extent of units that a claimant is entitled to obtain varies depending on: (i) whether the discoverer is a company or an individual; (ii) the minerals found; and (iii) the type of deposit (vein or disseminated form).

In the case of disseminated deposits, the annual exploitation fee is AR$3,200 (approximately USD355) per unit (100 hectares). The exploitation fee is due as from the registration of the relevant declaration of discovery, except in the case of the discoverer of the deposits, who is exempt from the requirement to pay the exploitation fee for three years from registration.

Transition from exploration / holding right to mining right - Development / Production tenements

The holder of an exploration permit must file the relevant declaration of discovery before the permit expires.

The declaration of discovery must be converted into an exploitation concession within the time frame and under the terms and conditions described in a later section.

Foreign ownership restrictions and government participation

In principle, there are no restrictions on foreign ownership of mining rights except in the case of oil and other fluid hydrocarbons. Such deposits cannot be owned by foreign states, foreign individuals that do not reside in Argentina or foreign companies that have not been registered with the local authorities.

Although the Mining Code restricts the direct participation of the government in the mining activity, during recent years many provinces have created mining companies which are applying for areas and requesting private companies to associate with them.

Steps to acquire a right - Development / Production tenements

The procedure for obtaining an exploitation concession can be summarized as follows:

• The holder of an exploration permit must file a declaration of discovery, submitting a sample of the minerals found and disclosing the exact location of the mine or vein and the area to be covered by the mining units to be measured (this area is protected against third parties until the measurement is completed).

• The relevant mining authority, with the report of the cadastral registry, informs the holder whether the declaration of discovery is made on a free or occupied area. Provided the requested area is free, the mining authority registers the declaration of discovery under the applicant’s name.

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• The registration of the declaration of discovery must be published in the Official Gazette for 15 days to allow any third party claiming rights to file an opposition.

• Within 100 days from the date of registration of the declaration of discovery, the applicant must carry out the work necessary (legal labor) to determine the existence and type of minerals discovered, as well as the direction and inclination of the deposit.

• Within 30 days following the “legal labor” (or its extensions), the applicant requests registration of the mining units and their measurement. Once the measurement is complete, the relevant mining authority registers the measurement and gives a copy to the applicant. The copy of this measurement constitutes the property title to the exploitation concession.

• The procedure summarized above is that which is provided by the Argentine Mining Code. However, this procedure may differ slightly depending upon the province.

Relationship with landowners - Development / Production tenements The regime described in Relationship with landowners - Exploration applies also to the relationship of the holders of exploitation concessions with the landowners. In relation to indigenous communities, see Indigenous people considerations.

In addition, the Argentine Mining Code grants the holder of an exploitation concession the right to compulsorily acquire an area equivalent to one mining unit (i.e., 100 hectares).

Obligations of holder - Development / Production tenements Companies are obliged to comply with certain minimum investment requirements.

Within one year from the request of measurement of the mining units (whether completed or not), companies must file an estimated investment plan and must actually make the investment within five years (the applicant cannot make an investment inferior to 20% of the total investment detailed in the relevant investment plan in each of the first two years as from the filing of the investment plan). The investment plan is an estimation of the amounts to be spent in: (i) the construction of the camp; (ii) the construction of roads to access the deposit; (iii) the purchase of machinery and equipment to produce and treat the minerals, among other expenditures. The estimated minimum investment cannot be less than 300 times the annual exploitation fee.

Provincial authorities demand companies undertaking mining activities within their territories to hire a determined percentage of local labor. This percentage varies depending on the province but it can reach approximately 80%. The same obligation applies in relation to the local purchase of supplies.

Key Issues Treaties

Argentina has entered Bilateral Investment Treaties (BIT) with more than 20 countries, and has also been subject to significant claims for alleged violation of those treaties.

Export

Except for the nuclear minerals where the National government has a first refusal right, the exportation of minerals is not subject to any specific restriction, but is subject to withholding duties and exporters have an obligation to repatriate the export proceeds.

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Taxes

Mining activity is subject to federal, provincial and municipal taxes including, but not limited to, value-added tax (VAT), income tax and stamp duty (although there are stamp duty exemptions in some Argentine provinces).

Companies complying with special registration enjoy “tax stability” for 30 years from the filing of the feasibility study. This stability covers every federal, provincial and municipal tax that may be levied on the mining activities except VAT.

Registered companies are entitled to recover the value-added tax paid during the exploration stage.

Any province adhering to the Mining Investment Law may charge a maximum 3% royalty on the “mine head” (boca de mina) value of extracted minerals.

Usual structure of venture

Foreign companies must organize a local corporation or register a branch to do business in Argentina. Usually a corporation (SA or sociedad anónima) or a limited liability company (SRL or sociedad de responsabilidad limitada) structure is chosen. Joint ventures take the form either of joint ownership of the shares of a corporation or limited liability company or a Transitory Union of Company agreement, which is a contract regulated under the Companies Law that does not imply the creation of a corporate entity.

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Brazil Author’s Summary Author(s) Joaquim Muniz, Pericles dAvila and Gabriela Bezerra

Summary Brazil’s new mining framework is currently under discussion, since the President has sent to the Congress, on 18 June 2013, a Bill of Law for a reformed Mining Code (Bill of Law No. 5.807/2013). The main changes in the current framework that will possibly be implemented are: (i) the establishment of new rules for the validity of prospecting and mining concessions; (ii) the creation of a new agency to regulate Brazil’s mining sector, named the National Agency of Mining or ANPM (Agência Nacional de Mineração), as well as an advisory board named National Council for Mineral Policy or CNPM (Conselho Nacional de Política Mineral) to issue opinions on mining policy issues to the President of the Republic; and (iii) setting new rates for payments of royalties. While the idea is to make Brazil’s mining sector more competitive for investors, the granting of new concessions by the Minerals Production Department (DNPM) has been frozen for more than a year in anticipation of the new framework, and only recently (in mid-2013) DNPM has granted some few concessions. Mining activities in Brazil are subject to mandatory environmental licensing by the Federal or State Environmental Agency, depending on the potential environmental impact, and various licenses need to be obtained prior to construction, installation, expansion or operation.

Local Landscape Legal framework for mining

Laws: Mining activities in Brazil are regulated by the Brazilian Republic Constitution of 1998, the Brazilian Mining Code (Decree-law No. 227/1967) and its main regulation (Decree No. 62,934/1968), as well as by resolutions, ordinances and other regulations that apply specifically to mining activities.

Article 176 of the Brazilian Constitution of 1988 establishes that all mineral deposits and any subsoil wealth are to be considered as separate assets from the subsurface, and vests the ownership of all mineral resources found within the country in the federal government.

As a consequence of this constitutional regime, mining activities in Brazil may only be carried out through authorizations and/or concessions granted by the federal government to either (i) Brazilian citizens; or (ii) companies with head offices and management in Brazil (regardless of whether such companies have national or foreign capital). Pursuant to Article 176, § 3º, both authorizations and concessions to perform mining activities in Brazil may be assigned, whether totally or partially, to third parties. However, such assignment may only occur upon prior approval from the federal government. As previously informed, such legal regime may considerably change in case Bill of Law No. 5.807/2013 is approved by the Congress.

The Brazilian Mining Code, enacted by virtue of Decree-law No. 227 of 1967, divides mining activities into two different phases: exploration and production.

Government bodies: Brazil’s regulatory framework is rather complex, and involves multiple authorities at the municipal, state and federal levels of government. At the federal level, there are three key governmental bodies responsible for the mining industry.

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Ministry of Mines and Energy (MME): In 2003, Law No. 10,683/2003, as amended, empowered the MME to oversee the areas of geology, mineral and energy resources, hydropower exploitation, mining and metallurgy, petroleum, fuel and energy, including nuclear energy. The structure of the MME was regulated by Decree No. 5,267/2004, which created the departments of Energy Planning and Development, Electricity, Oil, Natural Gas and Renewable Fuels, and Geology, Mining and Mineral Processing.

National Department of Mineral Production (DNPM): The DNPM was created by Decree No. 23,079/1934 and is presently a federal government autarchy subordinated to the Brazilian Ministry of Mines and Energy. The DNPM is vested with administrative powers to inspect mining undertakings and to enact ordinances governing the regulation of mining activities. The DNPM is also responsible for inspecting mining activities in Brazil and for imposing administrative penalties on mining undertakings not performed in accordance with the applicable requirements. All mining companies are required to cooperate with DNPM’s inspection officers and to provide technical and financial information on the entire chain of exploration, production and commercialization of the mineral resources.

Mineral Resources Exploration Company (CPRM): In 1994, by virtue of Law No. 8,970/1994, the CPRM became a public company associated with the MME, responsible to undertake and manage Brazil’s Geology Program. CPRM’s primary role is to generate and disseminate hydrological and geological knowledge necessary for the sustainable development of mining activities in Brazil.

Restrictions: Exploration, extraction, exploitation and economic use of mineral resources within Brazilian Frontier Zones (Faixas de Fronteira) is subject to the approval of the Brazilian National Defense Counsel (Conselho de Defesa Nacional).1 Under the current regulations, the area within 150 kilometers of Brazil’s frontier with other countries is considered as Brazilian Frontier Zone.

In addition, any company that performs mining activities within a frontier zone shall comply with the following requirements, as established by Law No. 6,634/1979: (i) at least the majority of the corporate capital must ultimately belong to Brazilian citizens, (ii) two-thirds of its workers must be Brazilian citizens, and (iii) a majority of the members of the management of such companies must be Brazilian citizens who shall have predominant management powers over the company.

The exploration and production of nuclear minerals and its derivatives on Brazilian territory may only be carried out by state-owned companies.2

Reform: The Congress is currently examining Bill of Law No. 5.807/2013, which aims at reforming the Mining Code, specially with regards to the following matters: (i) change of the model of exploitation of the mining resources; (ii) change the calculation basis, tax rate and the distribution of royalties arising from the mining activity; (iii) the creation of the National Council for Mineral Policy (CNPM) and the National Mining Agency (ANM), among other relevant matters.

The new law, if approved, will lead to major changes to regulation of the industry. The mineral policy, currently set by the MME, will be formulated and managed by CNPM, which will be linked to the presidency. Its composition will be defined by decree. The regulatory and supervisory functions in connection with mining activities, which are currently performed by

1 The Brazilian National Defense Counsel comprises the following members: President of the Republic, the Vice President, chairs of the Senate and House of Representatives, Ministry of Justice, Ministry of Foreign Affairs, Ministry of Economy, and secretaries of the Brazilian Army, Navy and Air Force. 2 See Article 176 of the Brazilian Federal Constitution.

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DNPM, will be performed by a new independent regulatory agency, to be called the National Agency of Mining.

The bill has been under preparation by the MME for the past few years and has been amended during discussions in Congress.

As opposed to the regime currently in force, the bill of law of the New Mining Code foresees that the research and exploitation of minerals shall be held under a sole title. Nowadays, the research is authorized upon a Permit of Operation (Alvará) issued by the National Department of Mineral Production, while the mining is subject to concession.

Also according to the bill of law, the use of mineral resources shall occur upon (i) the execution of a concession agreement, after a bidding process or public call (chamada pública) or (ii) authorization, for certain minerals, such as the minerals used by the civil construction, clays and ornamental rocks.

The concessions, that are currently contracted for an undetermined period, would, under the new regime, last for a period of 40 years, extendable for new periods of 20 years. The renewal will depend on the fulfillment, by the concessionaire, of all legal and contractual obligations.

Further, pursuant to the bill of law, the Federal Executive Branch will determine the areas subject to mandatory bidding process. For the areas where the bidding process is not mandatory, the concession shall occur after a public call, through a simple selection process.

The New Mining Code will also reduce the length of time companies have to complete exploration, to prevent companies from sitting on deposits and then selling development rights to third parties when market prices rise.

In relation to the royalties paid to the Brazilian Government, the bill of law increased the maximum tax rate from the actual 2% to 4% being levied on the companies’ gross income and no longer on the net income. However, the bill of law does not establish the precise percentages for each mineral, what shall be object of specific regulation. Notwithstanding, the rules for the distribution of royalties will be maintained: 65% for cities, 23% for the States and 12% for the Federal Union.

The bill of law for the new Mining Code shall be voted by the Brazilian House of Representatives and shall be forwarded to the Brazilian Senate. It is already quite amended, reason why it is not possible to ensure that the description above will exactly match the new code that will enter into force. By now, the legislation in force is still Decree-law No. 227/1967 and Decree No. 62,934/1968.

Restrictions on foreign investment in mining

Pursuant to the current mining legal framework, mining activities in Brazil may only be carried out through authorizations and/or concessions granted by the federal government to either (i) Brazilian citizens; or (ii) companies with head offices and management in Brazil. Nevertheless, there are no restrictions with regard to the ultimate nationality of the owner of the Brazilian company receiving the authorization and/or concession. Therefore, it is possible for foreign companies to invest in mining activities in Brazil by incorporating a Brazilian subsidiary or investing in existing Brazilian companies.

Nevertheless, companies that perform mining activities within a frontier zone (area within 150 kilometers of Brazil’s frontier with other countries) shall have at least the majority of the corporate capital belong to Brazilian citizens and a majority of the members of the

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management of such companies must be Brazilian citizens who shall have predominant management powers over the company.

Furthermore, pursuant to the Brazilian Constitution, the exploration and production of nuclear minerals and its derivatives on Brazilian territory may only be carried out by state-owned companies.

Environmental considerations

Mining activities are deemed highly potentially polluting activities pursuant to Brazilian Federal Law No. 6,938/81, which establishes the National Policy of Environmental Protection and Resolution No. 237/97 issued by the Federal Environmental Council (CONAMA). Thus, they are subject to mandatory environmental licensing by the Federal or State Environmental Agency, depending on the extent of the potential environmental impact.

On 8 December 2011, Supplementary Law No. 140 became effective, revoking provisions of the Federal Law No. 6,938 of 31 August 1981 regarding environmental licensing. The Supplementary Law also establishes new rules about the cooperation between the union, states and municipalities on administrative actions concerning the protection of environment, combating pollution, and preservation of forests, fauna and flora.

Environmental licenses must be obtained prior to the construction, installation, expansion or operation of the mine.

The interested party must, when presenting the mineral exploration report to the DNPM, obtain orientation from the environmental protection agency on the procedures required in environmental licensing.

Ordinarily, the environmental licensing proceeding comprises three phases, represented by the issuance of three licenses: (i) the Preliminary License, which authorizes the location of the activity and the concept of the project, pursuant to the studies presented; (ii) the Installation License, which, upon the fulfillment of the conditions imposed in the Preliminary License, authorizes the installation of the activity; and (iii) the Operating License, which authorizes the start-up of the activities.

During the licensing process, the authorities evaluate all conditions in which the mining activity will be developed, but other specific environmental licenses may also be required for specific activities related to the mining activity, such as water use and barriers, solid waste generation, transport and disposal of certain products and scrap materials, the suppression of vegetation, and the use of explosives and chemical products, etc.

As a general rule, for the issuance of the Preliminary License, a previous Environmental Impact Study (EIA) and a corresponding Environmental Impact Report (RIMA) are required. The purpose of the studies is to assess any negative impact of the activity and to explore the options to prevent and ameliorate the effects thereof. Along with these assessments, the interested party must also present (i) plans regarding certain measures to mitigate such negative impact (Environmental Control Plan) and (ii) an Environmental Recovery Plan, which foresees the activities to be adopted by the party after the conclusion of the activities in order to restore the environment to its original state.

Noncompliance with applicable environmental laws and regulations can result in criminal and administrative penalties pursuant to Brazilian Federal Law No. 9,605 of 12 February 1998, and Federal Decree No. 6,514 of 22 July 2008, in addition to the obligations to restore the environment and indemnify third parties in case of occasional environmental damage. Polluters in Brazil are subject to strict, joint and several liability, meaning that in case of

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environmental damage, any party which has directly or indirectly contributed to the pollution may be held liable for the entire damage (Law No. 6,938, of 31 August 1981).

Federal Law 9,605 also provides for piercing the corporate veil in any situation in which the existence of a legal entity is deemed a barrier to the recovery of damage to the environment.

Indigenous people considerations

The Brazilian Constitution grants special rights to indigenous people and foresees that the Federal Government shall protect them and their culture. In this sense, indigenous people in Brazil are entitled to the land they traditionally occupy and also to the enjoyment of the natural resources found in such lands.3

Furthermore, the Brazilian Constitution grants to the Congress the power to authorize the research and exploration of mining resources found within indigenous land. In these cases the indigenous community shall be heard and they also have participation over the mined product.

Also, Article 231, §7 of the Federal Constitution forbids the activity of independent mining (garimpo) in indigenous lands.

Finally, the Brazilian Constitution also foresees that the mining activities in indigenous lands will be subject to specific legislation, which has not been already enacted.

Exploration Tenements

Exploration Authorizations are granted by the general officer of DNPM.

Exploration Authorizations are granted for a period of not less than one year and not longer than three years, which may be extended by the DNPM. At the end of this term, the owner of the Exploration Authorization must present a Final Exploration Report to the DNPM, containing information regarding the results of its geological studies as well as the field’s economic and technical feasibility.

Terms

The size of the area of an Exploration Authorization varies in accordance to the type of mineral to be explored in a specific location. As an example, in accordance with Ordinance DNPM No. 392/2004, an Exploration Authorization related to the mining of iron ore shall be granted only with respect to areas measuring a maximum of 2,000 hectares.

The holder of the Exploration Authorization must begin the survey works within 60 days of the publication of the authorization, provided that such person is the owner of the surface area or has already agreed to pay compensation to the landowner for occupation and damage caused to the land by virtue of exploratory works. Since legislation does not establish the amount of compensation payable, it must be discussed on a case-by-case basis.

If there is no agreement, a lawsuit may be filed to enforce an easement/servitude on the surface area necessary for the exploration and the judge will fix the compensation due to the landowner.

3 Brazilian Constitution, Article 231, §2

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Once exploration is complete and the Final Exploration Report is approved by DNPM, the holder of the Exploration Authorization has a one-year exclusivity term to request a mining concession.

Steps to acquire an exploration right

The request for an Exploration Authorization must be addressed to the DNPM’s general officer and accompanied by the following information/documentation:

• Specifications of the minerals to be explored

• Location of the reserve and extension of the surface area to be explored

• Description of the area

• Plan of the facilities involved

• Exploration Work Plan

• Budget and schedule for the performance of the explored work

Any area may be subject to an Exploration Authorization as long as the Exploration Work Plan, the budget and schedule are approved and the area is deemed to be “free,” meaning that it is not the subject of a prior Authorization for Exploration, Mining Concession or a similar grant.

Obligations of holder - Exploration

• Administrative fees: Fees paid to the DNPM when the Exploration Authorization Request is filed.

• Annual Hectare Fee (TAH or Taxa Anual por Hectare): A fee per hectare to be paid by the holder of the Exploration Authorization each year until the delivery of the Final Exploration Report to DNPM.

• Payment of royalties to the owners of the surface area: Royalties equivalent to 50% of the amount paid as CFEM (Compensação Financeira pela Exploração de Recursos Minerais).

Assignment of an Exploration Authorization is allowed, subject to the DNPM’s prior approval. The DNPM will assess the assignee’s ability to comply with the approved Exploration Work Plan, Budget and Exploration Schedule. The assignment of Exploration Authorization Requests is prohibited.

Holding tenements Terms of rights - Holding Tenements

The party who performed exploration has a preemptive right to apply for a mining concession, within one year from the approval of the Final Exploration Report by DNPM. Although Exploration Authorizations might be granted to individuals, mining concessions will only be awarded to legal entities. If an individual performed the exploration, he/she shall assign the right to a legal entity.

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Development / Production tenements Tenements / rights available The right to mine is given by way of a mining concession (Concessão de Lavra).

Terms of rights The mining concessions are granted for an undetermined period.

Transition from exploration / holding right to mining right - Development / Production tenements

After the exploration phase, in which the company performs researches in the field, a report shall be forwarded to DNPM, evidencing the discoveries made by the company. Upon approval of such report, the company shall apply for a mining concession title, to be sent to the MME.

After the request and all the relevant documentation is analyzed, the MME issues an ordinance providing for the concession of the area.

Foreign ownership restrictions and government participation Pursuant to the current mining legal framework, mining activities in Brazil may only be carried out through authorizations and/or concessions granted by the federal government to either (i) Brazilian citizens; or (ii) companies with head offices and management in Brazil. Nevertheless, there are no restrictions with regard to the ultimate nationality of the owner of the Brazilian company receiving the authorization and/or concession. Therefore, it is possible for foreign companies to invest in mining activities in Brazil by incorporating a Brazilian subsidiary or investing in existing Brazilian companies.

Nevertheless, companies that perform mining activities within a frontier zone (area within 150 kilometers of Brazil’s frontier with other countries) shall have at least the majority of the corporate capital belong to Brazilian citizens and a majority of the members of the management of such companies must be Brazilian citizens who shall have predominant management powers over the company.

Furthermore, pursuant to the Brazilian Constitution, the exploration and production of nuclear minerals and its derivatives on Brazilian territory may only be carried out by state-owned companies.

Steps to acquire a right - Development / Production tenements The concessionaire must present an Economic Exploitation Plan (PAE or Plano de Aproveitamento Econômico) and prove that it has economic means to comply with the financial obligations of the PAE. Mining concessions are currently granted for undetermined periods of time.

In addition to the PAE, the request for a Mining Concession must be addressed to the Ministry of Mines and Energy and be accompanied by the following information/documentation:

• Certificate issued by the Commercial Registry of the State in which the mining company was incorporated;

• Specifications of the minerals to be explored and documents evidencing that an Exploration Authorization has been previously granted;

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• Description and location of the mineral field to be exploited;

• Graphical definition of the area to be exploited;

• Easements/servitudes4 that shall apply to the area; and

• Evidence of the existence of funds or of financial commitment necessary for the execution of the PAE.

The holder of the mining concession must request the DNPM to grant possession (imissão na posse) of the surface area necessary for the mining work within 90 days from publication of the Mining Concession at the Official Gazette. The DNPM will then draft an Access Term which will be signed by all stakeholders. The owner of the surface area is entitled to royalties equivalent to 50% of the amount paid as CFEM.

Relationship with landowners - Development / Production tenements

The owner of the surface area must be paid a monthly royalty under a mining concession equivalent to 50% of the value of the accrued CFEM.

Obligations of holder - Development / Production tenements

The holder of a mining concession must fulfill several obligations, including but not limited to:

• commencement of the exploitation work contemplated in the Economic Exploitation Plan within six months from the date the real estate in which the mineral rights are located is made accessible;

• extraction of minerals from the mining field in accordance with the PAE approved by the DNPM;

• addressing certain issues/concerns with regard to losses and damage to third parties as a result of the mining activity;

• presenting to the DNPM until 15 March of each year the Annual Production Report (Relatório Anual de Lavra) related to the activities performed in the previous year; and

• refraining from overproducing in the mine or stopping the production for a period longer than six months.

The holder of a mining concession must only exploit the substances that are specified in the relevant title. In case new substances are discovered, the owner may request the DNPM to amend the Mining Concession.

The holder has an obligation to pay CFEM pursuant to Law No. 7,990/989.

The ratio of CFEM varies from 0.2% to 0.3% of the net sales of mineral products. For most mineral products, the rate is 2%. Out of the amount collected, 65% thereof is earmarked for certain municipalities affected by production activities, with 23% to states and 12% to DNPM.

4 Servitude can be amicably established with the landowner and the correspondent compensation must be discussed on a case-by-case basis. In case there is no agreement between the holder of a Mining Concession and the owner of the surface area, a lawsuit may be filed to enforce the servitude and the judge shall determine due compensation to the landowner.

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Readjusting CFEM is one of the main targets of the New Mining Code, in order to meet municipalities’ and states’ demands for a larger share of the taxation on mining activities, as a compensation for their local impact.

Key Issues Export Currently, there are no restrictions to exports of minerals under Brazilian Law. The only restriction for foreign ownership of mining companies refers to prohibition to have the majority of the interest in entities performing mining activities within a frontier zone (area within 150 kilometers of Brazil’s frontier with other countries).

Usual structure of venture Considering that mining concessions are only granted to legal entities (please refer to item 3.2), the usual structure adopted by national and international investors is establishing a local company, either in the form of a limitada (limited liability company) or sociedade anônima (SA or corporation).

The choice of type of company often depends on the business strategy to be implemented. The SA is a stock company that may be privately or publicly held. The limitada is a partnership, whose objectives are normally fulfilled through the efforts of its partners.

Some of the advantages of a limitada are: (i) lower costs, both in organization and management (for example, as a general rule, the limitada is not required to publish its financial statements and annual balance sheet); (ii) its Articles of Organization may be amended by a simple document executed by the company’s quota holders or their attorneys-in-fact, and the publication of the amendment is not required; and (iii) stock certificates, share registration books, share transfer books, shareholders meeting’s presence and minute books, etc., are not required, since all of the limitada’s corporate information is addressed in its Articles of Organization.

On the other hand, the advantages of an SA are: (i) possibility of issuing shares on the stock market; (ii) clearer regulations regarding the execution and effectiveness of shareholders’ agreements; (iii) less bureaucracy in the transfer of shares and issuance of new shares, through simple registration in the corporations share registry and share transfer books.

Sometimes, other corporate structures are utilized by mining companies in Brazil. For instance, it is relatively common for mining title holders to associate themselves with private investors through a de facto partnership called under the Brazilian law of “sociedade em conta de participação,” under which mining activities are funded.

Protection for foreign investors

The Brazilian Federal Constitution provides equal treatment to national and foreign investors. Any foreign investment in the equity of a Brazilian company must be registered with the Brazilian Central Bank, which is essential to ensure that profits or capital gains are remitted abroad without additional taxation.

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Assignment

The assignment and encumbering of a Mining Concession is allowed, subject to the DNPM’s prior approval. Any encumbrance or assignment will be effective only after it has been registered with the DNPM.

It is also possible to lease certain mining rights (Arrendamento de Direitos Minerários) to a third party, likewise subject to the DNPM’s prior approval.

The lessee may perform mining activities only in the area covered under the lease agreement after such agreement is registered before the DNPM. Otherwise, the lessee commits an offense (as set forth in Article 55 of Law No. 9,605/1998) punishable by a penalty, which may be detention for six months to one year plus a fine.

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Chile Author’s Summary Author(s) Antonio Ortuzar Jr. and Mirco Hilgers

Summary Mining is the pillar of the Chilean economy, and dramatic growth in the industry over the past 30 years has made Chile the world’s top copper exporter, producing over a third of global output. Mining activity is mainly focused in the Atacama Desert in northern Chile, which, in addition to copper, is rich in gold, silver, iron and non-metallic products such as nitrates, boron, potassium, iodine and lithium.

Recent growth in the mining sector can be attributed to the increase in foreign capital. The Chilean government strongly supports external investment and had modified many of its laws to create a favorable investment climate for foreign companies wishing to do business in Chile. In addition, global copper prices have risen steadily throughout the last decade, making it an attractive investment.

Local Landscape Legal framework for mining Mining in Chile is governed by the Constitution of Chile and by basic constitutional laws, codes and regulations which apply specifically to the mining industry.

Chile has a civil-law-based legal system.

All minerals are the property of the state. The mining code basically provides that to explore for, or to mine, any mineral, it is necessary to obtain rights from the state,

A mining right is a real property right.

In view of the fact that some 98% of mining in Chile takes place in deserts or semi-desert areas, the development of a water resource is indispensable. Rights to water, whether surface, underground or marine, are governed by a legislated framework similar to that governing mining.

Restrictions on foreign investment in mining Foreign investment is regulated principally by the Foreign Investment Statute (Decree Law N° 600) (the Statute) and Chapter XIV of the Foreign Exchange Regulations of the Chilean Central Bank (the Regulations). The Foreign Investment Statute is administered by the Foreign Investment Committee which comprises five government ministers and is directly responsible to the president of the Republic of Chile. The Central Bank administers the Foreign Exchange Regulations.

Neither the Statute nor the Regulations impose any domestic ownership requirements (i.e., 100% foreign ownership is possible).

The Foreign Investment Statute is administered by a committee chaired by the Minister of Economy. Approval is granted by the vice president of the Foreign Investment Committee with the consent of the Minister of Economy (or by the committee itself in cases of investments over USD5 million, foreign public entities, investments related to mass media, public services, or other activities normally carried out by the state). Approval is usually

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granted within 25 days. However, authorization for the immediate liquidation of capital may be granted at the moment of filing a foreign investment application. Currently, the minimum investment which may be approved under this statute is USD5 million. This minimum does not apply to investments made in physical assets and technology, which have a minimum of USD2,500,000. The committee retains the right to modify these amounts.

On approval, the Chilean government and the investor execute a contract that sets out their rights and obligations. Among other items, the contract states the time within which capital must be brought into the country, specifies the form of the capital contribution, guarantees that the foreign investor will not be subject to discriminatory, and contains provisions regarding the repatriation of capital and profits. The contract may also fix the rate of certain direct and indirect taxes applicable to the investment (see “Foreign Investor Tax Invariability Options”).

Foreign investment equity capital may be remitted overseas one year after entering Chile but only from the proceeds from the sale or liquidation of all or part of the assets, business, shares or rights representing the investment. Capital comprising reinvested profits is not subject to the one-year restriction.

Annual profits may be remitted overseas at any time. Interim profits and dividends may be remitted quarterly if supported by audited financial statements and permitted by the foreign investment contract with the government.

Instead of being regulated under the Foreign Investment Statute, foreign investment may be registered under Chapter XIV of the Foreign Exchange Regulations issued by the Central Bank (the Foreign Exchange Regulations). Chapter XIV of the Regulations applies to foreign loans, deposits, investments and capital contributions.

The Regulations impose two basic requirements in connection with foreign loans, deposits, investments and capital contributions: (i) they must be made through the Formal Exchange Market; and (ii) the parties must inform the Central Bank of Chile by using the appropriate forms.

The Regulations do not require the foreign investor to enter into a contract with the State of Chile, nor do they limit or restrict the repatriation of the capital invested in Chile or of the profits obtained from such investment.

Investments under the Regulations may only consist of cash, shares or equity interests issued by foreign companies, while the Statute allows the contribution of tangible and intangible assets. The minimum investment which may be effected under the Regulations is USD10,000.

Although there are no restrictions on access to the formal exchange market today, it is important to consider that registration under the Foreign Exchange Regulations does not guarantee a foreign investor the right of access to the Formal Exchange Market in order to repatriate its capital investment and remit profits.

In addition, the following guarantees under the Foreign Investment Statute are not available under the Foreign Exchange Regulations:

• Non-discrimination

• Invariable income tax rate of 42% clause

• Grandfathering of value-added tax (VAT) and the import duties on machinery and equipment

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Environmental considerations The Environmental Act (EA) provides a framework for environmental policy in Chile and establishes the Environmental Impact Assessment System (EIAS) to determine whether the environmental impact of a given activity or project is consistent with this framework. Projects or activities that generate effects contemplated by the EA are subject to EIAS. Parties planning to undertake activities subject to EIAS must submit an Environmental Impact Assessment (EIA) or an Environmental Impact Statement (EIS).

In general, if it is anticipated that a project or activity will have any of the following environmental impacts, an EIA must be submitted and approved:

• Risk to human health;

• Significant adverse effects on the quantity and quality of renewable natural resources, including soil, water and air;

• Relocation of human communities or significant alteration of living systems and customs of population groups;

• Proximity to inhabited or protected areas or resources, or to an area defined as being of environmental value;

• Significant alteration of the touristic or scenic value of an area;

• Alteration of monuments and sites with anthropological, archeological or historical value and, in general, those monuments and sites which form part of the cultural heritage of the country.

An EIA must provide well-founded background data for predicting, identifying and interpreting the environmental impact of a project or activity and describe the action(s) to be performed to prevent or minimize material adverse effects.

Unlike the EIA, an EIS is a simple description of the contemplated activity.

Under the EIAS, individual and community organizations directly affected are able to make submissions in respect to an EIA or an EIS. The EIA presupposes liability for environmental damage or the violation rests with the party or parties undertaking the project or activities. Environmental liabilities, which require repair of the damaged environment and civil liability, have a five-year statute of limitation.

Criminal liability for environmental damage exists only in very specific cases where the environmental damage is major and is a result of willful misconduct.

Indigenous people considerations

Chile has recognized indigenous people and subscribed to the OIT Agreement No. 169. The state recognizes that the indigenous people of Chile are the descendants of the human groups that existed in the country since pre-Columbian times. Preserving their own ethnic and cultural land is important as it is the main foundation of their existence and culture.

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Exploration Tenements The right to explore is given by an exploration concession.

Terms An exploration concession:

is granted by the Chilean Ministry of Mines for an initial period of two years with a right to apply for a further two-year period prior to expiry of the initial concession. Where an extension is granted, the concession holder must relinquish half of the original designated area;

• requires annual payment;

• enables exploration over the concession area and provides an exclusive right to file for an exploitation concession in respect of that concession area;

• must be greater than 100 hectares and less than or equal to 5,000 hectares in area;

• does not require an environmental authorization for exploration works;

• does not require work to be undertaken on the concession area in order to maintain interest in that concession; and

• does not authorize its owner to exploit the minerals in that concession.

Exploration concessions are granted for an initial period of two years, at the end of which an extension of an additional two years is available subject to relinquishment of 50% of the area.

Fees for an exploration concession are approximately one-fifth of those for a mining concession.

Steps to acquire an exploration right

The application for an Exploration Concession is initiated with the presentation of a Pedimento to the civil judge in a courthouse located within the appropriate jurisdiction, including:

• Name, nationality and domicile of the applicant;

• Location of the center point of the concession (in Universal Transverse Mercator or UTM coordinates) if the concession is greater than 100 hectares in area, or one or more geographically distinct points (with direction, distance and identifying name) from the centerpoint if the concessions are less than 100 hectares in area;

• Concession name being assigned;

• Concession surface, indicated in hectares, being applied. The surface cannot be smaller than 100 hectares or larger than 5,000 hectares.

The judge makes a determination within 30 days of any Court-authorized copy of the Pedimento is filed with the Custodian of Mines in the corresponding jurisdiction and should be published in the Official Mining Bulletin (Boletín Oficial de Minería).

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At the same time, and within the 30-day period, i.e., a filing fee (tasa) must be paid, calculated based on the number of hectares being solicited and using the UTM published for the month in question, as well as utilizing a factor developed ad hoc (Formulario 10) by the Treasury of the Republic.

Within 90 days and in the same legal (i.e., non-technical portion) application initiated previously, the applicant formally solicits the definitive granting of the concession.

The following documents should accompany the solicitation for the issuance of the concession (signed by a lawyer):

• A copy of the notarized record of the Pedimento;

• A copy of the Official Mining Bulletin which published the authorized Pedimento application data;

• An original map (and two copies) showing the configuration and location of the applied-for concession;

• The receipt for the payment of the appropriate filing fee which is calculated based on the applied-for area in UTM for the month in which the payment is made and which is for the period remaining between the date of payment and the last day in February of the following year.

The judge then orders that the application be sent to the Servicio Nacional de Geología y Minería (Sernageomin) for its technical review of the documentation. The Sernageomin has 60 days to complete the review. Once this review is completed the judge allows 60 days for third parties to file possible complaints with the Court of Appeals.

At the conclusion of this 60-day period and assuming no complaints have been filed, the judge will issue the final approval of the application, thereby granting the concessions to the applicant.

Once the final approval (Sentencia Constitutiva) has been granted by the Tribune, the applicant must, within a period of 120 days:

• have an extract of the Sentencia Constitutiva published;

• request that the Sernageomin provide a Statement of Proof that the original map and an authorized copy of the Sentencia Constitutiva; and

• register the authorized copy of the Sentencia Constitutiva with the appropriate regional Custodian of Mines.

Relationship with landowners - Exploration The title over a mining concession does not concede any rights over the surface land in Chile.

In order to develop exploration or exploitation activities, the owner of the mining concession has to purchase the surface land required for the project, execute agreements to obtain the use of the surface (lease) or obtain a legal easement.

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Obligations of holder - Exploration

The mining easement includes determining appropriate compensation for the damage caused to the landowner or any person who has an interest in that property.

Holding tenements Rights to hold

There is no separate concept of holding tenement. It is possible to skip the exploration concession process and apply directly for exploitation mining concession.

Terms of rights - Holding Tenements

As long as the annual property tax payments have been made, the system provides the legal tools to maintain (and defend if necessary) the concession in perpetuity.

Development / Production tenements Tenements / rights available

Development and exploration are carried out under a mining concession.

Terms of rights Exploitation Concession (Pertenencia or Concesion de Explotacion)

An Exploitation Concession:

• is of unlimited duration;

• requires annual payment;

• involves a more onerous process for filing and higher costs for filing and compliance;

• does not require work to be undertaken on the concession in order to maintain interest in that concession;

• must be greater than 1 hectare and less than or equal to 10 hectares in area;

• does not require an environmental authorization for exploration works but indeed require said authorization and closing plans for exploitation works;

• grants mining rights which prevail over third-party claims; and

• entitles the owner to exploit the minerals in that concession area.

Transition from exploration / holding right to mining right - Development / Production tenements

An exploration concession must be converted to an exploitation concession before it lapses, i.e., within two years or four in the event it was extended.

Foreign ownership restrictions and government participation There are no restrictions on foreign acquisition of mining concessions, except where the mining concession is located near the border of the country.

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Steps to acquire a right - Development / Production tenements The application (a Manifestation) must indicate:

• Name, nationality and domicile of the applicant;

• Location of the interest point of the concession (in UTM coordinates);

• The number of claims being applied for and the claim names being assigned;

• Concession surface, indicated in hectares, being applied for each claim. According to the Mining Code, a Manifestacion cannot consist of more than 10 hectares or less than one hectare.

In addition, if the application is to convert a previously existing exploration concession, the mining concession should be located in the same area as previously and occupy the same area (or less). In this manner, the application will have as its initial starting date the pre-existing date of application for the prior exploration concession.

The judge issues a legalized copy of the Manifestacion which has been approved by the court within a period of 30 days of receiving the application. This document is registered with the Custodian of Mines located in the appropriate jurisdiction and must also be published in its entirety in the Official Mining Bulletin also located in the appropriate jurisdiction. The fee is calculated based on the number of hectares being solicited and using the UTM published for the month in question as well as utilizing a factor developed ad hoc (Formulario 10) by the Treasury of the Republic.

Subsequent steps include:

• completion of a survey

• rights of third parties to object

• technical review of the Sernageomin

• registration of the Sentencia Constitutiva

Relationship with landowners - Development / Production tenements

Development and exploration are carried out under a mining concession.

The title over a mining concession does not concede any rights over the surface land in Chile. In order to develop exploration or exploitation activities, the owner of the mining concession has to purchase the surface land required for the project, execute agreements to obtain the use of the surface (lease) or obtain a legal easement.

The mining easement includes appropriate compensation for the injury caused to the landowner or any person who has an interest in that property.

The constitution of the easement, its exercise and the compensation must be determined by agreement of the parties on a public deed, or by a court through an easement trial regulated by the Chilean Mining Code.

Obligations of holder - Development / Production tenements Notable obligations include the obligation to employ 85% Chilean nationals or residents.

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Key Issues Usual structure of venture Under the Mining Code, the registration of a mining concession in two or more names creates a Legal Mining Company (LMC) by operation of law. LMCs have a formal legal structure which often makes them unsuitable for a structure that needs to be tailor made.

More commonly found is the Chilean Contractual Mining Company (SCM) which is used for exploration or exploitation and allows more flexibility in terms of structuring.

Other structures available are limited liability partnership (Sociedad de Responsabilidad Limitada), corporation (Sociedad Anonimas) and stock companies (Sociedad por Acciones or SPAs).

Protection for foreign investors The Foreign Investment Statute guarantees that restrictions applicable to the remittance of capital and profits will not be less favorable than those applying the acquisition of foreign currency to pay for imports.

The Foreign Investment Statute prohibits the discriminatory treatment of foreign investments, which are subject to laws generally applicable to domestic investments. Laws are deemed discriminatory if the foreign investor is excluded from the whole or major part of a specific productive activity, or if he or she is refused access to a free trade zone or special regime despite complying with the conditions imposed on local investors. However, the Statute provides that the restriction of foreign investors’ access to local credit will not be considered discriminatory. No general legislative restriction of this type currently exists, and foreign investment contracts which allow maintenance of offshore accounts normally do not limit local financing (see Exchange Controls - Formal and Informal Currency Markets).

The Foreign Investment Statute sets out a procedure for challenging discriminatory conduct through the Foreign Investment Committee and the courts.

Tax: The Foreign Investment Statute allows foreign investors to choose to be subject to an overall income tax rate of 42%, fixed for 10 years (rather than the normal 35% rate which may change).

In the case of investments exceeding USD50 million in industrial or extractive projects such as mining, investors may also be entitled to:

• the fixed income tax rate of 42% for up to 20 years (rather than 10 years);

• rely (for a period of up to 20 years) on laws and rulings in force when the investment is approved relating to depreciation, carrying forward of losses, organizational and start-up expenses and the right to maintain accounts in US dollars; and

• rely on laws and regulations in force when the investment is approved, relating to the right to export freely for a period of up to 20 years.

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Sensitive minerals

Exploration for and exploitation of lithium and, with some limited exceptions, gaseous and liquid hydrocarbons, is reserved to the State of Chile. However, private investors may enter into “risk contracts” with the government for the exploration or exploitation of specific areas, giving the investor a right to participate in exploration and exploitation income.

The government of Chile also has a first option to purchase minerals containing uranium or thorium.

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Colombia Author’s Summary Author(s) Alejandro Mesa, Felipe Correa and Mariana Villegas

Summary For the past ten years Colombia has seen a very important growth of its mining industry, primarily driven by the improving security situation and a solid set of private investor protection rules. The rapid growth, however, overwhelmed the traditional mining regulatory structures, and forced the government to implement stiff institutional changes aiming at satisfying the demands of the industry.

Colombia follows the principle that the subsurface is owned by the Colombian State, as a result a concession is generally required in order to explore and exploit minerals within Colombian territory. Law 685 of 2001 (hereinafter the “Mining Code”) was initially an attempt to collect, in a single statute, all regulations applicable to mining operations. However, because of the fast development of environmental law, the Mining Code is no longer the only source that must be consulted in connection with the structuring of a mining project. Mining regulations are applied by the Colombian Mining Authority, which operates at a national level and has local presence in several mining districts. Environmental regulations are applied by the Ministry of Environment and Sustainable Development, the National Environment Licensing Agency and independent local environmental agencies.

The general rule applicable to the award of mining concessions is that of first-come, first-served. However, pursuant to the National Development Plan for 2014-2018 (which has been approved by the Colombian Congress but is still pending the compulsory presidential approval and signature) the Colombian government will indefinitely reserve certain free areas that, pursuant to geoscientific information available, are considered to be strategic (Áreas de Reserva Estratégica Mineras and Áreas de Reserva para el desarrollo minero - energético), and will therefore be awarded as a result of competitive bidding processes, the specifics of which are to be defined by the government through the issuance of new regulations. These reserved areas will coexist with the strategic areas which delimitation was permitted pursuant to the former National Development Plan, for 2010-2014 (Law 1450 of 2011), and which shall also be awarded as a result of competitive bidding processes.

Legal framework

The mining industry is mainly regulated by the Mining Code. Because of its nature, the Mining Code can only be modified by a new law enacted by the Congress. Decrees, resolutions and other types of regulations issued by the Colombian government (including different ministries and agencies) may govern specific aspects of the Mining Code, but cannot change or exceed any of its provisions.

In line with the above, the general legal framework governing the mining industry is composed of the following:

• The Colombian Constitution (1991), articles 58, 332, 333, 360 and 361; and

• The Mining Code.

A major amendment to the Mining Code, enacted in 2010 (law 1382 of 2010) was declared unconstitutional, with effect as from May 13, 2013. The grounds for the declaration of

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unconstitutionality relate to the fact that the right of ethnic communities to participate in the process of design and approval of the amendment was not duly observed and protected.

The Ministry of Mines and Energy is in charge of dictating the policies of the mining industry and issuing regulations concerning the mining industry, always within the parameters of the Mining Code. The Ministry of Environment and Sustainable Development is in charge of dictating policies and regulations as they relate to the protection of the environment. Other governmental entities are involved in the issuance of regulations concerning specific areas of the mining industry (e.g., the Ministry of Social Protection is in charge of issuing health safety and environment regulations for mine workers).

In turn, the national mining agency (Agencia Nacional de Minería, or ANM), is the competent governmental entity (dependent on the Ministry of Mines and Energy) that grants the rights to explore and exploit minerals in Colombia.

The same legal regime applies to all minerals, without prejudice to the fact that technical rules for exploitation may vary depending on the characteristics of the mineral and the requirements for its extraction. Oil and gas have a separate regime.

Restrictions on foreign investment Foreign individuals or companies looking to obtain a mining concession must have a legal representative in Colombia in order to be able to submit any proposals, and must have established a branch or a subsidiary domiciled in Colombia in order to be able to execute the concession agreement, once the corresponding proposal is approved.

Article 18 of the Mining Code expressly indicates that foreign individuals or entities have the right to receive a treatment equal to that received by Colombian nationals in all matters associated to the mining industry in Colombia.

There are no requirements for minimum State or domestic ownership of mining companies operating in Colombia, and thus, said mining companies can be wholly owned by foreign entities. Furthermore, there are no restrictions on the transfer of profits arising from mining activities, nor are there any limits to foreign investment.

Ethnic or tribal communities

There are four major groups subject to special protection regarding their social, cultural and economic values vis-a-vis mining projects or activities within their territories, as follows: indigenous peoples; Afro-Colombian communities; Raizal communities; and Romani people or gypsies.

The main right of ethnic communities, which arises from Convention No. 169 of the International Labor Organization (ILO) is the right to be consulted, through their corresponding representative institutions, on the impact that projects for the exploitation of natural resources (including but not limited to mining projects) may have on their respective social, cultural and economic values and worldview.

By virtue of this consultation right which is expressly set forth in the Mining Code with regards to indigenous peoples and Afro-Colombian communities, the exploration and exploitation of mineral deposits within the territories of ethnic communities (as well as any other mining activities that may cause an impact on their traditional values and worldview) may only be conducted through consultation , for the purposes of obtaining their consent for the project.

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However, as a general rule ethnic communities do not have any veto rights regarding the development of mining projects. Nevertheless, there are certain exceptional cases in which consent from the ethnical communities involved must be necessarily obtained in practice, in order to determine and implement the less harmful development structure on which the mining project will be based.

In addition to and coexisting with the above (the general and supralegal right of consultation and participation), the Mining Code foresees the existence of specific areas assigned to indigenous peoples (zonas mineras indígenas) or Afro-Colombian communities (zonas mineras de comunidades negras), where the corresponding communities have a right of preference regarding the granting, by ANM, of a mining concession. By virtue of this right, the corresponding indigenous or Afro-Colombian communities that present a proposal for the exploitation of minerals within the corresponding areas covered by the applicable legal definition will be entitled to have a mining concession granted to them, with preference over other eventual proposals that may have been filed by third parties within the area. In such an event, the ethnic community that is granted the mining concession may subcontract the exploration and exploitation works, but may not transfer the concession in any case. In addition to the above:

• Indigenous authorities are entitled to exclude certain places within the mining zone from the exploration or exploitation activities, because of their cultural, social and economic significance to the community.

• In the event any person different from the indigenous community itself has a concession over an indigenous mining territory, it must prefer the local indigenous community in order to undertake its works.

• Royalties from indigenous territories’ mining exploitation must be applied for the direct benefit of such indigenous communities.

• The ANM may define certain mixed areas where both indigenous and Afro-Colombian communities are located.

Exploration Since the enactment of the Mining Code in 2001, individuals can only explore and/or exploit minerals pursuant to a mining concession agreement, duly granted and registered at the National Mining Registry. This is, however, without prejudice to other types of mining licenses or agreements that were granted pursuant to former regulations, which remain to be valid during their corresponding term and may be governed, in certain matters, by said former regulations (the mining concessions and other mining licenses or agreements are hereby jointly referred to as “Mining Titles”).

Mining concession agreements granted nowadays pursuant to the Mining Code grant the corresponding concessionaire the exclusive rights to explore, develop and exploit certain specific minerals within a defined area.

Holding tenements There is a separate concept of holding tenements. The concession covers both the exploration and mining.

Development / Production tenements See Exploration.

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Tenements/rights available

In order to be granted a mining concession agreement, applicants must file a proposal with the ANM. Upon approval of such proposal by the ANM, and prior to the execution of the agreement, concessionaires must pay the amount corresponding to the surface fee of the first annuity in advance.

Terms of rights

The total term of a concession agreement is of 30 years, counted from its registration in the National Mining Registry. Before the expiration of the initial term, the term of the agreement may be extended for an additional term of 30 years. To request the extension, concessionaire must demonstrate compliance with its obligations

Transition from exploration / holding rights to mining right - Development /Production tenements

Concession agreements have three stages, as follows: (i) an exploration stage; (ii) a construction and assembly stage; and (iii) an exploitation stage. The maximum duration of each of those stages is, as follows:

• Exploration: Three years and can be extended, with prior request to the authority, for additional terms of 2 years, up to a total term of 11 years.

• Construction and assembly: Three years and can be extended, with prior request to the authority, for one additional year.

• Exploitation: The maximum term will be equivalent to the total term of the concession (30 years), minus the time spent on the exploration and construction and assembly stages (in any case, no less than 15 years).

The maximum size of the areas to be explored and/or exploited by virtue of a mining concession agreement is of 5,000 hectares, for concessions adjacent to a water source, and 10,000 hectares, for all other areas.

Steps to be granted a mining concession agreement Proposals requesting the granting of a mining concession agreement are currently filed electronically, and do not grant, by themselves, any right to the applicant, other than a preferential right over the area provided that its proposal was filed first in time. A proposal for a mining concession agreement must contain the following:

• Indication on whether there is any type of mining exploitation over the area subject to the proposal, in order to determine the eventual existence of traditional mining labors in the area, which are subject to special protection.

• Description, location and size of the requested area.

• Indication of the mineral or minerals subject to the proposal.

• Indication on whether there are any indigenous or Afro-Colombian ethnic groups with permanent residence in the place of the concession.

• Indication on whether the area requested through the application covers, in whole or in part, any restricted areas for which authorization from other authorities in required (in which case the corresponding authorization must be attached).

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• Indication on the mining guides and terms to be applied during the exploration period and economic investment expected to be performed in such stage.

• A map and a technical annex prepared pursuant to the applicable general and official technical rules.

The National Development Plan for 2014-2018 (which is still pending the compulsory presidential approval and signature) created an additional requisite for mining concession agreements to be granted, consisting of the accreditation, by the applicant, of the economic capacity required for the exploration, exploitation, development and performance of the mining project. The specifics of this new requirement, which is not yet enforceable and will not be applicable to proposals presented before the enactment of the National Development Plan are to be defined by the congress and/or the government in the future, provided that the corresponding National Development Plan is approved and executed by the President with no objection.

If ANM considers that there are grounds to reject a proposal, related to errors that can be corrected, then it may request the proponent to make the necessary corrections, granting it a term of 30 days to do so. If the errors found by ANM cannot be corrected, or are not corrected by the proponent within the 30 day period mentioned above, the mining concession proposal will be rejected, based on any of the grounds specifically and exhaustively listed by the Mining Code.

Provided that the proposal is not rejected by ANM, it will proceed to determine the area that is free for award under a mining concession agreement, based on the verification of any eventual existing third-party rights or proposals already filed with ANM regarding the same area.

If based on information provided by the Ministry of Interior ANM concludes that there are protected ethnic communities with rights of preference over the area of the concession, ANM will grant such communities a 30-day preemptive right to opt for the award of the concession.

With respect to any area that is determined by ANM to be free after the foregoing step, ANM will request the proponent to execute the mining concession agreement, using the standard agreement form preapproved by the Ministry of Mines and Energy.

Once the mining concession agreement has been executed by both ANM and the concessionaire, ANM will file a copy of the agreement for registration with the National Mining Registry. After completion of the registration process, the concessionaire will formally hold sufficient legal title to explore and exploit minerals within the area subject to the mining concession agreement.

Obligations of concessionaires under mining concession agreements

The following is a brief description of the obligations of concessionaires foreseen in the mining concession agreement, including the relevant main environmental obligations:

Stage Obligations

1. Exploration a) Comply with the exploration terms contained in the terms of reference issued by the Ministry of Mines and Energy;

b) Comply with the Mining – Environmental Guidelines issued by the Ministry of Environment and Sustainable Development;

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Stage Obligations

c) Request the Ministry of Environment and Sustainable Development for the subtraction of any portions of the requested area that overlap with any forest reserves created by any laws in force;

d) Constitute and preserve a mining environmental insurance policy guaranteeing the performance of its obligations under the agreement, including those related to environmental and mining obligations, as well as those pertaining to the payment of fines and caducity for an amount equivalent to 5% of the amount of the investment provided for the exploration works in the offer for the execution of a concession agreement filed by the concessionaire;

e) Pay a surface fee (canon superficiario) to ANM, in an amount equivalent to (1) one daily minimum legal wage per hectare, per year, provided that the area is of less than 2,000 hectares; (2) two daily minimum legal wages per hectare, per year, if the concession has an area between 2,000 hectares and 5,000 hectares; and (3) three daily minimum legal wages per hectare, per year, if the concession has an area between 5,000 and 10,000 hectares.

Pursuant to the National Development Plan for 2014-2018 (Article 27), which has been approved by the Colombian Congress but is still pending the compulsory presidential approval and signature, the abovementioned amounts to be paid as surface fees would be replaced by the following:

Number of hectares

0 to 5 years More than 5* to 8 years

More than 8* to 11 years

Daily minimum legal wages per

hectare

Daily minimum legal wages per

hectare

Daily minimum legal wages per

hectare 0 - 150 0.5 0.75 1.0

151 - 5.000 0.75 1.25 2.0

5.001 - 10.000 1.0 1.75 3.0

* Upon expiration of the year plus one day (5 years + 1 day, 8 years + 1 day)

The surface fee will be paid taking into account all of the area of the concession;

f) Fill out and file with ANM the basic mining forms (Formatos Básicos Mineros, hereinafter “FBM”), which are aimed at reporting technical information. These are presented upon expiration of the first semester of the year, and at the end of the corresponding year;

g) File a work plan (Programa de Trabajos y Obras, hereinafter “Work Plan”) with ANM, at least 30 days prior to the expiration of the exploration stage. The Work Plan is meant to be the roadmap of the mining project, and may also be objected or commented on by ANM on the grounds of a substantial breach of any legal or

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Stage Obligations

technical obligations of concessionaire concerning the matter;

h) File an environmental impact study (“EIA”) with the competent environmental authority for purposes of being able to start the activities corresponding to the construction and assembly stage, once the term of the exploration stage elapses.

2. Construction and assembly

a) Undertake the construction and assembly works foreseen in the Work Plan, pursuant to the specifications contained in it;

b) Obtain and preserve an environmental license and any other environmental permit as may be required, depending on the characteristics of the project and based on the EIA presented during the exploration stage;

c) Preserve the mining-environmental insurance policy first obtained during the exploration stage, on an amount equivalent to 5% of the investment projected for the construction and assembly stage;

d) Pay a surface fee (canon superficiario) to ANM, in the amount referred to above regarding the exploration stage.

e) Fill out and file with ANM the FBM, in the manner explained before regarding the exploration stage.

3. Exploitation a) Maintain the environmental license that must have been obtained since the construction and assembly stage as explained above, and maintain or obtain any other environmental permit that may be required, depending on the characteristics of the project;

b) Undertake all exploitation activities foreseen in the Work Plan approved by ANM;

c) Preserve the mining-environmental insurance policy first obtained during the exploration stage, on an amount equivalent to 10% of the annual production volume by the pithead price of the minerals, fixed quarterly by the government (the Unidad de Planeación Minero Energética - UPME);

d) Take and maintain all necessary measures to preserve the safety and integrity of the individuals working at the locations/facilities associated to the mining project, in accordance with the Colombian hygiene and occupational health norms;

e) Keep detailed registries of the mineral production at the pithead and assemblage places (sitio de acopio) using the forms designed by the Ministry of Mines and Energy for such purposes;

f) Take all measures and follow any rules, methods and/or technical procedures required to avoid the causation of damages to the exploited minerals or the deterioration or sterilization of in situ reserves that may be destined to future exploitation;

g) File with ANM the forms related to the minerals effectively

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Stage Obligations

exploited, and subsequently pay the amounts corresponding to the applicable royalties, observing the percentages and rules foreseen in applicable laws (mainly, Law 141 of 1994);

h) Pay any and all applicable taxes, fees and levies foreseen in regulations complementary to the Mining Code;

i) To the extent the exploitation is initiated in an anticipated manner during the exploration or construction and assembly stages (and only over a certain portion of the total area granted through the mining concession), continue to pay the surface fee regarding the area at which exploitation is not initiated, following the rules foreseen above (regarding exploration and construction and assembly);

j) Fill out and file with ANM the FBM, in the manner explained before regarding the exploration stage.

Relationship with landowners, Development/ Production tenements

Concessionaires may purchase or acquire -by any other legal means- any plot of land to be used for the development of mining projects, subject to the consent of the corresponding landowners and provided that an agreement is reached with them.

However, acquisition by mining concessionaires of the property rights over the lands subject to mining concession agreements is not necessary for the initiation or continuance of a mining project, considering that the Mining Code provides for legal -mandatory- easements to be declared over any lands whenever deemed necessary for the performance of any activities associated with either of the stages composing the mining activity. As a result, the process required to “formalize” easements over lands involved in a mining project does not seek to decide whether the easement may or may not be imposed, because it can be alleged that such easement already exists, by mandate of the Mining Code; therefore, such process merely seeks to declare the existence of an already constituted easement, fix the amount that, in any case, shall be paid by the mining concessionaire to the landowner affected by the easement, as compensation for the damages caused, and determine whether any guarantee or bond shall be required in order to cover any possible liabilities. The process is initiated before the major of the municipality where the affected lands are located, and any decision thereof may be appealed by either party before the Governorship. The right of way can be recorded in the relevant immovable property file at the Real Estate Registry (Oficina de Instrumentos Públicos).

In the event easements are not enough to allow for mining projects to be undertaken in their entirety, expropriation is the ultimate resource foreseen in the Mining Code. The expropriation measure is taken through the course of a dual process, consisting of an administrative stage followed by a judicial procedure. As indicated regarding easements, expropriation also entails the payment, by the concessionaire, of a just compensation to the landowner for the damages caused.

Both the easement and expropriation measures may be imposed within or outside the areas subject to the corresponding Mining Titles, as well as over other mining titles.

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Key Issues Royalties Pursuant to Articles 58, 332 and 360 of the Political Constitution, exploitation of non-renewable natural resources subject to State ownership generates royalties as a compulsory consideration. Royalties correspond to a certain percentage, fixed or progressive, calculated over the exploited gross production of minerals associated to Mining Titles (and their sub-products), calculated or measured at the pitheads, payable in currency or in kind. The funds corresponding to the royalties are to be collected and distributed pursuant to the provisions contained in Law 141 of 1994.

The following chart sets forth the percentages to be applied for the calculation of the royalties payable regarding each mineral:

Mineral Percentage payable as royalty (%)

Coal > 3 million tons per year 10 Coal < 3 million tons per year 5 Nickel 12 Iron and copper 5 Gold and silver 4 Alluvium gold 6 Platinum 5 Salt 12 Limestone, plaster, clay and gravel 1 Radioactive minerals 10 Metallic minerals 5 Not metallic minerals 3 Construction materials 1 Emeralds and other gemstones 1.5 Other minerals 3

Taxes

There are various tax advantages and incentives applicable to private parties carrying on mining activities, including the following:

1. Income Tax Benefits

a) Presumptive income exclusion: Presumptive income tax is an alternate minimum tax applied on 3% of the net equity of the taxpayer as of the end of the year prior to the one for which income tax is being calculated. As a general rule, taxpayers have to pay tax on their presumptive income whenever said income is higher than ordinary taxable income. However, companies in the mining sector, whose exclusive business purpose is the mining activity different from the exploitation of liquid and gaseous hydrocarbons, are entitled to subtract from their presumptive income basis the net equity value of goods directly associated with their business purpose.

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b) Amortization of Investments: Intangible exploration and production costs may be amortized in a term not less than five years. When exploration is unsuccessful, costs may be written off for tax purposes in the year in which the unsuccessful condition is determined, or within the following two years.

2. Value-Added Tax and Customs Duties Benefits

a) Temporary Import of mining machinery and equipment: Although this must be analyzed on a case-by-case basis, it is possible to obtain a holiday of customs duties and VAT on importations for the mining industry; and custom duties can be deducted from.

b) VAT exemption: If the minerals are exported, they will be VAT exempt, and VAT incurred in their exploration and production is refundable.

3. Prohibition of additional taxes to be created by departmental or municipal entities. The mining exploration and exploitation activities, the minerals resulting from such activities, the machinery, equipment and all other elements required for such activities, and the ore storage and ore dressing, cannot be burdened with any department or municipal, direct or indirect taxes.

Registration requirements related to the commercialization of minerals

Pursuant to Law 1450 of 2011 (former National Development Plan, for 2010-2014) and Decree 276 of 2015, a special registry was created for commercializers of minerals to be registered (“RUCOM”) as a requirement to be able to have access to the purchase and sale of minerals, with the intention for public authorities to be able to control the activity of commercialization of minerals in Colombia. The entity in charge of the administration of the RUCOM is ANM, and one of its new functions is the issuance of certificates accrediting that the individuals/entities registered with RUCOM are in fact registered.

The main obligations of commercializers regarding the RUCOM, is to obtain and present to the competent authorities the corresponding certificates of origin of the minerals commercialized, which are issued by authorized mining facilities and contain certain specific information relating to the origin, amount and other characteristics of the minerals, the basic identification data of the commercializer to which the minerals are sold, etc.

Though there are certain specific individuals or entities exempted from the obligation to register with RUCOM, the general rule is that all individuals and entities engaged in the commercialization of minerals in Colombia shall register with RUCOM.

Whenever the lawful origin of any minerals cannot be certified due to the lack of the required certificates of origin and registration of the commercializing parties with RUCOM, the National Police may seize the minerals and confiscate them with the help from the mayor of the corresponding municipality. Furthermore (and without prejudice to any subsequent criminal and administrative procedures), the National Police may inform ANM that the origin of the minerals was not properly certified, so ANM may impose the corresponding fines to the commercializers.

Transfer and assignment of mining rights Pursuant to the Mining Code, mining concessionaires may transfer and assign their rights under a mining concession agreement without any specific restrictions, provided that (i) they are in good standing regarding compliance with all of their mining obligations, and (ii) they file a notice with ANM informing said authority about the transfer or assignment agreement entered into with the relevant third party.

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Without prejudice to the foregoing, the National Development Plan for 2014-2018 (which is pending the compulsory presidential approval and signature) indicates that, in order to assign the rights arising from a mining concession, the economic capacity of the assignee shall also be accredited, for purposes of the assignment being feasible.

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Mexico Author’s Summary Author(s) Jorge Ruiz and Carlos Maass-Porras

Summary Out of Mexico’s total territory of approximately 1,964,375 square kilometers, only 30% has been explored. It is reported that, approximately 60% of Mexico’s area has geological conditions favourable for the existence of ore deposits.

Due to the reforms made in 1990s to the applicable legal framework, including the North American Free Trade Agreement and the fact that foreign investors were permitted to own 100% of a mining company, mineral exploration and other mining investment in Mexico became more attractive to foreign investors. Mexico’s legal framework is now perceived as more friendlier to foreign investment.

Mexico is the worldwide leader in silver production and also is one of the 10 main producers of 16 other minerals, including gold.

Currently there are some 857 projects at different stages of development involving some 287 foreign stock companies. 67% of the total exploration projects in Mexico relate to ore deposits of gold and silver.

Following the election of the Federal Government in 2012, a new package of reforms intended to boost Mexico’s economic growth and competitiveness was proposed by the new President Enrique Peña Nieto (jointly with the presidents of the main political parties in Mexico) through an ambitious program known as Pact for Mexico (Pacto por Mexico). The Pact for Mexico includes a general commitment to make the Mexican mining industry more efficient and socially responsible as well as the issuance of a new laws for the mining exploitation addressing the matters related with concessions and payment of federal royalties linked to production.

The abovementioned changes resulted in a proposal of certain amendments to the current Mining Law submitted before the Congress on 12 March 2013. The proposed amendments introduced the payment of royalties directly linked to the production of the mining concessions. The main purpose of such amendments was to apply the royalties received from the production primarily for the benefit of the local municipalities and communities where the mining exploitation activities occur, through the performance of public works for the social welfare of the communities.

Local Landscape Legal framework for mining General Constitution

The Mexican General Constitution provides that lands and water located in Mexico belong to the Mexican State. The State has the right to transfer title to land in order to constitute private property. Article 27 of the General Constitution provides that the nation has direct ownership of mineral deposits within the national territory. The use and exploitation of such national resources by private parties is only permitted as per the respective concessions granted by the Federal Government, through its respective government agencies and in accordance with the applicable laws and regulations. Such laws and regulations must be

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observed when exploring and extracting mineral deposits. Mineral deposits considered as strategic for Mexico are incorporated as part of the national mining reserves. Ore deposits incorporated into the national mining reserves are not subject to mining concessions or mining allotments, unless such zones are segregated from the mining reserves through a decree issued by the Federal Government. Only after such a decree is issued by the Ministry of Economy declaring the zone as “free land” (as further explained below), may such area be subject to a mining concession or a call for bids made to grant one or more mining concessions over such ore deposits.

Mexican Mining Law

The Mexican Mining Law is a federal statute that governs the grant, use, cancellation and expiration of mining concessions. The Mining Law regulates mining as contemplated by the General Constitution. The provisions of the Mining Law are of a public nature and must be observed throughout Mexico.

The Mining Law applies to a detailed list of specifically identified minerals and other substances. The Federal Government is empowered to issue decrees to include additional minerals within the scope of the Mining Law.

The exploration, exploitation and processing of minerals or substances governed by the Mining Law are considered of public benefit and therefore take precedent over any other use of the land, subject to the conditions imposed by the Mining Law.

Regulations

On October 12, 2012, the Ministry of Economy published in the Federal Official Gazette the Mining Law Regulations (the Regulations), which abrogated the prior mining regulations published on February 15, 1999. The Regulations provide for the granting and management of mining concessions and the forms to exercise and comply with the rights and obligations granted by such concessions. Additionally, the Regulations updated and introduced some terms and concepts not regulated under the former mining regulations and provide guidelines in connection with the receipt, management and notices of the respective applications before the General Coordination of Mines. The Regulations also include the specifications for the development of survey works, as well as the conditions and requirements for the registration of proceedings and agreements before the Mining Public Registry.

In addition to the Regulations, the Handbook of Services to the Public in the Mining Sector (Manual de Servicios al Público en Materia de Minería) provides for the administrative proceedings and forms for the petitions, applications, notices, filings and review of matters provided for in the Regulations and in the Mining Law, the requirements and methods to carry out surveys and the location of mining lots.

Authorities Involved in the Mining Industry

• Ministry of Economy

• Mines Coordination National Department

• Public Registry of Mining

• Mexican Geological Service (SGM)

• Mining Promotion Trust

• The Institute for the Administration and Valuation of National Assets (INDAABIN)

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• National Institute of Statistics, Geography and Information

Foreign Investment Law

The Foreign Investment Law allows full foreign participation in mining activities. Foreign investors may wholly own Mexican mining companies, except for radioactive minerals. No authorization is required from any governmental authority.

Water Legislation As in the case of other countries, most of the mining projects are generally located in areas not serviced by city or municipal water utilities. Mexican law provides the possibility to acquire water rights through a concession and extract this natural resource from available aquifers. As provided by the National Water Law, the extraction of water or disposal of wastewaters requires a water concession title from the National Water Commission (“CONAGUA”). Prior to securing a water concession, it is necessary to verify that the property where water will be extracted is not a restricted area as established by the CONAGUA. In such case, a drilling permit will also require an environmental impact authorization. Additionally, if a mining project requires the construction of roads or infrastructure on riverbeds, a permit from the CONAGUA will be required as well.

Water concession titles are usually granted for a 5 to 30 year period. Once granted, quarterly and annual reports must be filed before the CONAGUA in order to account for the water volume extracted and the amount of wastewater disposed. Water concession users must pay the usage fees provided by law.

Restrictions on foreign investment in mining

In Mexico, Mining Concessions over ore deposits may be granted only to Mexican nationals, Mexican companies, ejidos (land granted by the government to individuals for agricultural and ranching purposes), agrarian communities, townships and indigenous communities. In the case of companies, they must be domiciled in Mexico, and their bylaws shall cover the exploration or exploitation of minerals and substances subject to the Mining Law. Foreign participation in the ownership of such companies must comply with provisions of the Foreign Investment Law, which currently does not impose any limitations with respect to mining, except for radioactive materials.

In addition, the General Constitution provides that only Mexicans by birth and Mexican companies are entitled to obtain Mining Concessions, but the Mexican Government may grant such concessions to foreigners on condition that the foreigners must agree before the Ministry of Foreign Relations to consider themselves nationals with respect to such concessions, and not to invoke the protection of their governments in relation to such concessions, upon penalty of losing the concession to the Mexican Government for breaching this agreement. Accordingly, the Foreign Investment Law provides that the authorization from the Mexican Government for the acquisition of a mining concession must be deemed granted should the Ministry of Foreign Affairs not publish its rejection in the Mexican Federal Official Gazette, within five business days following the submission date of the concession claim/application.

Environmental considerations

The exploration, development and operation of a mining project in Mexico require the observance of several laws and regulations intended to protect the environment. As a result mining companies are obligated to secure certain environmental permits, licenses and authorizations for: (i) Natural Protected Areas; (ii) Forest Land Use Change; (iii) Environmental Impact Authorization; (iv) Land Use License & Construction Permit; and (v)

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Permit for the Use of Explosives, among others, and the obligation to observe a number of Mexican Official Standards.

Natural Protected Areas

The Federal Government constantly protects several ecosystems and some of the country’s most valuable natural resources. To that end, the Federal Government has issued specific decrees for the constitution of Natural Protected Areas. The Federal Government has established 176 Natural Protected Areas throughout Mexico. Each Natural Protected Area has zones where mining activities are forbidden or highly regulated; these limitations are applicable to private and public property within those areas.

It is important to note that if an economic activity has been initiated with the applicable permits and licenses and a decree restricting mining activities is later issued and activities are restricted, it may be possible to invoke the protection of international treaties and federal provisions for purposes of compensation or other actions that could protect the investor.

Forest Land Use Change

As provided by the federal environmental regulations, when vegetation in a forest or natural land is totally or partially removed in order to use such land for non-forestry activities, its developer is required to secure a Forest Land-Use Change approval from the Ministry of Environment and Natural Resources.

Environmental Impact Authorization

As provided by the federal environmental regulations, prior to any mining exploration and exploitation activities, as well as to the construction of roads, storage facilities, offices and the like, companies or individuals conducting such construction are required to procure the corresponding Environmental Impact Authorization before the Ministry of Environment and Natural Resources. In order to consolidate and file the documentation required to obtain the aforementioned authorization, it is required to perform an environmental impact study of the activities to be engaged in. Such study is recommended to be conducted by a certified consultant.

Land Use License & Construction Permit

Depending on the location of a mining project, a land use license permit is generally required by local urban development regulations, if any. Usually, such regulations must be reviewed to determine whether the specific project is compatible with the local or regional urban development plan. Accordingly, local construction regulations, if any, provide for the obligation to secure a construction permit for the construction of any improvements related to the mining project.

Permit for the Use of Explosives

A general permit before the Ministry of Defense (“SEDENA”) is required for the purchase, storage and use of explosives in a mining project, as provided by the Firearms and Explosives Federal Law and its Regulations. The explosives permits required for mining exploitation activities are limited to the mining lots covered in the mining concessions and are subject to periodic renewal. The purchase of explosives requires prior authorization of the Regional Military Zone where the mining project is located and involves periodic inspection by the military authority, as well as the observance of certain limitations imposed by the Firearms and Explosives Federal Law and its Regulations.

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Indigenous people considerations

In Mexico, Mining Concessions over ore deposits may be granted only to Mexican nationals, Mexican companies, ejidos (land granted by the government to individuals for agricultural and ranching purposes), agrarian communities, townships and indigenous communities. The indigenous communities are acknowledged and referred to in Article 2 of the General Constitution. The Mexican Agrarian Law requires that the ejidos must comply with its provisions in order to obtain a mining concession. See section on Restrictions on foreign investment in mining.

Exploration Land Subject to a Concession

Concessions are granted over “free land” pursuant to the “first in time, first right” principle, which establishes that the first person to request a concession over a certain portion of land will have the right to such concession, provided all other requirements under the Mining Law and its Regulations are met. Under the Mining Law, “free land” means any land within the national territory, except for (i) zones incorporated into mineral reserves; (ii) land covered by existing concessions and allotments; (iii) land covered by pending applications for mining concessions and allotments; (iv) land covered by mining concessions granted through a bidding process and those derived therefrom which have been cancelled; and (v) land covered by mining lots from which no concessions would be granted due to the cancellation of the bidding process.

Minerals Excepted from Concessions

The following are excepted from the application of the Mining Law: (i) petroleum and hydrocarbons (solid, liquid or gaseous), except gas associated with deposits of mineral coal; (ii) radioactive minerals; (iii) substances dissolved in underground water; (iv) rocks or products derived from their decomposition which are only subject to be used for the fabrication of construction materials; (v) any product derived from the decomposition of rocks, the exploitation of which is carried out through works on the area; and (vi) salt coming from a basin that does not reach the ocean.

Types of Concessions

Due to an amendment of the Mining Law, since April 28, 2005, in Mexico there has been no distinction between exploration and the exploitation mining concessions. Therefore, the Mining Law currently provides the existence of Mining Concessions which allow the title holder to perform (i) exploration works on the ground for the purpose of identifying ore deposits and quantifying and evaluating economically usable reserves and accordingly to perform work to prepare and develop the area containing the ore deposits; and (ii) exploitation works to detach and extract mineral products from such mineral deposits. Mining concessions are granted for a term of 50 years from the date of their registration in the Public Registry of Mining and are subject to renewal for an equal term if: (1) the holder does not cause cancellation of the concession by any act or omission so sanctioned by the Mining Law; and (2) the holder requests the extension within five years prior to the expiration date.

Rights under Concessions

Concessions do not confer direct surface property rights, except for the rights to: (i) carry out exploration or extracting activities within the mining lot covered by the concession; (ii) dispose of the mineral products obtained from such works during the term of the concession; (iii) dispose of the debris within the area covered by the concession, unless they come from another active concession; (iv) secure the expropriation, temporary occupation or establishment of an easement on the lands required to perform the exploration, extraction

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and processing, as well as the disposal of debris, rocks, clinker and slag heaps, as well as to establish underground right-of-way easements; (v) secure certain water rights related to the concession for the exploration, exploitation and processing of minerals and substances obtained and for the domestic use of the same for the employees of the mines; (vi) preferential rights on water coming from the mines for any use different to the foregoing, in terms of the applicable law; (vii) transfer title to the concession or assign rights thereto to persons legally entitled to such rights (viii) segregate or consolidate mining lots; (ix) waive title and rights derived from mining concessions; and (x) secure the extension of the mining concessions for a subsequent 50-year term.

The same rights apply to the holders of a mining concession for the exploration and exploitation, or production rights.

Article 27 of the General Constitution provides that the Mexican State has direct ownership of mineral deposits within the national territory. The use and exploitation of such national resources by private parties are only permitted pursuant to concessions granted by the federal government, through its respective government agencies and in accordance with applicable laws and regulations. The federal government collects the corresponding fees from the mining concessionaires.

Steps to acquire a n exploration right

Mining concessions may be secured either through a public bid or by an application process filed by the interested party before the corresponding Mining Agency in terms of the Mining Law, Regulations and Handbook of Services to the Public in the Mining Sector. Public bids apply when the government considers it necessary to exploit certain mining reserve areas or by the cancellation of mining allotments granted to the SGM, which has carried out prior exploration works.

Applications and reports related to mining concessions must be filed using the forms set forth in the Handbook of Services to the Public in the Mining Sector. The forms indicate the number of copies and exhibits to be attached, including the obligation to attach the receipt for payment of the applicable fees.

The transfer or assignment of concessions or rights thereunder may be freely made to any party having legal capacity. The transfer of mining concessions or rights thereunder shall produce legal effects against third parties and the Ministry of Economy upon their registration before the Public Registry of Mining. Commercial agreements, such as credit agreements or securities, may impose liens or otherwise create security interests in the concession rights, always as they are duly recorded before the Public Registry of Mining. Generally, a transfer or assignment will be null and void when made to an ineligible person under the Mining Law (i.e., a company incorporated outside of Mexico). However, the Mining Law provides that a transfer to an ineligible person will not be null and void when it occurs pursuant to a court ruling in payment of a debt, and provided further that the rights are then transferred to an eligible person within 365 calendar days after the date of the judgment awarding the rights to the creditor.

Relationship with landowners - Exploration Mining rights granted under a concession do not include direct ownership or possession rights over the land where the ore deposits are located. Therefore, since the Mining Law provides that the exploration, exploitation and processing of the minerals and substances covered by the Mining Law are preferred over land uses, when the owner of the concession does not have direct possession or property rights to access the land where the ore deposits are located, such concession holder is entitled to file a procedure to procure (i) a condemnation (always that a cause of public interest is evidenced); (ii) a temporary

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occupation; or (iii) an easement over the land necessary to explore and exploit the ore deposits covered by the concession.

The extension of land subject to the temporary occupation or easement derived from a mining concession must be allocated considering the essential areas of land required to carry out the exploration, exploitation and processing works. In the event of subdivision of the mining lots, the subdivision request shall provide the name of the owner or owners of the new lots, in the understanding that these owners shall be co-owners of the rights of the concession over the lot to be subdivided, as well as the rights and obligations derived from the expropriation, temporary occupation or easement which will correspond to each co-owner. Any of the foregoing options to procure rights over the land requires the filing of an administrative proceeding before the Ministry of Economy. The corresponding resolution is issued by the Ministry of Economy after reviewing technical reports filed by the requesting party (who shall provide the Ministry with all the required information and documents as stated by the Regulations) and after hearing the affected landowner, which shall be indemnified according to an official appraisal carried out by the National Property Managing and Appraisal Institute (INDAABIN), in terms of the provisions set forth by the Regulations. In the case of expropriation, when applicable, the Ministry of Economy must submit the corresponding resolution to the Federal Government. The expropriation of land owned by “ejidos” and communities where many of the mining projects throughout Mexico are located shall be subject to the provisions of the agrarian law.

The incorporation of easements or temporary occupation of land subject to “ejido regime” or “communal property,” as well as the expropriation of such land or its incorporation into the private property, in most cases represents a lengthy and cumbersome procedure. In most cases, the owners of concessions decide to negotiate a lease or a similar agreement to secure possession of the land area required for their mining activities.

In the event that the exploration and exploitation works are performed within mining lots located in the Maritime Terrestrial Federal Zone these activities will require, in addition to the authorizations, permits and concessions issued by the Ministry of Economy through its General Coordination of Mines, the authorizations, permits and concessions provided in the General Law of National Assets which shall be issued by the Ministry of Environment and Natural Resources.

In such concessions it is very common to operate a loading and unloading minerals port, the development and operation of such ports require a permit issued by the Ministry of Communications and Transportation. The mentioned Ministry shall be responsible to issue the proper permits and authorizations to build the port according to the dimension and use of the port to be built as well as the vessels that will be arriving to such port.

Obligations of holder - Exploration

The Mining Law imposes the following obligations on title holders of mining concessions:

(a) to commence exploration or exploitation activities within 90 days after the date the concession is recorded before the Public Registry of Mining, with the obligation to conduct and evidence a minimum investment or extract economically viable minerals in the amounts provided under the Regulations;

(b) to pay mining concession fees;

(c) to comply with technical safety and environmental standards;

(d) to leave in place permanent fortification works, shoring and other installations necessary for the stability and safety of the mines;

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(e) to preserve landmarks in the same place and in good condition;

(f) to provide the Ministry of Economy with statistical, technical and accounting reports in terms of the Regulations and the Mining Law;

(g) to allow inspection visits from the Ministry of Economy;

(h) to provide the Ministry of Economy with geological mining reports when the mining concession is cancelled due its term expiration, or due to abandonment, substitution or reduction, a penalty or judicial resolution;

(i) to provide the SGM, in case of those mining concessions granted through a bidding process, semiannual reports of the works carried out and of the production obtained from the lot covered by the mining concession, for purposes of payment control of the finders’ fee or any other economic fee provided in favor of such organism; and

(j) to file reports before the Ministry of Economy on those activities and works carried out from January to December of the prior year.

A mining concession holder must show that the execution of works have proceeded as planned, either by establishing the investments made, or the economically exploitable minerals obtained. The Regulations establish the mandatory amounts of investment based on the land area comprising the concession as well as the periods in which the verifications shall be submitted to the Mining General Direction.

Transfer of mining concessions

The transfer or assignment of concessions or rights thereunder may be freely made to any party having legal capacity. The transfer of mining concessions or rights thereunder shall produce legal effects against third parties and the Ministry of Economy upon their registration before the Public Registry of Mining. Commercial agreements, such as credit agreements or securities, may impose liens or otherwise create security interests in the concession rights, always as they are duly recorded before the Public Registry of Mining. Generally, a transfer or assignment will be null and void when made to an ineligible person under the Mining Law (i.e., a company incorporated outside of Mexico). However, the Mining Law provides that a transfer to an ineligible person will not be null and void when it occurs pursuant to a court ruling in payment of a debt, and provided further that the rights are then transferred to an eligible person within 365 calendar days after the date of the judgment awarding the rights to the creditor.

Holding tenements Rights to hold

Due to an amendment of the Mining Law, since April 28, 2005, in Mexico there has been no distinction between exploration and the exploitation mining concessions. Therefore, the Mining Law currently provides the existence of Mining Concessions which allow the title holder to perform (i) exploration works on the ground for the purpose of identifying ore deposits and quantifying and evaluating economically usable reserves and accordingly to perform work to prepare and develop the area containing the ore deposits; and (ii) exploitation works to detach and extract mineral products from such mineral deposits. See Exploration.

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Development / Production tenements Tenements / rights available The same rights apply to the holders of a mining concession for the exploration and exploitation, or production rights. See Exploration.

As mentioned above, Article 27 of the General Constitution provides that the Mexican State has direct ownership of mineral deposits within the national territory. The use and exploitation of such national resources by private parties are only permitted pursuant to concessions granted by the federal government, through its respective government agencies and in accordance with applicable laws and regulations. The federal government collects the corresponding fees from the mining concessionaires, as we have explained.

Obligations of holder - Development / Production tenements

A mining concession holder must show that the execution of works have proceeded as planned, either by establishing the investments made, or the economically exploitable minerals obtained. The Regulations establish the mandatory amounts of investment based on the land area comprising the concession as well as the periods in which the verifications shall be submitted to the DGM. See Exploration.

Key Issues Export

Exporters must comply with certain requirements such as being a company incorporated under Mexican law, having a taxpayer number, etc. In addition, the exportation of ore is subject to tariffs which depend upon the specific ore, as well as several requirements and permits required by the General Direction of Foreign Trade of the Ministry of Economy, the Register for Exporters Sector before the Tax Administration Service and possibly other related authorities.

Taxes

At the present time, the taxes that the mining concessions holders shall pay are provided in the Mexican Government Services Charges Law. Thus, Article 63 of the Mexican Government Service Charges Law provides for the payment of fees for the application for a mining concession, based on fixed rates for lower and higher parameters per hectare covered by a mining concession and for the additional hectares exceeding the lower parameters; and also Article 263 of the Mexican Government Service Charges Law provides for the payment of semiannual fees based on a rate per hectare covered by a mining concession. In addition, three different fees or royalties applicable to the mining activity in Mexico exist as per the Federal Fees Law (LFD). Such fees are as follows:

Special Mining Fee

This fee shall be calculated at a 7.5% rate over the positive difference resulting from subtracting the deductions allowed in the Mexican Income Tax Law (MITL) from the income resulting from the revenue of the mining activity.

However, for the purposes of calculating the basis of this fee, the LFD does not allow to take into account several expenses that may be incurred by the mining taxpayers. Such expenses involve investments not related to mining prospecting and exploration, as well as tax losses not yet amortized and incurred in previous fiscal years.

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Mining concessionaires and assignees shall be exempted from the payment of this fee exclusively for the use, enjoyment, or exploitation of coal gas deposits.

Additional Mining Fee

This fee shall be incurred based on the maximum rate of the mining fee set forth in Article 263 of the LFD per concession’s hectare. Usually, this fee is nominal.

Extraordinary Mining Fee

This fee shall be calculated at a 0.5% rate over the income resulting from the sale of gold, silver, and platinum, without any deduction.

Mexican Energy Reform

On December 20th 2013, the government of Mexico published in the Official Federal Gazette a Decree amending several provisions of the Political Constitution of the United Mexican States in the area of energy (the “Reform”). As a consequence of this publication, the Reform became effective on December 21st 2013.

As a result of the Constitutional amendments in the area of energy, on August 11, 2014 several Decrees containing new laws as well as amendments to existing ones that will serve to implement and regulate the constitutional energy reform were published on the Official Federal Gazette, including a decree amending the Mining Law which became effective on August 12th 2014.

Through this amendment, the Mining Law will no longer regulate rights with respect to coalbed gas (gas grisú) in coal mining.

Coalbed gas is eliminated as a regulated mineral or substance and therefore such gas is exempted from the application of the Mining Law.

The Ministries of Economy and Energy may establish, if technically feasible, the coexistence of mineral activities with those related to the exploration and extraction of oil and other hydrocarbons, and with regard to the public service of power transmission and distribution.

It is worth noting that the Hydrocarbons Law also published on August 11, 2014 states (Article 27, Hydrocarbons Law) that exploration and exploitation agreements may be directly awarded to mining concession holders, exclusively for exploration and exploitation of natural gas contained in coal seam and produced by the mining concession holder. In this case, mining concession holders may request that they be awarded a contract for each mine where coal is being extracted, or where the activities will begin. CNH will enter into the corresponding agreement, as long as the mining concession holder demonstrates economical sufficiency and technical, administrative and financial capability required to carry out such activities.

Usual structure of venture

Mining concessions over ore deposits may be granted only to Mexican nationals, Mexican companies, 4 ejidos (land granted by the government to individuals for agricultural and ranching purposes), agrarian communities, townships and indigenous communities. There is no a specific or suggested structure for the performance of mining projects. As long as the purpose of the company encompasses exploration and/or exploitation activities, the structure of venture used for the mining is irrelevant.

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Peru Author’s Summary Author(s) Valentin Paniagua, Ina Maria Drago and Juan Manuel Casalino

Summary Peru is traditionally a mining country. It is among the five top producers of gold, silver, copper, zinc and lead. This record has been possible mainly due to an investor-friendly regulatory framework, which has remained almost unchanged for the last 20 years. One of the few regulatory changes worth mentioning is the Mining Royalties Law passed in 2004 (further amended and complemented in 2011), which requires mining companies to pay a consideration for the exploitation of mineral resources. Moreover, considering that mining activities are key to the economy, mining companies are usually granted several tax benefits, as well as investment guarantees.

Although obtaining a social license to operate has become more challenging in the past few years, new schemes are being developed to deal with local communities and benefit sharing. In Peru, all mineral resources are vested in the government and can only be privately exploited by obtaining one of the four existing types of concessions : (i) mining concessions (for exploration and exploitation activities); (ii) processing concessions; (iii) general works concessions; and (iv) mineral transportation concessions.

Mining concessions are property-related rights, distinct and independent from the surface land in which they are located. Thus, in order to conduct mining activities, mining companies must also secure a right to use the surface lands from whoever owns the land. The government has recently passed several rules to expedite the use of publicly owned lands.

Additionally, mining companies must apply for several authorizations and licenses from different governmental agencies, including environmental permits.

Local Landscape Legal framework for mining

The 1992 General Mining Law approved by Supreme Decree N. 014-92-EM (the “General Mining Law”) is the key legislation governing mining activities in Peru. Mining activities involve the exploration and exploitation of metallic and nonmetallic mineral resources, excluding oil and gas.

Various other laws and regulations govern specific titles, occupational health and safety, environmental protection, mining operations and taxation.

According to the Peruvian constitution, all mineral resources are vested in the government. Private parties can exploit mineral resources under the concession system (mining lease). The development of any mining activity requires a concession, with the exception of reconnaissance,1 prospecting,2 storage3 and commercialization. The General Mining Law states that local and international trading of minerals is free.

1 Reconnaissance is the activity conductive to revealing levels of mineralization through elementary mining. 2 Prospecting is the research conductive to identifying potential mineral deposits by means of physical and chemical indicators measured using precision techniques and instruments. 3 Storage of the mineral concentrates outside the mining operation areas is considered as a mining activity that does not operate under the mining concession system.

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A concession provides its holder with the exclusive right to undertake specific mining activities within a specific geographical area, provided it has obtained a Start-up Authorization for Exploration or Exploitation Activities as well as other required License and Permits. There are four types of concessions:

Mining Concession

This type of concession grants the exclusive right to explore and exploit mineral resources (both metallic and non-metallic substances) within the area covered by the concession. It is awarded by the Geological, Mining and Metallurgical Institute of the Ministry of Energy and Mines (“INGEMMET”).

Processing Concession

This type of concession grants the right to process, purify, smelt and/or refine minerals. It is granted by the General Mining Bureau of the Ministry of Energy and Mines.

General Service Concession

This type of concession grants the right to carry out ancillary services (such as ventilation, sewerage, hoisting or underground access) to two or more mining concessions of different holders. It is issued by the General Mining Bureau of the Ministry of Energy and Mines.

Mining Transport Concession

This type of concession grants holders the right to the massive transport of minerals using non-conventional systems (such as conveyor belts, pipelines and/or track cables). It is granted by the General Mining Bureau of the Ministry of Energy and Mines.

Authorities: Mining activities in Peru are supervised by the following authorities:

(a) Ministry of Energy and Mines (Ministerio de Energía y Minas - “MINEM”)

MINEM is the authority in charge of the mining sector. It encourages the sustainable development of mining activities, as well as promotes private investment. This ministry has two main Mining Bureaus:

o The General Mining Bureau (Dirección General de Minería - “DGM”), which is responsible for ruling and promoting activities to assure the rational use of mineral resources.

o The General Mining Environmental Matters Bureau (Dirección General de Asuntos Ambientales Mineros - “DGAAM”), which is responsible for regulating the environmental aspects of mining projects, including the approval of Environmental Impact Assessments.

(b) Geological, Mining and Metallurgical Institute of the Ministry of Energy and Mines (Instituto Geológivo Minero-Metalúrgico - “INGEMMET”)

INGEMMET is in charge of granting and terminating mining concessions and managing the national concession register and geo-scientific information.

(c) Environmental Supervisory and Enforcement Agency (Organismo de Evaluación y Fiscalización Ambiental - “OEFA”.

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OEFA is in charge of supervising environmental compliance in the mining sector. It has the faculty to sanction violations to environmental regulations with fines and other ancillary measures up to approximately USD 38.5 million.

(d) The Supervising Agency for Energy and Mining (Organismo Supervisión de la Inversión en Energía y Minería - “OSINERGMIN”).

OSINERGMIN is in charge of supervising compliance with the Regulations on Mining Safety.

(e) The Labor Ministry (Ministerio de Trabajo)

This ministry is in charge of supervising compliance with labor regulations on occupational health and safety matters.

(f) Ministry of Culture (Ministerio de Cultura)

This ministry is in charge of identifying, registering, researching, preserving, and promoting archaeological sites and artifacts.

(g) The National Service of Natural Protected Areas (Servicio Nacional de Áreas Naturales Protegidas - “SERNANP”)

SERNANP manages natural protected areas and directs the National System of Natural Protected Areas.

(h) The National Service of Environmental Certification for Sustainable Investments (Servicio Nacional de Certificación Ambiental para las Inversiones Sostenibles - SENACE)

SENACE is a relatively new entity that depends from the Ministry of Environment and will be in charge of revising and approving the Detailed Environmental Impact Assessments for performing exploitation activities.

In Peru, the mining concession is used for both exploration and exploitation. See section 5 below.

Restrictions on foreign investment in mining

Under Article 71 of the Peruvian Constitution, foreign individuals (including Peruvian-domiciled companies owned ultimately by overseas investors) must obtain permission from the President of the Republic and the Board of Ministers, declared by Supreme Decree, in order to hold any type of concession over property located within 50 kilometers of any of Peru’s national borders. Although this process may be time-consuming, in nearly all cases, the government has issued this authorization.

Environmental considerations

Mining exploration activities require the prior authorization of DGAAM to confirm compliance with environmental requirements. Under this regulation, mining exploration activities are classified into two different categories (Category I and II):

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(a) Category I4 projects involve exploration activities with small impact on the environment and require an Environmental Statement (Declaración de Impacto Ambiental - “DIA”), which is automatically approved upon its filing before the DGAAM, except for some exceptional cases itemized in the regulations, such as exploration activities carried out in environmentally-sensitive or vulnerable areas (i.e., a short distance away from water bodies, glaciers, forests and areas containing environmental liabilities).

(b) Category II5 projects involve exploration activities with considerable impact on the environment and require a Semi-Detailed Environmental Impact Assessment (Estudio de Impacto Ambiental Semi Detallado - “EIA-SD”), which in all cases demands the approval of the DGAAM and a process of public hearings in locations where the project will be developed.

In March 14, 2015, a new environmental regulation for exploitation mining activities has entered into force. According to said regulation, mining concessionaires that have completed the exploration phase and envisage exploitation, processing, mineral storage, mining transport or general services activities are obliged to prepare and obtain the approval of an EIA-SD or a Detailed Environmental Impact Assessment (Estudio de Impacto Ambiental Detallado - “EIA-D”) from the DGAAM, which involves a process of public hearings in locations where the project will be developed. The activities and their appropriate environmental license are detailed in the following table:

Activity Environmental License

Exploitation EIA-D Processing EIA-D Mineral storage EIA-SD o EIA-D Mining transport EIA-SD o EIA-D General services EIA-SD o EIA-D

It is important to note that SENACE will be in charge of revising and approving the EIA-D. The transfer of such powers from the DGAAM to SENACE has already started and will be conducted in a progressive manner. Once such transfer has concluded, SENACE will have exclusive powers to approve the EIA-D for mining projects, while the DGAAM will maintain its powers to approve the DIA and EIA-SD, that is to say, projects with non-material environmental impacts.

Natural Protected Areas

The Peruvian Constitution establishes that the preservation and promotion of Natural Protected Areas is a general obligation of the government. The Natural Protected Areas Law (Law N. 26834) sets forth the rules regarding the administration, direction, protection and preservation of Natural Protected Areas.

4 Category I includes projects that will carry out a maximum of 20 drillings within an area smaller than 10 hectares (considering all platforms, trenches, auxiliary facilities and accesses) and that involve the construction of tunnels no longer than 50 meters. 5 Category II includes projects that will carry out more than 20 drillings within an area larger than 10 hectares (considering all platforms, trenches, auxiliary facilities and accesses) and that involve the construction of tunnels longer than 50 meters.

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Natural Protected Areas (“NPA”) are continental and/or maritime regions of the Peruvian territory expressly established by the government destined to the conservation of biodiversity and other values associated with the cultural, landscape and scientific interests. NPAs are part of the National Patrimony and fall within the public domain. Thus, ownership rights over them in whole or in part cannot be transferred to individuals.

The use of non-renewable natural resources, such as minerals, within NPAs is restricted. They can only be authorized if these activities are contemplated in the master plan of the NPA and if they fulfill the environmental standards, limitations and restrictions under the creation objectives, zoning and category of the park. Any activity within the NPA shall be authorized by SERNANP.

The law secures the exercise of property or other real estate rights pre-existing in the creation of the relevant NPA. However, these rights shall be exercised in harmony with the goals and purposes for which the NPA was created.

Indigenous people consideration

Peru has ratified ILO Convention N. 169, regarding Indigenous and Tribal Peoples in Independent Countries, through Legislative Decree N. 26253 and its regulations. This treaty has been implemented by the Prior Consultation Right of the Law, passed by Congress on 7 September 2011. This law acknowledges indigenous and tribal peoples’ right of consultation, because their collective rights may be affected directly by a legislative or administrative measure. However, the right is one of consultation, not veto.

This law sets certain criteria for identifying which populations are considered as indigenous ones. They must be groups of people directly descended from indigenous populations with their own customs and lifestyle, different from other sectors of the national population, and they must have an indigenous identity.

The Ministry of Culture has approved the Official Database of the Indigenous Peoples, available via web,6 which identifies the indigenous peoples that have the right to the Prior Consultation. However, it should be noted that such Official Database is only referential

In case of mining projects located in areas inhabited by indigenous peoples, the Ministry of Energy and Mines (MEM) must follow the Prior Consultation procedure before granting the Start-up Authorization for Exploration or Exploitation Activities, as well as before granting any processing concessions.

Exploration and Exploitation Tenements

The mining concession allows the holder to explore, develop and exploit the resource.

Holding tenements

The mining concession covers both exploration and mining. There is no concept of holding tenements.

Terms

Mining concessions are granted for an unlimited period of time over areas consisting of a minimum of 100 hectares and a maximum of 1,000 hectares (though concessions located at

6 http://bdpi.cultura.gob.pe/

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the sea may extend to 10,000 hectares). There is no limit to the number of mining concessions that one individual company may hold.

Mining concessions are irrevocable except in the following circumstances:

(a) Failure to pay the good standing fee for two consecutive years.

(b) Failure to pay for two consecutive years the mining penalty due when the Annual Production Target has not been met.

(c) Failure to meet the Annual Production Target within 20 years.

Transition

There are no transition issues.

Foreign ownership restrictions and government participation

According to the General Mining Law, INGEMMET only grants mining concessions to individuals domiciled in Peru or companies incorporated in Peru whose principal business is conducting mining activities. However, such companies may be wholly owned by foreign investors or branches of foreign companies that are established in Peru to carry out mining activities, with the exception set out in the Section 6.1.

Steps to acquire a right

The applicant must file with INGEMMET a request for a mining concession. The cost of such application is 10% of a Tax Unit (approximately USD121) and the Good Standing Fee for the first year (USD3 per hectare requested). In addition, the applicant must specify the Universal Transversal Mercator (“UTM”) coordinates of the concession. Pre-existing rights need to be respected.

After reviewing the application, INGEMMET will deliver to the applicant notices must be published in the official gazette (El Peruano) and in another newspaper of the capital of the province where the concession is located.

Such published notices must be delivered to INGEMMET, which in turn prepares legal and technical reports. If favorable legal and technical reports are issued, the chief of INGEMMET issues the mining concession title.

Finally, the applicant must record the title in the Public Mining Registry. Once recorded, each concession has an entry in which every operation, transfer, resolution or agreement related to the concession is recorded in order to have legal effect vis-à-vis the state or third parties.

The usual time for this procedure is six months.

In order to initiate exploration or exploitation mining activities, the mining concessionaire needs the following:

(a) Start-up Authorization for Exploration or Exploitation Activities

(b) Surface rights

(c) An environmental license (DIA, EIA-SD or EIA-D)

(d) An Archaeological Certificate

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(e) Conduction of the prior and informed consultation procedure

(f) Other permits

Relationship with landowners

Mining concessions are property-related rights (in rem) distinct and independent from the estate in which they are located. Therefore, in order to carry on mining activities, the concessionaire must obtain a right to use the corresponding estate from the landowner.

Privately owned lands

If the land is privately owned, its use for mining activities requires prior agreement with the landowner. If the negotiation fails, the mining concessionaire is entitled to apply to the Ministry of Energy and Mines for a legal mining easement over the surface lands. However, the awarding of legal mining easements by the Ministry of Energy and Mines has been rare.

State owned lands

If the surface land is state-owned property, the titleholder of a mining concession has the following options:

• Acquisition: state-owned lands can be acquired through a public bid or, exceptionally, through a direct acquisition procedure when the mining project has been officially declared by the authorities as a project of national or regional interest. It is fairly simple for medium and large mining projects to obtain such qualification.

• Easement (servidumbre): in case of state owned barren lands, the mining concessionaire is entitled to apply to the Ministry of Energy and Mines for a temporarily or permanent easement.

• Usufruct (usufructo): a right of usufruct over state owned lands can be granted by the Public Estate Agency (Superintendencia de Bienes Nacionales) through a public bid or directly to the titleholder of the mining project, when it proves either possession of the real estate for more than two years or that it will carry out an investment project that involve an economic and social use of the asset.

• Lease (arrendamiento): the Public Estate Agency is authorized to lease state owned lands for mining projects through a public bid. Direct leases are granted in very exceptional cases.

• Loan (comodato): the loan of state assets is a legal mechanism created mostly for the Public Estate Agency to adjudicate real estate properties to public entities. However, individuals are entitled to request such loan in exceptional situations (a justification is required).

• Swap (permuta): state owned lands might be swapped with private lands for the development of mining projects. Authority in charge of such procedure is the Public Estate Agency.

If the surface land is held as common property, the provision requires:

• for peasant communities located in the coastal area, a favorable vote of not less than 50% of members attending the Assembly; and,

• for peasant communities located in the highlands and Amazon area, a favorable vote of at least 2/3 of all members of the community.

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Obligations of holder

The holder must pay a Good Standing Fee (Derecho de Vigencia) of USD3 per year per hectare granted or applied for.

Mining concessionaires are required to put their concessions to work. Therefore, they must meet a minimum annual production target established by the General Mining Law being equivalent to one tax unit (approximately USD1,210) per hectare and per year in the case of metallic mining concessions, due on the 11th year following the year after the granting of the mining concession.

If the minimum annual production target is not met by then, the mining concessionaire is required to pay a penalty equal to 10% of the corresponding minimum annual production target per year per hectare (approximately USD121), until the holder meets such target.

Failure to meet the minimum annual production target by the 15th year may lead to cancellation of the concession, unless the concessionaire can prove that the non-compliance with the minimum annual production target is the result of a cause not attributable to the holder.

If such failure continues by the end of the twentieth year following the year after the granting of the mining concession, it shall be automatically cancelled.

Mining concessions in operation or production must file before June 30 of each year a Consolidated Annual Statement (Declaración Anual Consolidada - “DAC”) to the DGM.

Cultural heritage protection: Peru holds a vast archaeological heritage, both identified and still undiscovered. The Peruvian Constitution and the Cultural Heritage Law, Law N. 28296 (Ley General del Patrimonio Cultural de la Nación) protect all evidence of pre-Hispanic occupation, independently on their location (ground, underground or underwater) and whether or not they have been discovered or identified.

During the design and development of mining activities that involve the removal of topsoil, there is a chance of discovering archaeological sites or features. Therefore mining concessionaires have to obtain an Archaeological Certification that proves that no archaeological remains are located within the area of the mining project (Certificado de Inexistencia de Restos Arqueológicos - CIRA). The CIRA is valid for an unlimited period of time and it is not applicable for areas that have already been disturbed or occupied with infrastructure. After the CIRA is issued, the concessionaire must submit an Archaeological Monitoring Plan for the construction phase.

Key issues Foreign investment guarantee: Peruvian legislation recognizes several rights and guarantees to all investors, local or foreign, without distinction of sectors or kind of activity, size of the investment, geographical location or if they are individuals or companies. No filings are required and no minimum requirements have to be complied with. These rights are granted automatically to any private investor just for making investments in the country.

Among the most relevant are:

(a) Non-discriminatory treatment: National and foreign investments are subject to the same conditions.

(b) Freedom of Contract: The parties can include in their contracts any term and condition valid under the legal framework in force. They cannot be modified by law.

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(c) Free transfer of capital: The state guarantees the right of foreign investors to freely transfer, without prior authorization of any central government authority or state entity, the total of profits obtained after taxes, including the sale of shares and other assets.

(d) Freedom to access internal and external credit

(e) Free competition

(f) Guarantee for private property: Property rights are inviolable. Regarding property rights, both foreign companies and individuals are in the same conditions as Peruvians.

o Unrestrictive access to most economic sectors: national and foreign investment are subject to develop the economic activity of its preference and freedom of entry to any industry.

o Freedom to export and import.

(g) To trade freely, locally or abroad: The state guarantees the freedom to trade locally or internationally.

(h) To use the most beneficial exchange rate available in the market: whereas the foreign investor may need to change foreign currency to local currency and vice versa, he will have the right to use the most beneficial rate available at the moment of the operation.

General Stability Agreements: Notwithstanding these guarantees, investors and the enterprises in which they invest may protect themselves from changes in Peruvian law by executing Stability Agreements with the Peruvian government. The Legal Stability Agreement is a civil contract that has the force of a law and guarantees continued application of certain laws and regulations in force at the execution date.

In order to execute a Stability Agreement, investors are required to guarantee an investment of no less than USD5 million in any sector, except in mining and hydrocarbons. For these two specific sectors, the minimum investment required is USD10 million.

Sectorial Stability Agreements - Mining Stability Agreements: In addition to general Stability Agreements, local and foreign investors in mining projects are entitled to execute with the Ministry of Energy and Mines, on behalf of the Peruvian government, Guarantee Agreements and Investment Promotional Measures (hereinafter, “Mining Stability Agreements”).

Similar to general stability agreements, Mining Stability Agreements have the force of a law and protect investors from changes in certain laws and regulations for a 10- or 15-year term starting on the date when the execution or expansion of the investment is evidenced, as applicable:

(a) 10-year term: Companies that conduct mining activities that start or are carrying on operations above 350 tons per day and up to 5,000 tons per day and investment programs for a minimum amount of USD20,000,000 can be benefited by a 10-year agreement. The companies can choose to anticipate the regime stabilized in the agreement to the stage of investment for a 3 year term, and deduct this period from the 10 year term.

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(b) 12-year term: Companies with a starting capacity of over 5,000 tons per day or expansion projects aimed to reach a capacity of over 5,000 tons per day may enter into a stability agreement that also provides tax stability. In general terms, the investment programs shall amount to USD100,000,000 for the start-up of the mining activities, and USD250,000,000 for already existing mining companies with expansion projects. The companies can choose to anticipate the regime stabilized in the agreement to the stage of investment for an 8 year term, and deduct this period from the 12 year term.

(c) 15-year term: Companies with a starting capacity of over 15,000 tons per day or expansion projects aimed to reach a capacity of over 20,000 tons per day may enter into a stability agreement that also provides tax stability. In general terms, the investment programs shall amount to USD500,000,000 for the start-up of the mining activities, and USD25,000,000 for already existing mining companies with expansion projects. The companies can choose to anticipate the regime stabilized in the agreement to the stage of investment for an 8 year term, and deduct this period from the 15 year term.

Differences between the General Stability Agreements and the Mining Stability Agreements

General Stability Agreements (PROINVERSION)

Mining Stability Agreements (MINISTRY OF ENERGY AND MINES)

Tax Income tax system Income tax system

Compensation and tax refund regime Duties or tariffs Municipality taxes Consumption taxes7 Special regime for the return of taxes

Administrative Good Standing Fee and Penalties for Mineral

Properties Mining Royalty Rights regulated in the Mining Law and Regulations

Money Exchange Free exchange of the local currency No discrimination in the currency exchange rate Remittance of profits, dividends, capital and financial resources at the best currency exchange rate, without any discrimination whatsoever

Free exchange of the local currency No discrimination in the currency exchange rate Remittance of profits, dividends, capital and financial resources at the best currency exchange rate, without any discrimination whatsoever

7 Note that regime stabilized for consumption taxes does not include the tax rate.

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General Stability Agreements (PROINVERSION)

Mining Stability Agreements (MINISTRY OF ENERGY AND MINES)

Free Trade Regimen for export promotion Free availability of foreign currency and remittance of profits, dividends and royalties

Regimen for export promotion Free availability of foreign currency and remittance of profits, dividends and royalties

Labor Stability of the systems of labor engagement

Investors in mining activities are entitled to execute both types of agreement, the General Stability Agreement with PROINVERSION and the Mining Stability Agreement with the Ministry of Energy and Mines at the same time in order to benefit from both regimens.

Investment Agreements: Peru is also party to the International Convention for Settlement of International Disputes (“ICSID”) and investors can access Overseas Private Investment Corporation (“OPIC”) and Multilateral Investment Guaranty Agency (“MIGA”).

Peru has also various free trade agreements which protects investments.

Immigration: The number of foreign personnel must not exceed 20% of the total employees and the amount of the foreign personnel salaries must not exceed the 30% of the total payroll. The applicable law provides for exceptions to those limitations such as high-level executives of a new company, high-level executives.

Profit sharing: Companies in Peru must share profits with their workers. The rate of such profit sharing depends on the company’s business, and it ranges from 5% to 10%. In case of mining activities, the corresponding rate is 8% of the profits.

Mining Taxes:

(a) Depreciation : In general terms, the maximum annual depreciation rates for income tax purposes are 5% for buildings, 20% for vehicles, 25% for cattle and fishery bets, 20% for new machinery and equipment used by mining, oil and construction industries, 25% for hardware and 10% for other fixed assets.

It is also important to point out that the value of acquisition of the mining concessions is amortized as from the fiscal year in which the mining company has to comply with its Annual Production Target, within the term to be determined by the mining company based upon the probable life of the mining deposit, calculated on the proven and probable reserves and the Annual Production Target. Such value of acquisition will include the purchase price paid therefore or the expenses related to the petition, depending on the case, as well as the prospecting and exploration investments until the date on which the company is obliged to comply with the Annual Production Target, except when the mining company chooses to deduct such investments in the fiscal year when they were incurred.

Once the mining concession is in the Annual Production Target stage, the exploration expenses may be entirely deducted in the fiscal year or amortized as from such year according to a yearly rate that shall be calculated on the basis of the probable life of the mine determined in such years, which will also be established on the basis of the proven and probable reserves and the Annual Production Target.

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The development and preparation expenses that allow the exploitation of the deposit for more than one year may be entirely deducted in the year that they are incurred or be amortized in such year and the subsequent years up to two additional years.

(b) Regulatory Contributions: the titleholders of large and medium scale mining activities shall pay contributions to OSINERGMIN and OEFA to fund their supervision activities. The sum of both contributions cannot exceed 1% of the company´s annual billing after deducting the Value Added Tax and the Municipal Promotion Tax.

(c) Mining royalties: A mining royalty is a payment set by law by which the mining concessionaires are required to fulfill a monthly payment to the government for the exploitation of metallic and non-metallic minerals. As of 2004, mining concessionaires are required to pay mining royalties. Payment of mining royalties shall be done on a quarterly basis and is calculated based on whatever is greater: i) an amount determined in accordance with a statutory scale of tax rates based on a company’s operating profit margin and applied to the company’s operating profit; and, ii) 1% of the company’s net sales, in each case during the applicable quarter. The royalty rate applicable to the company’s profit is based on its operating profit margin according to the following statutory scale of rates that range between 1% and 12%. Mining Royalty payments are deductible as expense for income tax purposes in the fiscal year in which such payments are made.

(d) Special Mining Tax: In addition to the payment of mining royalties, as from 1 October 2011, mining concessionaires are required to pay a Special Mining Tax (Impuesto Especial a la Minería) to the Peruvian government for the sale of metallic resources, regardless of the state in which they are sold. The Special Mining Tax is payable on a quarterly basis and is calculated on the basis of the operating profit derived exclusively from the sale of metallic resources. The applicable Special Mining Tax (which is between 2% and 8.40%) is determined by the quarterly operating profit margin of the company and such rate is applied to the operating profit derived from the sale of metallic resources. Special Mining Tax payments are deductible as expense for income tax purposes in the fiscal year in which such payments are made.

(e) Special Mining Burden (voluntary contribution): The aforementioned mining royalties and special mining tax regimens are not applicable to holders of mining concessions who have entered into a Mining Stability Agreements before the mining royalties’ regimen and special mining tax regimens were established.

Therefore, effective as from 1 October 2011, they are expected to enter into agreements with the Peruvian Government in order to pay as “voluntary contribution” a Special Mining Burden (Gravamen Especial a la Minería) to the Peruvian government for the exploitation of non-renewable natural resources. This regimen is very similar to the aforementioned mining royalties’ regimen.

The Special Mining Burden is payable on a quarterly basis and is calculated on the basis of the operating profit derived exclusively from the sale of metallic resources. The Special Mining Burden (which is between 4% and 13.12%) is determined by the quarterly operating profit margin of the company and such rate is applied to the operating profit derived from the sale of metallic resources, according to a statutory scale of rates.

(f) Early recovery of the VAT: According to the provisions of Law 27623 by which the Regime of Final Return of VAT was approved and its Regulations, approved by Supreme Decree No. 082-2002-EF, holders of mining concessions, which are

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exclusively carrying out exploration activities, are entitled to a refund of VAT transferred to them or pay by them for the execution of its activities during the exploration phase, as long as they comply with the following conditions:

o Not have started productions operations.

o Carry out exploration of mineral resources in the country, and,

o Sign an Investment in Exploration Agreement with the State, by which an investment of at least US$ 5,000,000 is committed.

It shall be noted that the beneficiary of this regime may only claim back the VAT paid for the acquisition of goods and services that are included in a list previously approved by the Government.

[Revised as of July 2015]

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Venezuela Author’s Summary Author(s) Eugenio Hernandez-Bretón and Ignacio Duque V.

Summary Venezuela is a country with an extraordinary mining potential. Almost every mineral, metallic and otherwise, is found in Venezuela. However, Venezuela’s mining industry is relatively underdeveloped in comparison with the industry levels of other Latin American countries. The vast Venezuelan territory was explored as early as the sixteenth century by German bankers in search of precious mineral resources. British, French, South African, Italian, Canadian, Russian, Chinese, Iranian and US miners, just to name a few nationalities, have looked for diverse types of minerals throughout Venezuela, but only a handful of projects have reached sustained production status.

Generally, large mining projects have significant government participation or are controlled by the state. This is particularly the case of the iron ore industry, nationalized 40 years ago; the gold industry, nationalized in 2011, which requires that all gold produced in Venezuela must be sold to the Venezuelan Central Bank. In 2013, the Government issued a decree reserving to the Venezuelan state the direct exploration and production of certain nickel and associated mineral deposits located in the states of Aragua and Miranda, and in 2015, the Government issued another decree reserving to the state the direct exploration and production of coal and associated mineral deposits located in certain areas of the state of Zulia.

The current administration has been working on restructuring mining policy throughout the country. The new mining policy is expected to lead to an industry structure similar to the current structure of the oil industry. Therefore, mining activities will be conducted directly by the state, by wholly owned state entities or by mixed companies allowing for private participation, but with the state holding more than 50% of the capital stock. Small mining activities will also be permitted in designated areas. The date of adoption of this anticipated general reform is still uncertain.

Local Landscape Legal framework for mining

Mining is principally regulated by the 1999 Constitution of Venezuela, the 1999 Mining Law (Mining Law) and the 2001 Regulations to the Mining Law.

There is both federal and state legislation. While federal legislation is applicable to metallic minerals, state legislation applies to non-metallic minerals and varies from state to state. Currently, there are 23 states in Venezuela. The legislation covers the exploration, exploitation, usufruct, holding, circulation, transport, and internal or external marketing of the extracted substances. Non-metallic minerals located in the capital district are also subject to special legislation.

Another important instrument is the declaration of jurisdiction of the Ministry of Petroleum and Mining (MPM) over all matters related to mining and foreign investment in the mining sector.

Venezuela has a civil-law-based legal system.

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All minerals belong to the state. As a consequence, private mining requires government authorization.

During the last few years, the administration has been working on restructuring mining policy throughout the country. Gold mining was recently reserved to the state, and private participation is limited to shareholding of less than 45% of the capital stock of mixed companies under state control. The expected new general mining policy would lead to an industry structure similar to the current structure of the oil industry, under strict state control. Accordingly, mining activities will be conducted directly by the state, by wholly owned state entities or by mixed companies allowing for private participation, but in which the state holds more than 50% of the capital stock. Small mining activities will also be permitted in designated areas. However, the date of adoption of this anticipated general reform is uncertain.

Oil and gas activities are regulated by a separate set of legislative regime, comprising the 2001 Organic Law of Hydrocarbons, amended by law reprinted in the Official Gazette N° 38.493 of 4 August 2006; the Organic Law of Gaseous Hydrocarbons, published in the Official Gazette N°36,793 of 23 September 1999; and its Regulations, published in the Special Official Gazette N° 5,471 of 5 June 2000.

Restrictions on foreign investment in mining

Restrictions on foreign investment apply to small and artisan mining and to mining rights on properties located near the Venezuelan borders. Foreign governments cannot hold mining rights in Venezuela. Foreign-state entities or foreign state-owned/controlled companies need prior authorization from the National Congress.

Environmental considerations

In general, enforcement of Venezuela’s environmental laws and regulations has been lax. As time passes, however, the Ministry of Ecosocialism, Housing and Habitat continues to press for full compliance with the environmental rules. The fact that criminal courts may also enforce environmental laws increases the risk for parties that fail to comply, particularly given that criminal courts have no knowledge of and very little experience in environmental matters.

Article 15 of the Mining Law requires that all mining activities be performed in compliance with applicable environmental legislation. Decree N° 2,219, published in Special Official Gazette No. 4,418 of 27 April 1992, governs renewable natural resources, including the exploration and extraction of minerals. Mining activities are also subject to the technical standards that regulate the control of hazardous waste generation and handling (Decree No. 2,289), the control of contamination generated by noise (Decree N° 2,217), activities that cause changes in the flow and obstruction of riverbeds and sedimentation problems (Decree N° 2,220), liquid effluents (Decree 883), the control of air pollution (Decree No. 638) and the opening of trails and access roads (Decree N° 2,226). Likewise, mining activities require compliance with the Environmental Impact Statement (EIS) requirements before initiating the exploitation phase of a particular project.

The authorizations for the establishment of mining projects include the obtainment of land occupation and resource affectation authorizations, in accordance with the guidelines described above.

Bonds must be posted in favor of the Ministry of Ecosocialism, Housing and Habitat to secure the performance of environmental obligations. The administrative trend is to demand that mining concessionaires repair all environmental damage existing in their areas, even if the same has been previously caused by third parties.

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Indigenous people considerations

The rights of indigenous people are protected in the constitution and in the Organic Law of Indigenous People and Communities (Indigenous People’s Law) published in the Official Gazette N° 38.344 of 27 December 2005. Under Article 11 of the Indigenous People’s Law, all activities relating to the use of natural resources and other development projects on indigenous land or habitats are subject to the information and previous consultation procedure established in the aforementioned law.

Exploration Tenements Although the Mining Law establishes five different kinds of right to carry out mining activities (directly by the National Executive, Concessions for Exploration and Subsequent Exploitation, Exploitation Authorizations for Small Miners, Mining Communities and Artisan Mining), the only form of right of commercial and industrial importance is the mining concession.

Any national or foreign individual or legal entity domiciled in Venezuela and capable according to law may obtain mining rights, excluding rights for small mining carried out individually or in communities. Small mining is reserved to Venezuelan citizens or Venezuelan legal entities, while artisan mining is reserved to Venezuelan citizens. Venezuelan public officials and specific relatives of such officials, as well as foreign governments and companies dependent on such governments or controlled by them, are prohibited from acquiring mining rights or require prior authorization.

Terms

Concessions for Exploration and Subsequent Exploitation confer upon their holders the exclusive right to explore the granted area and to select the surface determined by the technical, financial and environmental studies for their further exploitation.

Areas are oriented according to the Universal Transversal Mercator (UTM) projection system or any other major technological advancement adopted by the MPM.

The concessions for exploration and subsequent exploitation are awarded for plots of land that must be divided into lots with an area that may vary from a minimum of 493 hectares to a maximum of 513 hectares, with a total extension not exceeding 6,156 hectares (i.e., 12 lot units). The maximum number of lots that may be granted to the same holder is two, that is, 24 lot units.

The concessionaire is entitled to select from the explored lots up to a maximum of six adjacent lots (covering in the aggregate not more than half of the original extension) for exploitation purposes.

Concessions may not exceed a term of 44 years. Concessions provide for an exploration term of no more than three years, with one extension of one year. The exploitation term may not be more than 20 years as of the date of publication of the respective Exploitation Certificate, with a maximum of two 10-year extensions granted at the discretion of MPM.

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Steps to acquire an exploration right

The application for a Concession for Exploration and Subsequent Production is filed with the MPM and must include the following items:

• Identification of the applicant, indicating domicile, nationality, status and in what capacity he is acting; if it is a company, the name or purpose, domicile and place of incorporation. In case of foreign companies, they must fulfill the requirements of the Commercial Code and other applicable regulations, and be represented by a Venezuelan or foreign attorney-in-fact domiciled in Venezuela.

• Indication of the type of mineral; estimated surface and the boundaries of the area requested; geographical location together with a sketch of the area applied for, duly signed by a mining engineer, a geodesist or a surveyor or any other professional legally authorized to do so; the designation given by the applicant; special advantages offered to the Republic and other information required by law.

• Declaration as to whether the land is vacant, protected or private property, and neighboring properties, and in this last case, the name of the owner.

• Proof, to the satisfaction of the MPM, of the applicant’s technical, economic and financial capacity.

• Any other information established in the regulations or requested by the MPM, per the procedures established in the Organic Law of Administrative Procedures and other laws regarding the matter.

• Should the concessionaire offer special advantages pursuant to Article 35 of the Mining Law, these must be introduced in a separately sealed envelope, which is to be opened by a committee composed of the Minister, the Legal Advisor and the Manager of Mining Concessions, upon their decision-making.

The Ministerio del Poder Popular para las Industrias Básicas y Minería (MIBAM) will approve or deny the request for the mining concession and shall notify the interested party within 40 days. This time frame can be extended for a period of up to 10 working days if deemed appropriate by the MPM. If no notification is issued, the request is deemed denied as a matter of law.

Any interested third party has 30 days in which to file an opposition. If there is an opposition, an administrative procedure is initiated at the MPM, and the MPM’s decision is the final administrative ruling on the subject. The parties may appeal the MPM’s decision.

Should there be no opposition, or when the request for opposition has been denied, the MPM will grant the concession, if all requirements under the Mining Law have been fulfilled, and will issue the Exploration Title by means of a resolution to be published in the Venezuelan Official Gazette within 20 days following the maturity date of the term of opposition or the decision whereby the opposition was denied. The concession holder must register the aforementioned resolution in the corresponding Registry of the Judicial District of the place of the concession within 20 consecutive days following its publication.

Usually, compliance with non-mining legislation is a prerequisite to conducting mining activities, and at times, mining projects remain suspended for years until all bureaucratic paperwork, permits and clearances are obtained.

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Relationship with landowners - Exploration

Generally, the holder of mining rights has preference over the landowner, except in cases of agricultural developments. The holder of mining rights is granted expropriatory powers vis-à-vis landowners and the power to obtain easement rights if necessary to conduct mining operations.

Obligations of holder - Exploration

The holder must conduct mining operations in accordance with the terms of the relevant mining deed, the Mining Law and other applicable legislation. The holder must follow a schedule as established in a pre-approved plan. The holder must file a monthly and an annual report on all mining activities carried out during the relevant period.

Holding tenements Terms of rights - Holding Tenements Once exploration is completed, the holder must select production lots. A petition for issuance of the relevant Exploitation Certificates will ensue, and until they are granted, the holder cannot initiate development/production activities.

Development / Production tenements Tenements / rights available

As mentioned above, concessions confer upon the holder exploration rights and furthermore, with the approval of the MPM, production and development rights.

Terms of rights

The concessionaire must begin exploitation of the lots of land selected for such purpose within seven years from the date of publication of the Exploitation Certificate in the Official Gazette.

The exploitation term is limited to a maximum of 20 years, extendable for two periods of 10 years. In any case, the concession term may not exceed a maximum of 44 years. Certain surface fees or superficial taxes must be paid.

Transition from exploration / holding right to mining right - Development / Production tenements The right arising from the mining concession is a real property right. However, the MPM must first authorize and grant a permit in order to alienate, encumber, lease or subcontract the property for exploitation. To obtain this authorization, the concessionaire must have carried out prior activities and required investments for presentation of the development and exploitation program, which should be filed 30 days before the commencement of the development/production process.

During the exploration term, the concessionaire must present to the MPM the plans of the plots of land selected for exploitation and the technical, financial and environmental feasibility studies of the concession in order to be granted the Exploitation Certificate.

Prior to the initiation of exploitation, the concessionaire needs to submit to the MPM a performance bond to cover the exploitation and development program for an amount equal to 5% of the estimated income based on annual sales.

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Foreign ownership restrictions and government participation

Restrictions on foreign investment apply to small and artisan mining and to mining rights on properties located near the Venezuelan borders. Foreign governments cannot hold mining rights in Venezuela. Foreign-state entities or foreign state-owned/controlled companies need prior authorization from the National Congress. See also section 1 regarding anticipated changes.

Steps to acquire a right - Development / Production tenements

During the exploration term, the concessionaire must file a request for the Exploitation Certificate with the MPM, attaching the plans and studies of the technical, financial and environmental feasibility of the concession, along with a document soliciting its approval and requesting the expedition of the Exploitation Certificate. The MPM will publish the request in the Official Gazette.

Upon publication of the request, any interested third party has 30 days in which to file an opposition.

Once the plans and studies for exploitation are admitted, the MPM will issue its approval by means of resolution in 30 days, which shall order that the Exploitation Certificate be granted in a period of 30 days counted from the publication of the resolution in the Official Gazette. The concession holder must register the aforementioned resolution in the corresponding Registry of the Judicial District of the place of the concession within 30 days following its publication.

It is not possible to predict the time for the granting of the certificate of exploitation.

Relationship with landowners - Development / Production tenements

Generally, the holder of mining rights has preference over the landowner, except in cases of agricultural developments. The holder of mining rights is granted expropriatory powers vis-à-vis landowners and the power to obtain easement rights if necessary to conduct mining operations.

Obligations of holder - Development / Production tenements

As mentioned above, the development or commencement of production must begin within a period of seven years from the granting of the Exploitation Certificate.

The holder must give preference to Venezuelan personnel, and at least 90% must be Venezuelan citizens, provided that the holder employs a minimum of 10 workers/employees.

Preference should be given to local suppliers, but there is no obligation to acquire a specific percentage of goods and services from local suppliers.

Key Issues Export

Export of gold is severely restricted by applicable legislation. Similar restrictions do not apply to other minerals.

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Taxes

The holders of mining rights must pay a surface tax for each hectare, starting in the fourth year of the concession, calculated in tax units per hectare, and an exploitation tax equal to:

• 3% of the commercial value, in Caracas, of the refined material, for gold, platinum and metals associated with platinum. A special reduction of the applicable tax (1%) will apply if the gold is sold to the Central Bank of Venezuela;

• 4% of the commercial value in Caracas, for diamonds and other precious stones; and

• 3% on the commercial value, at the mine, for other minerals, which includes costs until the extracted mineral, whether or not crushed, is deposited in the vehicle that is to carry it outside the limits of the area awarded, or to a plant for refining.

Usual structure of venture

The preferred corporate structure is a corporation or compañía anónima incorporated in Venezuela and registered with the MPM. However, the type of structure should be carefully evaluated from a tax standpoint.

Protection for foreign investors

The usual protection under bilateral and multilateral investment treaties is available. Domestic legislation also grants that same standard of protection.

Special advantages

Private persons may be required to offer special advantages, stipulated by MPM, to the republic whenever requesting a concession. These advantages normally refer to aspects such as the supply of technology, payment of special contributions, internal supplies, provision of infrastructure, social endowment, and obligations to train and specialize in mining, among others.

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Canada Author’s Summary Author(s) Greg McNab and Marcus Hinkley

Summary The mining industry contributes greatly to Canada’s economic strength. The industry employs 418,000 workers across the country in mineral extraction, smelting, fabrication and manufacturing. The Canadian mining sector’s predominant production includes the Northwest Territories as the country’s dominant source of diamonds, leading in the production of gold are Ontario and Quebec, Saskatchewan produces all of Canada’s uranium and has world-class potash reserves, British Columbia is prominent in metallurgical coal production, Newfoundland and Labrador and Quebec produce virtually all of Canada’s iron ore and several provinces have strong copper and nickel production.

Canada is a federal state comprised of 10 provinces and three territories, each with their own governments that exercise exclusive powers derived from the Canadian constitution. The constitution affords the federal government powers over matters that concern Canada as a whole, including international trade, interprovincial trade, national defence, ports and currency among others. There is considerable overlap with respect to many of these topics. Each of the provinces and territories has the power to enact laws in relation to property, contracts, natural resources, and employment, amongst others. Mining as an industry attracts all of these areas of regulation and is therefore regulated provincially for the most part. For the most part, mining activities are governed by the province or territory in which the mine is physically located. The federal government has some overlapping jurisdiction however in regards to environmental regulation, aboriginal peoples and taxation. This creates a regime which differs as you cross the country, but generally focusses on the following aspects of the mining industry: ore body ownership, leases, staking claims, prospecting, effluent and environmental impact, health and safety and control of explosives and blasting.

Canada continues to attract significant foreign investment in the resource sector due to its relatively stable political regime and approach to regulation of the extractive sector. However, some recent amendments to provincial legislation have increased the costs of carrying on mining activity in Canada (for example, proposed changes are pending to the Province of Quebec’s mining royalty regime). In addition, recent increased enforcement of the Corruption of Foreign Public Officials Act (Canada) within Canada in connection with mining activity outside of Canada has encouraged mining companies to increase their compliance efforts.

Local Landscape Legal framework for mining Canada is a federal state composed of 10 provinces and three territories, each with their own governments that exercise exclusive powers derived from the Canadian constitution. The constitution affords the federal government powers over matters that concern Canada as a whole, including international trade, interprovincial trade, national defense, ports and currency, among others. There is considerable overlap with respect to many of these topics.

For the most part, mining activities are governed by the province or territory in which the mine is physically located. The federal government has some overlapping jurisdiction,

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however, in regards to environmental regulation, indigenous people, including Indians, Métis and Inuit (“Aboriginal Peoples”) and taxation.

The Canadian legal system is predominantly based on British common law. However, the province of Quebec still maintains a civil law system which it retained from its French settlers. Under the constitution of Canada, both common law and civil law jurisdictions have equal authority in a court of law, and both English and French languages are equally authoritative. As a result, laws can vary significantly between Quebec and other provinces of Canada, and legal terminology can be misconstrued when translated from English common law to French civil law terminology.

Metallic minerals and other natural resources in the ground are predominantly owned by the province in which they are located (with the exception of limited cases of private or Aboriginal ownership), but minerals located in offshore waters and the continental shelf are the property of the federal government. Subsequently, both levels of government have their own mining, environmental and ancillary legislation in relation to mining projects in these areas.

In Ontario, for example, a mining claim grants a claim holder mineral rights to all naturally occurring metallic and non-metallic minerals, including coal, salt, quarry and pit material, gold, silver and all rare and precious minerals and metals within the claim area, but does not include sand, gravel, peat, gas or oil.

While the Ontario regulation is typical of schemes in other jurisdictions across Canada, notable distinctions do exist.

Exportation of minerals is often governed by an industry-specific permitting scheme, e.g., uranium, which has stringent measures due to its use in nuclear technology. Often, the province where minerals are mined will restrict exports and require extracted minerals to be processed in the province or within Canada.

In much the same way as metals and minerals, the rights to, and regulation of, oil and gas is largely undertaken by the provinces, with the federal government having jurisdiction over related areas of the law, and power in relation to oil and gas reserves within the Northwest Territories, the Yukon, Nunavut the continental shelf and offshore. The federal government also has power over international and interprovincial trade, and therefore, due to Canada having the second largest proven oil reserves in the world, the federal government has a more influential role to play in the regulation of oil and gas as opposed to the regulation of other minerals.

Despite the similarities between oil and gas and mineral regulation, there are some notable differences. The migratory nature of oil and gas has led to some separate legislation dealing exclusively with oil and gas.

Restrictions on foreign investment in mining

Generally, there are no restrictions on foreign investors holding direct or indirect interests (through a Canadian-incorporated subsidiary) in mining rights. However, an investment in a Canadian mining company may require filings and approvals under the Investment Canada Act and general securities legislation. Provincial and territorial legislation does not currently restrict mining rights based on citizenship or residency. The Canadian government also continues to be of the view that it expects reciprocal benefits from the investor nations, and that any foreign investment within the sector is not a threat to Canadian national security.

Recent amendments to the Investment Canada Act have provided the government with very broad powers to examine any investment in Canada made by a non-Canadian on the basis

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that the government reasonably believes that the investment could be injurious to national security. A transaction cannot be closed without approval if the government has given notice to the non-Canadian prior to implementation. If the transaction has already closed, the federal cabinet may order divestiture. “National security” is not defined and to date, virtually no guidance has been provided as to how this provision will be interpreted or implemented. The time period for review is very open-ended.

Foreign entities looking to conduct exploration, development or production work in one of Canada’s provinces or territories will be required to register in that province or territory under the applicable corporate statute. The rules and regulations in this regard vary from province to province, but generally it is a straight forward process requiring an entity to file registration documents and apply to register to pay tax.

Environmental considerations Few major projects in Canada can escape the scrutiny of both the federal and provincial governments as both levels enforce environmental protection policies. In recent years the federal government in particular has been playing a more active role in regulating and enforcing environmental laws, causing further jurisdictional conflicts.

Both levels of government have developed broad ranging powers in order to manage the environmental effects of commerce and industry. On the whole, environmental regulation consists of the prohibition of the discharge of polluting substances into the environment, except where expressly authorized by the relevant governing body in the form of a permit or approval.

Criminal sanctions are a major component of environmental legislation. The cost of rectifying environmental damage can be financially crippling, and governing legislation is broad enough to impose liability on previous owners in some cases.

Indigenous people considerations

Aboriginal Peoples and their rights often must be considered at the outset of any mining development activities. Although mineral rights are generally under the jurisdiction of the province they are located in, Aboriginal Peoples’ rights are under the jurisdiction of the federal government of Canada and their rights can include traditional rights to the land (such as hunting, fishing and forestry), treaty rights, land claim rights and reserves.

Recognition of Aboriginal Peoples’ rights has increased over the last few decades, and the courts in Canada have imposed a legal duty on the Crown to consult with Aboriginal Peoples where proposed actions may affect their rights or land. This duty to consult is proportionally contextualized to the anticipated impact of a mining project on Aboriginal Peoples’ rights, and the strength of the rights or claims asserted by the Aboriginal Peoples. Subsequently, the complexity and length of the consultation process will vary from project to project. For instance, projects that anticipate minor impacts on Aboriginal Peoples’ rights may require only a duty to give notice, share information and discuss important factors of the project with aboriginal communities. On the other hand, if the project is anticipated to have major adverse implications on Aboriginal Peoples’ rights, then the duty to consult becomes more onerous and may include more in-depth consultations leading to mitigation and/or accommodation.

Although there is a duty to consult with the Aboriginal Peoples over proposed mining developments, the Canadian courts have held that there is no concurrent duty to reach an agreement with an aboriginal community. The duty to consult is aimed at ensuring a fair decision-making process that encompasses the opinions of affected parties, and the Crown must act in good faith to carry out genuine consultations that are appropriate in the

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circumstances. Ultimately, however, the Aboriginal Peoples do not have veto over what the Crown can do.

Unlike the Crown, private companies are not constitutionally obliged to consult with Aboriginal Peoples, but may have an express statutory duty to do so (for example, Ontario’s Mining Act obliges developers to negotiate and/or consult with Aboriginal Peoples throughout the mining process). These duties can vary from province to province and will be determined ultimately by the physical location of the proposed project.

Aboriginal consultation is now a normal course of developing mining projects in Canada. Therefore, mining companies are advised to identify affected Aboriginal Peoples prior to the engagement of exploration or development, to begin discussions to ascertain the level of impact of the proposed activities on aboriginal communities. Preliminary consultations can help determine the major issues at hand and also help find solutions that work for both parties and mitigate risks.

Exploration Tenements

As discussed above, the location of the minerals will dictate which level of government has the jurisdiction to grant rights over the claimed resources, and both levels of government have developed substantive laws and regulations to govern mining, environmental and occupational health and safety concerns in relation to mining projects.

Due to Canada’s abundance of natural resources, mining rights are well developed. This allows the courts, tribunals and other established dispute resolution bodies to offer a degree of certainty for actors within the industry.

The rights available are set out in section 6.2 below.

Terms

The table below summarizes typical license characteristics in Canada. All dollar amounts in the table below, including the symbol $, refer to lawful currency in Canada.

Jurisdiction Prospecting Licenses

Mining Claims Leases Royalties / Tax

Alberta An exploration license must be obtained prior to a company or person applying for, or carrying out an exploration program, and is a prerequisite for securing an exploration permit or approval. A license allows the holder to explore for metallic and industrial minerals throughout Alberta.

Type: Permit Term: 14 years Renewable: No Area: Between 16 and 9,216 hectares Fee: $625 Minimum Assessment Work: For each two-year period, $5 per hectare per year for the first period; $10 per hectare per year for each of the next two periods and $15 per hectare per year

Not applicable: Leases are not generally available for exploration activity.

No royalties or taxes are payable for exploration activity.

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Jurisdiction Prospecting Licenses

Mining Claims Leases Royalties / Tax

An exploration permit is required in order to operate equipment during exploration. Exploration approval from the Land and Forest Service of Alberta Environmental Protection (“LFSAEP”) is required in order to conduct exploration that requires environmental disturbance, including drilling. Various information is required to be submitted to the LFSAEP in order to secure approval, including the type of mineral explored for and the techniques used. Fees: License $50 Permit $50 Approval $100

for each of the next four periods. May cancel the permit/license if no exploration work is carried out for a period of at least three years, or if the operator has ceased to carry on business in Alberta for at least three years.

British Columbia

Term: One year Renewable: Yes Fee: $500

Term: One year Renewable: Yes Area: Up to 100 complete or partial adjoining mining cells Fee: $1.75 per hectare per year Minimum Assessment Work: $5 per hectare per year for the first and second anniversary years; $10 per hectare per year for the third and fourth anniversary years; $15 per hectare per year for the fifth and sixth anniversary

Not applicable: Leases are not generally available for exploration activity.

No royalties or taxes are payable for exploration activity.

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Jurisdiction Prospecting Licenses

Mining Claims Leases Royalties / Tax

years ; and $20 per hectare per year for each anniversary year thereafter. A recorded holder of a mineral claim must not produce, or cause to be produced, more than 1,000 tonnes of ore in a year from each unit/cell. A bulk sample of up to 10,000 tonnes of ore may be extracted from a claim not more than once every five years.

Manitoba Prospecting Licenses Permits the exploration for minerals. Term: Lifetime Renewable: No Transferable: No Mineral Exploration Licenses Awards the exclusive right to explore for minerals. Term: Three or five years depending on location Renewable: Yes Fee: $401 Minimum Expenditure: Between $0.50 per hectare per year and $15 per hectare per year depending on the location of the area and the year of the license

Term: Two years Renewable: Yes Area: Between 16 and 256 hectares Fee: $16 for unsurveyed territory; $67 for surveyed territory Minimum Expenditure: $12.50 per hectare per year increasing to $25 per hectare per year after year 10, unless the license is for an area designated as Zone A or B, in which case varying minimum expenditure is require depending on location and number of years explored, between $0.50 per hectare and $15 per hectare.

Not applicable: Leases are not generally available for exploration activity.

No royalties or taxes are payable for exploration activity.

New Brunswick

Term: Expires on 31 December in the year of issuance

Term: One, two or three years from the effective date

Not applicable: Leases are

No royalties or taxes are payable for

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Jurisdiction Prospecting Licenses

Mining Claims Leases Royalties / Tax

Renewable: Can extend for a maximum of 12 months Fee: $100 for a natural person, $200 for a partnership, $500 for a corporation

Renewable: Yes; up to three terms of one year each A claim cannot be renewed for more than one term at a time unless the dollar value of the work in that term equals or exceeds the estimated dollar value of the work to be completed in the subsequent term(s). Area: Not less than one mineral claim unit and no more than 256 mineral claim units Fee: $10 per mineral claim unit increasing to $50 per mineral claim per year for all terms after the 16th term Minimum Required Work: $100 per mineral claim per year for the first term increasing to $800 per mineral claim per year for all terms after the 25th term Payment in lieu of required work in first year: $20

not generally available for exploration activity.

exploration activity.

Newfoundland and Labrador

Term: Five years Renewable: Yes; maximum of 3 times for a period of 5 years each; after the 3 terms, it can be renewed up to 10 times for a period of one year each Fee: $65 per claim

Term: Five years Renewable: Yes, to a maximum of 30 years in total. Fees for renewal vary from $50 to $200 per claim per year, depending on the term of the claim. Area: Up to 256 coterminous map- staked claims (each map-staked claim is 25 hectares or less)

Not applicable: Leases are not generally available for exploration activity.

No royalties or taxes are payable for exploration activity.

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Jurisdiction Prospecting Licenses

Mining Claims Leases Royalties / Tax

Fee: $65 per claim. Minimum Assessment Work: Between $200 and $2,500 per claim per year depending on the year and term of the license Area: 100 conterminous map staked claims

Northwest Territories and Nunavut

Term: One year Renewable: Yes Fee: $5 for an individual, $50 for a corporation Transfer: No consent required

Term: Three years or five years, depending on location of claim Renewable: No; extension of one year available if unable to complete minimum assessment work Area: Maximum 1,250 hectares; cannot include certain protected areas Fee: Ranges from $0.25 per acre for the first work period to $1 per acre for the third work period (work periods are either one or two years depending on the location of the claim) Minimum Assessment Work: $10 per hectare during the first two years, $5 per hectare each subsequent year Transfer: No consent required

Not applicable: Leases are not generally available for exploration activity.

No royalties or taxes are payable for exploration activity.

Nova Scotia Term: One year from date of issue [ Renewable: May be renewed once each year for a further year. Fee: $10.00 per claim

Term: One year Renewable: Yes Fee: $20 per claim in the first year, increasing to $320 per claim in years 26 and after Minimum Assessment Work: $200 per year per claim for the first 10 years; $400 per

Not applicable: Leases are not generally available for exploration activity.

No royalties or taxes are payable for exploration activity.

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Jurisdiction Prospecting Licenses

Mining Claims Leases Royalties / Tax

year per claim for years 11 to 15; $800 per year per claim for years 16 and after

Ontario Term: Three years Renewable: Yes Fee: $25.50

Term: No expiration provided work requirements are met and fees are paid Renewable: Yes Area: Minimum 16 hectares; maximum 256 hectares. Fee: $20.40 to $61.20, depending on the number of claims staked Minimum Assessment Work: $400 within the first two years; $400 every year thereafter

Not applicable: Leases are not generally available for exploration activity.

No royalties or taxes are payable for exploration activity.

Prince Edward Island

Term: One year Renewable: Yes; for four consecutive years provided that the holder carries on mineral investigation and work as required.

Term: One year Renewable: Yes; Yes; for four consecutive years provided that the holder carries on mineral investigation and work as required. Area: Maximum of 80 claims Fee: $5 per claim Minimum Assessment Work: $5 per acre every year; excess amounts spent in one year may be credited to future years

Not applicable: Leases are not generally available for exploration activity.

No royalties or taxes are payable for exploration activity.

Québec Term: Five years Renewable: Yes Fee: $34.25 Non-transferable

Term: Two years Renewable: Yes Area: Each parcel restricted to 16 hectares and its sides shall be 400m in length Fee: Ranges from $28 to $128 per claim depending on the size and location of claims. For claims over 150

Not applicable: Leases are not generally available for exploration activity.

No royalties or taxes are payable for exploration activity.

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Jurisdiction Prospecting Licenses

Mining Claims Leases Royalties / Tax

hectares the fee is fives times the registration fee. Minimum Assessment Work: Ranges from $48 to $3,600 per claim depending on the size, location and term of the claims

Saskatchewan Term: Two years Renewable: No Fee: $0.30 per hectare, with a minimum of $3,000 Area: Between 10,000 and 50,000 hectares Expenditure Requirements: $5.25 per hectare during the term

Term: Two years Renewable: Automatic one year renewal so long as compliant with applicable regulations, including minimum spend on exploration. Area: Not less than 16 hectares but not greater than 6,000 hectares Fee: $0.30 per hectare Expenditure Requirements: Ranges from $15 to $25 per two-year period, with a minimum of $400 per period

Not applicable: Leases are not generally available for exploration activity.

No royalties or taxes are payable for exploration activity.

Yukon Term: One or five years Renewal: Year to year

Term: One or five years Renewable: Yes; two additional periods of one year each Area: Maximum size 1,500 feet by 1,500 feet for one claim or 2,250 by 2,250 feet per claim where two or more locators Fee: $25 per mile or fraction of a mile Minimum Assessment Work: $200 per claim per year work done outside the claim will be considered ‘work done’

Not applicable: Leases are not generally available for exploration activity.

No royalties or taxes are payable for exploration activity.

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Jurisdiction Prospecting Licenses

Mining Claims Leases Royalties / Tax

Term Rental: $10 for one year claim and $50 for five year claim Renewal: starting at $10 for one year renewal increasing by $10 per year to $50 for five year renewal Transfer: Requires the Minister’s consent

Steps to acquire an exploration right

Within Canada, there are two main procedures for acquiring mining rights: the “free-entry” system and the “Crown discretion” system.

The free-entry system allows both individuals and corporations to obtain mineral rights by staking claims on their own initiative and later acquiring Crown leases if they so desire. Mining rights under this system are acquired on a first-come, first-served basis, and most of the provinces and territories within Canada have adopted this system, including British Colombia, Manitoba, New Brunswick, Newfoundland and Labrador, the Northwest Territories, Nunavut, Ontario, Québec, Saskatchewan and the Yukon.

The Crown discretion system involves the granting of mineral rights at the discretion of the relevant provincial or territorial government, and is applicable in Alberta, Nova Scotia, and Prince Edward Island.

Relationship with landowners - Exploration

Depending on the type of property (Crown land, private land or Aboriginal People’s property) and type of project, different requirements apply to the interaction between stakeholders in the property.

Obligations of holder - Exploration Project developments, typical license renewals and report filings will be required. These requirements vary from one province or territory to another.

Holding tenements Rights to hold Canada does not have a system of holding tenements, to bridge the gap between when the exploration is finished and the development starts. Typically the interest has to be maintained by either exploration or development work, performed and reported periodically in a prescribed fashion.

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Development / Production tenements Tenements / rights available Some form of mining lease is generally required to permit the extraction of minerals from a mining property. Typical mining leases are issued for a specific term, are subject to an annual maintenance fee, and are transferable in certain cases.

Surface rights are the rights of the owner of surface lands under which minerals are located. These rights interact with those of the mineral owner.

Terms of rights The table below summarizes typical lease/license characteristics in Canada. All dollar amounts in the table below, including the symbol $, refer to lawful currency in Canada. Please note that in some jurisdictions specific lease requirements are in place for specific minerals and metals. We have based our summary below on the general framework for precious metals and commonly mined minerals in Canada.

Jurisdiction Prospecting Licenses

Mining Claims

Leases Royalties / Tax

Alberta Not applicable: In order to develop or produce minerals and metals, a lease to the sub-surface or surface rights is usually required.

Not applicable: In order to develop or produce minerals and metals, a lease to the sub-surface or surface rights is usually required.

Term: 15 years Renewable: Yes Annual Rental: $3.50 per hectare (minimum $50 for the year) Area: Not more than 2,304 hectares Transfer: Requires the Minister’s consent Fee: $625 (+tax) application fee

Before payout, 1% of mine mouth revenue; after payout , the greater of 1% gross mine mouth revenue and 12% of net profits. Combined Federal/Provincial income tax rate of 25% (Alberta 10% + Federal 15%)

British Columbia

Not applicable: In order to develop or produce minerals and metals, a lease to the sub-surface or surface rights is usually required.

Not applicable: In order to develop or produce minerals and metals, a lease to the sub-surface or surface rights is usually required.

Term: Not more than 30 years Renewable: Yes Annual Rental: $20 per hectare Transfer: No consent required Permit fees: Major mine applications can attract a fee of up to $125,000 per application, depending on the complexity of an application.

Tax of 2% of net current proceeds and 13% of net revenue Combined Federal/Provincial income tax rate of 26% (British Columbia 11% + Federal 15%)

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Jurisdiction Prospecting Licenses

Mining Claims

Leases Royalties / Tax

Manitoba Not applicable: In order to develop or produce minerals and metals, a lease to the sub-surface or surface rights is usually required.

Not applicable: In order to develop or produce minerals and metals, a lease to the sub-surface or surface rights is usually required.

Term: 21 years Renewable: Yes Application Fee: $267 Annual Rental: If in production, $10.50 per hectare, but not less than $193. If not in production, $12 per hectare but not less than $257. Transfer: Requires the Minister’s consent Minimum Expenditure: $625 per hectare for initial lease; $1,250 per hectare for renewal

Tax is applied at graduated rates: (a) 10% of the operator’s profit for the year, if the profit for the year is $50,000,000 or less; (b) $5,000,000 plus 65% of the operator’s profit for the year in excess of $50,000,000, if the profit for the year is more than $50,000,000 and not more than $55,000,000; (c) 15% of the operator’s profit for the year, if the profit for the year is more than $55,000,000 but not more than $100,000,000; (d) $15,000,000 plus 57% of the operator’s profit for the year in excess of $100,000,000, if the profit for the year is more than $100,000,000 and not more than $105,000,000; or (e) 17% of the operator’s profit for the year, if the profit for the year is more than $105,000,000. Combined Federal/Provincial income tax rate of 27% (Manitoba 12% + Federal 15%)

New Brunswick

Not applicable: In order to develop or

Not applicable: In order to develop or

Term: 20 years Renewable: Yes; two additional terms of 20 years each

Two-tier mining tax system with a 2% tax on net revenue and a 16% tax on

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Jurisdiction Prospecting Licenses

Mining Claims

Leases Royalties / Tax

produce minerals and metals, a lease to the sub-surface or surface rights is usually required.

produce minerals and metals, a lease to the sub-surface or surface rights is usually required.

Annual Rental: $6 per hectare Transfer: Requires the Minister’s consent Minimum Required Work: $60 per hectare per year Application fee: $500

net profit Combined Federal/Provincial income tax rate of 27% (New Brunswick 12% + Federal 15%)

Newfoundland and Labrador

Not applicable: In order to develop or produce minerals and metals, a lease to the sub-surface or surface rights is usually required.

Not applicable: In order to develop or produce minerals and metals, a lease to the sub-surface or surface rights is usually required.

Term: Not more than 25 years Renewable: Yes; for term of not more than 10 years Annual Rental: $80 per hectare Transfer: No consent required; transfer document must be completed and filed. Annual Rental: $105 per hectare

Tax of 15% on net income plus 20% on the royalty receipts Combined Federal/Provincial income tax rate of 29% (Newfoundland and Labrador 14% + Federal 15%)

Northwest Territories and Nunavut

Not applicable: In order to develop or produce minerals and metals, a lease to the sub-surface or surface rights is usually required.

Not applicable: In order to develop or produce minerals and metals, a lease to the sub-surface or surface rights is usually required.

Term: 21 years Renewable: Yes Annual Rental: $2.50 per hectare for the first term and $5 per hectare thereafter Transfer: No consent required Fee: $25 per claim in the lease

Royalty of the lesser of 13% of output and the amount determined by a formula in s.65(1) of the Northwest Territories and Nunavut Mining Regulations that applies a progressive rate that starts at 5% for output in excess of $10,000 and increases to 14% for output in excess of $45 million Combined Federal/Provincial income tax rate of 26.5% for Northwest Territories (Northwest Territories 11.5% +

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Jurisdiction Prospecting Licenses

Mining Claims

Leases Royalties / Tax

Federal 15%) Combined Federal/Provincial income tax rate of 27% for Nunavut (Nunavut 12% + Federal 15%)

Nova Scotia Not applicable: In order to develop or produce minerals and metals, a lease to the sub-surface or surface rights is usually required.

Not applicable: In order to develop or produce minerals and metals, a lease to the sub-surface or surface rights is usually required.

Term: 20 years Renewable: Yes; an additional 20 years Annual Rental: $120.90 per claim, paid in advance for the first year. Transfer: Requires the Minister’s consent

Annual royalty of the greater of 2% of net revenue or 15% of all net income. If gross income for the fiscal year is less than the prescribed minimum amount, the total royalty is 2% of net revenue Combined Federal/Provincial income tax rate of 31% (Nova Scotia 16% + Federal 15%)

Ontario Not applicable: In order to develop or produce minerals and metals, a lease to the sub-surface or surface rights is usually required.

Not applicable: In order to develop or produce minerals and metals, a lease to the sub-surface or surface rights is usually required.

Term: 21 years Renewable: Yes; further term of 21 years Annual Rental: $3 per hectare Transfer: Requires the Minister’s consent

Tax of 10% on net profit (5% for remote areas). Royalties: No royalties payable on the first $10,000 of net value of output for the year, after that royalties vary between 5%-13% on net value of the output for the year between $5 million and $14 million, with a royalty of 14% on net amounts above that. Combined Federal/Provincial income tax rate of 26.5% (Ontario 11.5% + Federal 15%) No tax payable on profit under $500,000

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Jurisdiction Prospecting Licenses

Mining Claims

Leases Royalties / Tax

No tax payable on the first $10 million or first three years (10 years for remote area), whichever comes first. Mining land tax of $4 per hectare per year.

Prince Edward Island

Not applicable: In order to develop or produce minerals and metals, a lease to the sub-surface or surface rights is usually required.

Not applicable: In order to develop or produce minerals and metals, a lease to the sub-surface or surface rights is usually required.

Term: 20 years Renewable: Yes; further 20 years Rental: $1 per acre Transfer: Requires the Minister’s consent. A lease will not be granted for more than 80 claims. If the operator ceases to operate for a period of 12 months the lease shall be surrendered for a development license.

No royalty regime in place Combined Federal/Provincial income tax rate of 31% (PEI 16% + Federal 15%)

Québec Not applicable: In order to develop or produce minerals and metals, a lease to the sub-surface or surface rights is usually required.

Not applicable: In order to develop or produce minerals and metals, a lease to the sub-surface or surface rights is usually required.

Term: 20 years. Renewable: Yes; three periods of 10 years each, and may be renewed for periods of five years thereafter. Rental: $21.90 per hectare on granted or alienated lands; $46 per hectare on lands in the public domain Transfer: Must be registered Mining leases for surface minerals may be granted for up to 10 years, depending on whether it is exclusive or non-

There are two levels of taxation in Quebec: 1. A royalty on production - a 1% tax on the first $ 80 million of output value at the mine shaft head and 4% on any value in excess of that. This applies to all companies operating a mine in Quebec regardless of profitability. 2. A graduated tax based on a company’s profit margin - a tax rate of 16% to 28% will apply to annual profit according to

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Jurisdiction Prospecting Licenses

Mining Claims

Leases Royalties / Tax

exclusive. the company’s profit margin. Combined Federal/Provincial income tax rate of 26.9% (Quebec 11.9% + Federal 15%)

Saskatchewan Not applicable: In order to develop or produce minerals and metals, a lease to the sub-surface or surface rights is usually required.

Not applicable: In order to develop or produce minerals and metals, a lease to the sub-surface or surface rights is usually required.

Term: 10 years Renewable: For further terms of 10 years provided that regulatory requirements are met. Annual Rental: $10 per hectare, minimum of $1,600 per lease Transfer: No consent required (however you must register it) Expenditure Requirements: $35 per hectare per year. Must begin work on the property within four years after the lease is issued.

5% of net profit from sales of up to one million troy ounces of precious metals; 10% of net profit from sales in excess of one million troy ounces of precious metals There is a 10-year royalty holiday from the date that commercial production begins, provided that commercial production began after 2002 Combined Federal/Provincial income tax rate of 27% (Saskatchewan 12% + Federal 15%)

Yukon Not applicable: In order to develop or produce minerals and metals, a lease to the sub-surface or surface rights is usually required.

Not applicable: In order to develop or produce minerals and metals, a lease to the sub-surface or surface rights is usually required.

Term: The lease grantor can set out the term of the lease, but it cannot be more than two years renewable: Yes; at the discretion of the grantor Term Rental: $50, plus $50/hectare for every portion above 2 hectares

Annual royalties are based on the value of the output of the mine The rates are 3% on output between $10,000 and $1 million; 5% on output between $1 million and $5 million; and a proportional increase of 1% on each additional $5 million in output, to a maximum of 12% Combined Federal/Provincial

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Jurisdiction Prospecting Licenses

Mining Claims

Leases Royalties / Tax

income tax rate of 30% (Yukon 15% + Federal 15%)

Transition from exploration / holding right to mining right - Development / Production tenements One may not acquire a mining lease/right in any province or territory without first holding a claim.

Foreign ownership restrictions and government participation

Generally, there are no restrictions on foreign investors holding direct or indirect interests (through a Canadian-incorporated subsidiary) in mining rights. However, an investment in a Canadian mining company may require filings and approvals under the Investment Canada Act and general securities legislation. Provincial and territorial legislation does not currently restrict mining rights based on citizenship or residency. The Canadian government also continues to be of the view that it expects reciprocal benefits from the investor nations, and that any foreign investment within the sector is not a threat to Canadian national security.

Recent amendments to the Investment Canada Act have provided the government with very broad powers to examine any investment in Canada made by a non-Canadian on the basis that the government reasonably believes that the investment could be injurious to national security. A transaction cannot be closed without approval if the government has given notice to the non-Canadian prior to implementation. If the transaction has already closed, the federal cabinet may order divestiture. “National security” is not defined and to date, virtually no guidance has been provided as to how this provision will be interpreted or implemented. The time period for review is very open-ended.

Steps to acquire a right - Development / Production tenements

The general requirements that a claimholder must satisfy in order to obtain a mining right are to (i) complete a survey of the lands, (ii) file an application in the prescribed form and (iii) pay the required fees and a portion of rent deposit. Certain jurisdictions also require advertising of the intent to apply for a mining right.

Relationship with landowners - Development / Production tenements

As a general rule, surface rights owners and mineral rights owners must act in a way so as not to injure their neighbors. This usually requires a surface rights owner to provide a mining rights owner with reasonable access to a property, and the mineral rights owner must support the surface lands without interference.

Obligations of holder - Development / Production tenements

Requirements such as expenditure and restrictions on time to develop vary significantly amongst jurisdictions and are prescribed in legislation.

Employment requirements vary significantly amongst jurisdictions and are prescribed in legislation, and in some cases, involve requirements with respect to Aboriginal Peoples.

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Domestic supply obligations also vary significantly amongst jurisdictions and are prescribed in legislation.

Key Issues Taxes

There are several different types of royalties in the Canadian mining industry, all generally based on revenues, accounting profits or production. The specific royalties applicable to a project are subject to contract negotiation and not standardized. Typical categories include royalty in kind, fixed rate royalty, net smelter return and net profits interest.

Usual structure of venture

Joint ventures are (incorporated or unincorporated) commonly used by investors in Canada to explore, develop and operate mining properties.

In Canada, and many other countries around the world, it is common for holders of mineral properties to grant options to other parties to acquire interests in property, particularly during the early stages of exploration and development of a project. The options often allow option holders to earn an interest in the property by funding pre-determined exploration and development costs during a defined period. Once the option holder has performed the work or expenditure requirements, the option holder may trigger the option to acquire a pre-determined percentage interest of the property known as an “earn-in” or “farm-in” right.

If the option holder exercises their right then typically the parties will continue proceedings as a joint venture, sharing costs and revenues as determined by each party’s percentage interest in the property.

Earn-in options often transfer 100% of the exploration and development costs to the option holder during the option period, and the option terms may also oblige the option holder to provide cash consideration to the option grantor as compensation for the option. Despite the burden of 100% of the initial exploration and development costs, the earn-in option is a favored vehicle for acquiring mining interests because it allows the option holder to gain exclusive access to a property during the option period, rather than making an upfront financial commitment and purchasing an interest in the property.

Transition from exploration to production

There is no interim license between an exploration and mining right. Project documents typically deal with the transition from exploration to production, but there is no set form which this transition takes. The acquisition of a mining lease usually marks the transition from mining exploration to mining production.

Security of tenure

The highest and most secure form of tenure under Canadian mining law is the mining right or lease. The term of a mining lease is usually 20 or more years, in comparison with an exploration claim term of a year. In addition, generally, once a mining lease is obtained and maintained, there is no automatic cancellation for default. A mining lease is also a proprietary interest as well as an interest in land. The mining lease also usually provides protection from attack by third parties.

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Restrictions on exports/government take

In certain cases, exportation of minerals from Canada is restricted. Certain provinces require mineral extracted in that province to be processed there or within Canada. Also see above with respect to foreign investments.

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Tax - general - http://www.nrcan.gc.ca/mining-materials/taxation/mining-taxation-regime/8890#tab3

Province/Territory Alberta British Columbia

Manitoba New Brunswick

Newfoundland and Labrador

Nova Scotia

Title of statute

Metallic and Industrial Minerals Royalty Regulation

Minerals Tax Act (BC1)

The Mining Tax Act

Metallic Minerals Tax Act (NB1)

Revenue Administration Act

Mineral Resources Act

Mining tax or royalty

rate

First tier

1% of mine- mouth revenue

2% on operating income (BC2)

n.a. 2% on net revenue 15%

2% of net revenue or NSR

Second tier

12% of net profits after payout (AB1)

13% on cumulative net profit (BC3)

10% (<$50 M); 65% ($50 M to $55 M); 15% ($55 M to $100 M); 57% ($100 M to $105 M); 17% (>$105 M)

16% on net profit (NB2) 20%

15% of net income (NS1)

Mining tax exemption for new mines ($) No No Yes (MB1)

The first tier 2% royalty is exempted in the first 2 years

Up to $2 M/year credit for first 10 years

No

Exploration expenses deductibility rate 100% 100% 100-150% 150% 100%

100% first 3 years, 30% after

Pre-production development expense

deductibility rate 100% 100%

(BC4) 20% (MB2) 100% Over the life of the mine

100% first 3 years, 30% after

Depreciation (Note 1)

Mining assets 15%

straight-line

100% 20% (MB2)

5% minimum for new or expanded mine assets, other assets 33.33% (NB3)

25% (100% for new or expanded mine assets)

100% first 3 years, 30% after

Processing assets 25%

Processing allowance

rates

Milling

n.a. n.a.

20% 8% 8% 10%

Smelting 20% 15% 15% 10%

Refining 20% 15% 8% 10%

Other n.a. n.a. n.a. n.a.

Processing allowance caps 0-65% 0-65% 0-65% 0-65%

Special features

A 10% allowance is permitted in lieu of

Investment allowance replaces the deduction for interest

Tax holiday until payback is achieved, available for new mines

Finance allowance replaces the deduction for interest expense;

In computing mining profit subject to 15% tax, a deduction is allowed equal to the greater of

n.a.

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overhead expenses; a 33.33% super-deduction for capital and pre-production costs of new or reopened mine or major expansion

established after January 1, 1993

new mine exempt from the 2% royalty in the first 2 years; the amount of 16% tax payable is reduced by 25% of eligible process research expenditures

20% of profits (before this allowance) and non-Crown royalties paid; income taxes on mining (up to $2 M per year) deductible from mining taxes for first 10 years of production

Can mine reclamation fund contributions be

deducted? Yes Yes Yes Yes Yes n.a.

Table 3. Features of Provincial/Territorial Mining Tax Regimes (cont’d)

Province/Territory Ontario Quebec Saskatchewan Northwest Territories

Nunavut Yukon

Title of statute Mining Tax Act (ON1)

Mining Tax Act (QC1)

The Mineral Taxation Act, 1983 (SK1)

Northwest Territories and Nunavut Mining Regulations (NT1)

Northwest Territories and Nunavut Mining Regulations (NU1)

Quartz Mining Act

Mining tax or royalty

rate

First tier n.a n.a. n.a. n.a. n.a. n.a.

Second tier

10% (5% for remote area)

16% (QC2)

5% (cumulative sales up to 1 M troy oz of precious metals or 1 M metric tonnes of base metals); 10% (above the thresholds)

Lesser of 13% and following formula: $10 000 - $5 M: 5%; $5 M - $10 M: 6%; for every additional $5 M annual profit, rate increases by 1% to a maximum of 14%

Lesser of 13% and following formula: $10 000 to $5 M: 5%; $5 M - $10 M: 6%; for every additional $5 M annual profit, rate increases by 1% to a maximum of 14%

$10 000- $1 M: 3%; $1-$5 M: 5%; $5-10 M: 6%; for every additional $5 M, rate increases by 1% to a maximum of 12%

Mining tax exemption for new mines ($)

no tax for profit under $0.5 M/ year; no tax for the first $10 M or first 3 years (10 years for remote

No 10-year holiday for new mines No No No

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area), whichever comes first

Exploration expenses deductibility rate 100% 100-125%

(QC3) 150% 100% 100% 100%

Pre-production development expense

deductibility rate 100% 150% 100% 100% 100%

Depreciation (Note 1)

Mining assets

30% straight-line (100% for new mine)

30% (QC4) 100% 100% 100%

15% straight-line

Processing assets

15% straight-line

Processing allowance

rates

Milling 8% 7%

n.a.

8% 8% Ministerial decision

Smelting 12% 13% 8% 8% n.a.

Refining 16% 13% 8% 8% n.a.

Other

20% northern Ontario refining

n.a. n.a. n.a. n.a.

Processing allowance caps 15-65% 0-55% 0-65% 0-65% Ministerial

decision

Special features

No mining taxes are payable in first three years of production on profits below $10 M; the period is extended to 10 years for mines in remote locations; 5% tax rate for mines in remote locations

Effective April 1, 2010, a cash refund equal to the lesser of 16% of the non-capital loss and 8% of the aggregate of exploration and development costs is available

10-year tax holiday for new mines, starting in 2007; 150% of pre-production expenses are recovered prior to any royalties being payable; separate royalties apply to potash, coal and uranium producers

Acquisition cost of expansion claims deductible within limits

Acquisition cost of expansion claims deductible within limits

(YT 1)

Can mine reclamation fund contributions be

deducted? Yes Yes Yes Yes Yes No

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United States Author’s Summary Author(s) David Malliband and Lewis Popoff

Summary Unlike other countries, in the United States, title to mineral rights is established by tracking through a series of historical instruments — there is no government guarantee of title and it is common for purchasers to rely on title insurance, title opinions from lawyers and representations, warranties and indemnification undertakings from the seller. Both federal and state law apply to most mining projects, depending largely upon whether the mineral is situated in land where both surface and subsurface rights are held by private owners (common in the eastern United States), the mineral rights have been reserved to the Federal Government (much land west of the Mississippi River) or the mineral rights have been severed from the surface rights. Mining operations trigger a comprehensive array of environmental procedures and regulations which are administered by multiple federal and state agencies. Acquisitions of major mining assets or rights (as of 2015, in excess of USD76.3 million) can trigger an obligation to obtain clearance under the Hart-Scott-Rodino Act (HSR Act).

Local Landscape Legal framework for mining

The United States is a common law country. The United States Constitution establishes a federal (i.e., national) system of government. The constitution delegates certain powers to the federal government, including the power to enact laws (delegated to the Congress, which consists of elected officials from each state); the power to implement and enforce the laws written by Congress (delegated to the President of the United States and ultimately the various federal agencies responsible for the day-to-day enforcement and administration of the laws), and the power to interpret the laws written by Congress (delegated to the court system). All powers not delegated to the federal government remain with the individual states, each of which maintains a similar system of government. Both state and federal law can impact on mining projects in the United States.

Mineral rights on private land: Under state law, mining rights on privately owned lands are generally tied to the common law property concept of “mineral rights.” In the United States, a holder of a mineral right generally has the right to explore and develop the minerals and other valuable materials lying below the surface of the property, subject to compliance with applicable environmental and safety laws and provided state and local land use laws do not restrict mining activities in the particular area.

Mineral rights are distinct from “surface rights” (i.e., the right to use the surface of the land for residential, recreational, agricultural, commercial or other purposes). Mineral rights may be severed from the surface estate and sold to third parties, or the seller may reserve the mineral rights and only sell the surface rights.

By way of historical context, most landowners in the eastern United States have traditionally owned both the surface and subsurface rights to their land. Land west of the Mississippi River was often deeded to individuals by the federal government to encourage settlement of the west, but the federal government began reserving the mineral rights to this land in the early twentieth century.

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References to private lands in this chapter refer to lands where both the surface and subsurface rights are owned by private parties.

Mining laws applicable to public land: Broadly speaking, there are three general types of minerals on public lands which are available for mining under federal law, as follows:

• Locatable minerals, which may be located within a mining claim on public land and mined under the General Mining Act of 1872 (the General Mining Law). These minerals include metallic minerals such as gold, silver, lead, copper, nickel and iron, and nonmetallic minerals such as limestone suitable for making cement.

• Leasable minerals, which are on public lands that may be leased to private parties for exploration and development pursuant to a lease granted by the federal government under the Mineral Leasing Act of 1920 (the Mineral Leasing Act). These minerals include fossil fuels such as coal, oil, oil shale and gas, as well as phosphorus, potash, and other chemical minerals such as sodium and potassium.

• Salable minerals, which may be acquired under a permit issued by the federal government under the Materials Act of 1947. These minerals include basic natural resources such as sand, gravel, rock and other construction materials. Given their high weight and low unit price, these minerals are typically used locally and are not addressed in this chapter.

Administrative oversight of mining on public lands: Approximately 640 million acres (roughly 28%) of the surface land of the United States is owned and administered by the federal government. Most federal minerals that may be acquired by location and maintenance of a mining claim (i.e., locatable minerals) exist on lands primarily in Alaska and the western contiguous United States. The US Bureau of Land Management (BLM) manages the surface of these lands. Most federal minerals in the eastern United States are leasable minerals on National Forest lands, the surface of which is managed by the US Forest Service (the Forest Service). Though management of the surface of these lands is split between the BLM and the Forest Service, the BLM manages the subsurface minerals on all federal public lands.

Restrictions on foreign investment in mining

US citizenship: With respect to private land, non-US citizens and residents can own real property in the United States. In general, there are no citizenship requirements or foreign investment restrictions specifically applicable to mining privately owned land.

With respect to public land, the General Mining Law limits the location of minerals on public land to citizens of the United States and those who have declared their intention to become US citizens. US domestic corporations are considered US citizens under this law, regardless of the citizenship of the corporation’s stockholders, and thus may make locations and hold mining claims.

Mineral deposits covered by the Mineral Leasing Act may only be leased to US citizens and to US domestic corporations except if shareholders of such domestic corporation are citizens of another country whose laws deny similar or like privileges to citizens or corporations of the United States.

CFIUS requirements applicable to mining acquisitions: Non-US entities that seek to acquire a controlling interest in a US entity involved in mining operations may be subject to investment oversight by the Committee on Foreign Investment in the United States (CFIUS), which is charged with reviewing the national security implications of foreign investment in US companies and business operations. If CFIUS determines that an acquisition may pose a

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threat to national security, it may impose conditions on the transaction or refer the transaction to the President, who has the authority to suspend or prohibit the transaction, or unwind a completed transaction.

CFIUS reviews begin with a 30-day investigatory period, which may be extended to a further 45 days for a more intensive investigation. Notification of a transaction to CFIUS is voluntary (unlike the mandatory HSR Act filings described below); however, CFIUS may institute its own investigations in certain cases. If the parties make a voluntary filing and CFIUS takes no action in 30 days, the transaction is secure from later challenge under the relevant laws.

CFIUS has recently increased its focus on “critical infrastructure,” which is defined in the relevant regulations as “a system or asset, whether physical or virtual, so vital to the United States” that their degradation or destruction would have a debilitating impact on national security.

Though CFIUS is not specifically required to review foreign investment in US mining operations, relevant factors to consider when determining whether to notify CFIUS voluntarily include the acquirer’s nationality and degree of control, the type and size of the mining asset, and the mine’s location.

Environmental considerations

Mining operations in the United States implicate a comprehensive array of environmental regulations implemented by multiple federal and state regulatory agencies. These regulations extend to the completion of pre-mining environmental assessments and the procurement of air and water permits required for active mining operations. Effective management of mining waste materials, including mine tailings and waste rock, is also required under federal and state environmental laws.

In many cases, a party wishing to construct a mine must first conduct a preliminary environmental assessment (EA) and, if necessary, a comprehensive environmental impact statement (EIS) under the Federal National Environmental Policy Act (NEPA). NEPA environmental reviews are particularly important in connection with surface mining operations likely to impact wetlands and other waters of the United States. In most cases, NEPA assessments are conducted at the direction and oversight of the United States Army Corps of Engineers which has jurisdiction over the issuance of so-called Section 404 dredge and fill permits under the Clean Water Act. The BLM oversees all NEPA reviews for mining projects on public lands.

Preparing an EA/EIS is often a time-intensive process and increasingly subject to challenges from regulatory agencies and environmental groups. An EIS typically includes a description of the proposed project, a description of the affected environment, a range of alternatives to the proposed project and an analysis of the environmental impact of the proposed project. No permits will be issued until the EA/EIS process concludes in either a “Finding of No Significant Impact” from the relevant governmental authority, or the project proponent agrees to implement acceptable mitigation measures to address identified impact to the environment.

The initiation of mining operations following the successful completion of the NEPA process will require the procurement of air permits under the Clean Air Act and water discharge permits under the Clean Water Act. These permits are typically issued by state regulatory agencies. Air permits generally address the control and management of dust during active mining operations. Increasingly, however, methane and other greenhouse gas emissions are becoming the subject of regulation and required controls. Water discharges from mine-processing operations and resource storage impoundments are also managed through

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permits which impose treatment requirements and discharge limitations on the mine. Mine tailings and waste rock must also be managed and properly disposed of under state and federal waste management regulations.

Indigenous people considerations

Native American tribal lands: Mining is not expressly prohibited on Native American tribal lands in the United States. Tribal lands are considered held in trust by the United States (i.e., as fiduciary) on behalf of a particular Native American tribe or tribal federation. Mineral rights on tribal lands may be acquired by lease or other agreements with the relevant tribes and approved by the US Department of the Interior. The relevant lease or other agreement must comply with the applicable federal laws that govern such transactions with Native Americans.

National Forest land: Forest Service regulations require that mining rights be exercised on National Forest land in a way that minimizes adverse environmental impact on surface resources. A person seeking to explore and develop minerals within National Forest lands must comply with Forest Service regulations, which, depending on the nature of the surface disturbance, can trigger a notice of intent to operate or approval of a plan of operation with respect to the proposed or ongoing mining activities, as well as compliance with relevant environmental laws.

Withdrawn areas: Areas withdrawn from mineral entry (i.e., not available for location or leasing) include National Parks, National Monuments, Indian reservations, federal wildlife refuges and other wildlife protection areas, military reservations and most reclamation projects.

Exploration Tenements Exploration rights

a) Private land

As long as the mineral rights have not been severed from the surface rights, private landowners are generally free to explore for minerals on their own land in compliance with applicable environmental laws, and state and local land use laws. A third party seeking to conduct exploration activities on privately owned land generally needs to acquire the right to do so from the landowner (and the mineral rights holder if such rights are owned by a different private party) either pursuant to a lease or outright purchase.

b) General Mining Law

Under the General Mining Law, US citizens (including domestic corporations) have the statutory right to explore and discover valuable mineral deposits on public land that is open to mining claim location.

c) Mineral Leasing Act

Under the Mineral Leasing Act, non-coal mining rights are generally subject to competitive bidding but the BLM may issue prospecting permits that provide the exclusive right to prospect on and explore lands available for leasing to determine if a valuable deposit exists of phosphate, sodium, potassium, sulphur, gilsonite or a hardrock mineral. If a permittee demonstrates the discovery, during the term of the permit, of valuable mineral deposits of the type of mineral for which the permit was issued, the BLM may issue a preferential lease right to that permittee outside of the competitive bidding process. Exploration permits are

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also available under the Mineral Leasing Act, but these are not common as they offer no preferential rights to an ultimate mineral lease.

Coal exploration licenses are available on federal coal lands, which comprise approximately 570 million of the 700 million acres of federally owned subsurface mineral rights. The BLM also administers this process. A coal exploration license does not give the licensee any preferential lease rights with respect to the coal deposits that it may ultimately discover.

Terms a) Private land

In general, there are no terms or fees payable to third parties specific to mining exploration activities conducted by private landowners who hold fee simple title to both the surface and subsurface rights on their own land. The terms, renewal rights, fees and other rights with respect to exploration by third parties on privately owned land are generally subject to the terms of the lease or other agreements pursuant to which the exploration rights were obtained.

b) General Mining Law

Both a notice filing and a plan of operations in connection with exploration activities on public lands remain in effect for a term of two years and may be extended for an additional two years. No annual fee is required but the rights holder must provide a financial guarantee sufficient to cover the costs of reclamation and any interim stabilization and infrastructure maintenance costs needed to maintain the area of operations in compliance with applicable environmental requirements. The BLM may also require the establishment of a trust fund to ensure the continuation of long-term treatment to achieve water quality standards and for other long-term, post-mining maintenance requirements.

c) Mineral Leasing Act

Non-coal prospecting permits issued under the Mineral Leasing Act remain in effect for two years. Depending on the type of mineral, these permits may be extended for up to four additional years. The permit holder is required to pay an annual rent at a rate based on the particular mineral.

Coal exploration licenses are valid for two years and may not be extended. These licenses normally cover 25,000 acres which must be contained entirely within one state. The applicant is required to post a bond prior to being granted the license in an amount sufficient to ensure compliance with the license and the exploration plan, and to cover compensation for damages to surface improvements.

Steps to acquire an exploration right a) Private land

In general, there are no notice or approval requirements that are specific to mining exploration activities conducted by private landowners who hold fee simple title to both the surface and subsurface rights on their own land. Such private landowners are generally free to conduct exploration activities on their own land in compliance with applicable environmental laws, and state and local land use laws. Notice and approval requirements with respect to third-party exploration activities on privately owned land would generally be set forth in the lease or other agreements pursuant to which the exploration rights were obtained and may also be provided for under applicable environmental laws, and state and local land use laws.

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b) General Mining Law

While US citizens have a statutory right to explore for mineral deposits on public land, federal regulations broadly provide that anyone intending to develop locatable mineral resources must prevent unnecessary or undue degradation of the land and reclaim disturbed areas.

Federal regulations establish three levels of activities in connection with the BLM’s surface management program:

• Casual use - This level includes activities that involve no or negligible surface destruction (e.g., collection of rock and mineral specimens using hand tools, use of battery-operated sensing devices). No permit is required for this type of activity.

• Notice level operations - Generally, these are activities beyond casual use (e.g., that involve the use of explosives and/or earth-moving equipment). A notice of operations must be submitted 15 calendar days before the commencement of exploration causing surface disturbance of five acres or less of public lands on which reclamation has not been completed.

• Plan level operations - A plan of operations must be approved by the BLM for all other surface disturbance activities beyond casual use and other than notice level operations.

A full environmental assessment and reclamation bonding are required in this context.

c) Mineral Leasing Act

Before being issued a prospecting permit with respect to the leasable non-coal minerals identified in section 5.1(c) above, the applicant must submit an exploration plan describing how the applicant intends to determine the existence and workability of a valuable deposit, the potential environmental impact, and proposed reclamation measures. The applicant may begin exploration activities only after the exploration plan is approved.

Exploration activities on federal coal land can only be undertaken pursuant to an exploration license issued by the BLM. Upon filing the application, which must include an exploration plan, the applicant must also publish a “Notice of Invitation” in a newspaper of general circulation in the area where the license is being sought. Federal regulations require this notice for the purpose of inviting other parties to participate in exploration under the license on a pro rata cost-sharing basis. The BLM must prepare an environmental assessment or environmental impact study, if necessary, before issuing the exploration permit.

Holding tenements Terms of rights - Holding Tenements

There are no holding tenements as such. The protections once a discovery has been made are set out in Development/production tenements.

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Development / Production tenements Tenements / rights available a) Private land

As in the context of exploration rights, as long as the mineral rights have not been severed from the surface rights, private landowners are generally free to develop the minerals on their own land in compliance with applicable environmental, safety, and state and local laws. The process for third parties to obtain mining rights from private landowners and mineral rights holders on privately owned land generally consists of negotiating the applicable terms of the lease or other agreement that will provide for the relevant mining rights.

b) Mining Claims under the General Mining Law

Nature of the claim: A federal mining claim is a particular parcel of public land valuable for a specific “locatable” mineral deposit or deposits, over which an individual has asserted a right of possession. If a claim or site meets all applicable federal and state requirements, the claimant has an exclusive possessory right to the surface land in order to develop and extract the mineral deposits found on the mining claim.

Manner of “location”: Mining claims are physically “located” by clearly marking the boundaries of the surface area of the deposit (typically by erecting posts or monuments at the four corners of the site) and posting a notice at a conspicuous place (typically on a post or monument at the discovery point) in compliance with applicable federal and state requirements.

Types of claims: The two primary types of mining claims are “lode” and “placer” depending on the character of the deposit. Lode claims are located on veins or lodes of quartz or other rocks in place bearing gold, silver, copper or other valuable mineral deposits. Placer claims are essentially all deposits other than lode claims and often consist of an alluvial deposit of valuable minerals usually in sand or gravel. Federal law limits the size of individual lode and placer claims but there are no limits on the number of such claims that a person may hold. Federal law also permits the acquisition of up to five acres of non-mineral land for purposes of establishing a mill site. All mining claims must be recorded with the proper BLM field office and the relevant state agencies.

Marketability requirement: While examples of locatable minerals include gold, silver and copper, there is no exhaustive list of the types of minerals that fall into this category. The law requires that the mineral deposit be valuable in order to give rise to a mining claim. The general test for whether a deposit is valuable under the General Mining Law is whether a prudent person would consider investing time and money to develop the deposit (the so-called “prudent person” test). Federal agencies have refined this test to focus on whether the claimant can show a reasonable prospect of making a profit by developing, extracting and disposing the minerals on the claim (the so-called “marketability” test).

Rights afforded to the claim holder: Under the General Mining Law, the locator of a valid mining claim or site on which the locator has discovered a marketable mineral deposit, and who has performed all required acts of location, acquires the exclusive right of possession of the surface land to develop and extract the mineral deposits found on the mining claim. This right is similar to an easement because the United States retains paramount title to the land and may challenge the validity of the claim. The possessory right may be maintained by the claim holder indefinitely as long as the claim holder remains in compliance with applicable law.

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The General Mining Law also allows the mining claim holder to apply for a mineral patent, which transfers fee simple title to the claim (i.e., surface and subsurface rights) to the claim holder, making it private land. However, a moratorium on accepting patent applications has been in effect since 1994. No new federal mineral patents will be issued until the moratorium is lifted. Until patented, valid federal mining claims are typically referred to as “unpatented” mining claims.

Protection prior to discovery: Prior to the discovery of a valuable mineral deposit and, hence, prior to acquiring the exclusive right to possess the surface land that arises upon perfecting a valuable mining claim as described above, a bona fide prospector is afforded protection by the state common law doctrine of pedis possessio. Under this doctrine, a claimant who has peacefully and in good faith staked claims in search of valuable minerals may exclusively hold the claims while in actual physical possession of the ground claimed, diligently working in good faith toward making a discovery, and excluding others from the claim.

Transferability of mining claims: Both patented and unpatented mining claims are real property interests (representing fee simple title to the land in the case of a patented mining claim) and may be sold and transferred to third parties in their entirety or in part.

c) Leases under the Mineral Leasing Act

Nature of the lease: In general, mineral leases under the Mineral Leasing Act are awarded through a competitive bidding process managed by the BLM. However, the holder of a prospecting permit may be awarded a preferential lease outside of the competitive bidding process if the permit holder demonstrates that it has discovered a valuable deposit (in accordance with the prudent person and marketability test) within the period covered by the prospecting permit. The lessee under a federal mineral lease enjoys all rights granted under the lease to develop and extract the mineral deposits within the area covered by the lease.

General terms of federal non-coal mineral leases: Federal leases for non-coal minerals have differing terms depending on the particular mineral. Sodium leases, for example, have 20-year terms and may be renewed for successive 10-year periods at the end of each term. Phosphate and potassium leases, however, have indeterminate terms which are subject to readjustment at the end of each 20-year period. The annual rental rate is specific to the particular mineral.

Holders of federal leases for non-coal minerals are also required to pay annual production royalties computed as a percentage of the quantity or gross value of the output of the produced mineral. Federal regulations establish minimum royalty rates but the royalty rate for a competitive lease is set forth in the government’s notice of the lease sale. The BLM also requires posting of a bond for each non-coal mineral lease in an amount determined by the BLM to ensure compliance with the terms and conditions of the lease, but not less than USD5,000.

General terms of federal coal leases: Federal coal lease regulations specify maximum aggregate lease holdings (i.e., 75,000 acres in any one state and no more than 150,000 acres throughout the United States). Additionally, a person who has held a federal coal lease for 10 or more years that has not produced commercial quantities of coal is prohibited from acquiring any other mineral leases under the Mineral Leasing Act.

Federal coal leases carry an annual rental rate of USD3 per acre. Annual production royalties are payable at the rate of 12.5% of the gross value of the coal produced if severed by surface mining methods, and at 8% for coal severed by underground mining methods. As with non-coal leases, the BLM requires posting of a bond in an amount determined by the BLM to ensure compliance with the terms and conditions of the lease.

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Transferability of Mineral Leases: Federal mineral leases and permits generally may be assigned or subleased with the consent of the US Department of the Interior to persons who are qualified to hold the leases and permits.

Terms of rights

a) Private land

As in the context of exploration rights, as long as the mineral rights have not been severed from the surface rights, private landowners are generally free to develop the minerals on their own land in compliance with applicable environmental, safety, and state and local laws. The process for third parties to obtain mining rights from private landowners and mineral rights holders on privately owned land generally consists of negotiating the applicable terms of the lease or other agreement that will provide for the relevant mining rights.

Private landowners who hold fee title to both the surface and subsurface rights may freely exercise their development rights in compliance with applicable environmental, safety, and state and local laws. The respective rights and obligations of a third-party lessee of mineral rights are generally established by contract, subject to certain limitations under applicable state dormant mineral rights statutes. For example, some states allow surface owners to terminate third-party mineral rights that have been dormant for an extended period of time (e.g., 20 years), while other states provide that the mineral rights automatically revert to the surface owner if use conditions are not met for a period of time. Similar provisions may also be set forth in the lease agreement itself.

b) General Mining Law

Rights afforded to the claim holder: Under the General Mining Law, the locator of a valid mining claim or site on which the locator has discovered a marketable mineral deposit, and who has performed all required acts of location, acquires the exclusive right of possession of the surface land to develop and extract the mineral deposits found on the mining claim. This right is similar to an easement because the United States retains paramount title to the land and may challenge the validity of the claim. The possessory right may be maintained by the claim holder indefinitely as long as the claim holder remains in compliance with applicable law.

The General Mining Law also allows the mining claim holder to apply for a mineral patent, which transfers fee simple title to the claim (i.e., surface and subsurface rights) to the claim holder, making it private land. However, a moratorium on accepting patent applications has been in effect since 1994. No new federal mineral patents will be issued until the moratorium is lifted. Until patented, valid federal mining claims are typically referred to as “unpatented” mining claims.

Holders of federal mining claims are generally required to pay an annual maintenance fee per claim and to perform a minimum amount of assessment work. Since 1992, however, the claimant may pay the annual maintenance fee (USD155 for every lode claim and USD155 for every 20 acres of placer claims or portion thereof, as of 2015) in lieu of performing the annual assessment work. Failure to meet these annual requirements will result in the claims being forfeited.

c) Mineral Leasing Act

General terms of federal non-coal mineral leases: Federal leases for non-coal minerals have differing terms depending on the particular mineral. Sodium leases, for example, have 20-year terms and may be renewed for successive 10-year periods at the end of each term. Phosphate and potassium leases, however, have indeterminate terms which are subject to

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readjustment at the end of each 20-year period. The annual rental rate is specific to the particular mineral.

Holders of federal leases for non-coal minerals are also required to pay annual production royalties computed as a percentage of the quantity or gross value of the output of the produced mineral. Federal regulations establish minimum royalty rates but the royalty rate for a competitive lease is set forth in the government’s notice of the lease sale. The BLM also requires posting of a bond for each non-coal mineral lease in an amount determined by the BLM to ensure compliance with the terms and conditions of the lease, but not less than USD5,000.

General terms of federal coal leases: Federal coal lease regulations specify maximum aggregate lease holdings (i.e., 75,000 acres in any one state and no more than 150,000 acres throughout the United States). Additionally, a person who has held a federal coal lease for 10 or more years that has not produced commercial quantities of coal is prohibited from acquiring any other mineral leases under the Mineral Leasing Act.

Federal coal leases carry an annual rental rate of USD3 per acre. Annual production royalties are payable at the rate of 12.5% of the gross value of the coal produced if severed by surface mining methods, and at 8% for coal severed by underground mining methods. As with non-coal leases, the BLM requires posting of a bond in an amount determined by the BLM to ensure compliance with the terms and conditions of the lease.

Foreign ownership restrictions and government participation

US citizenship: With respect to private land, non-US citizens and residents can own real property in the United States. In general, there are no citizenship requirements or foreign investment restrictions specifically applicable to mining privately owned land.

With respect to public land, the General Mining Law limits the location of minerals on public land to citizens of the United States and those who have declared their intention to become US citizens. US domestic corporations are considered US citizens under this law, regardless of the citizenship of the corporation’s stockholders, and thus may make locations and hold mining claims.

Mineral deposits covered by the Mineral Leasing Act may only be leased to US citizens and to US domestic corporations except if shareholders of such domestic corporation are citizens of another country whose laws deny similar or like privileges to citizens or corporations of the United States.

CFIUS requirements applicable to mining acquisitions: Non-US entities that seek to acquire a controlling interest in a US entity involved in mining operations may be subject to investment oversight by the Committee on Foreign Investment in the United States (CFIUS), which is charged with reviewing the national security implications of foreign investment in US companies and business operations. If CFIUS determines that an acquisition may pose a threat to national security, it may impose conditions on the transaction or refer the transaction to the President, who has the authority to suspend or prohibit the transaction, or unwind a completed transaction.

CFIUS reviews begin with a 30-day investigatory period, which may be extended to a further 45 days for a more intensive investigation. Notification of a transaction to CFIUS is voluntary (unlike the mandatory HSR Act filings described below); however, CFIUS may institute its own investigations in certain cases. If the parties make a voluntary filing and CFIUS takes no action in 30 days, the transaction is secure from later challenge under the relevant laws.

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CFIUS has recently increased its focus on “critical infrastructure,” which is defined in the relevant regulations as “a system or asset, whether physical or virtual, so vital to the United States” that their degradation or destruction would have a debilitating impact on national security.

Though CFIUS is not specifically required to review foreign investment in US mining operations, relevant factors to consider when determining whether to notify CFIUS voluntarily include the acquirer’s nationality and degree of control, the type and size of the mining asset, and the mine’s location.

Steps to acquire a right - Development / Production tenements a) Private land

As in the context of exploration rights, as long as the mineral rights have not been severed from the surface rights, private landowners are generally free to develop the minerals on their own land in compliance with applicable environmental, safety, and state and local laws. The process for third parties to obtain mining rights from private landowners and mineral rights holders on privately owned land generally consists of negotiating the applicable terms of the lease or other agreement that will provide for the relevant mining rights.

b) General Mining Law

Rights afforded to the claim holder: Under the General Mining Law, the locator of a valid mining claim or site on which the locator has discovered a marketable mineral deposit, and who has performed all required acts of location, acquires the exclusive right of possession of the surface land to develop and extract the mineral deposits found on the mining claim. This right is similar to an easement because the United States retains paramount title to the land and may challenge the validity of the claim. The possessory right may be maintained by the claim holder indefinitely as long as the claim holder remains in compliance with applicable law.

The General Mining Law also allows the mining claim holder to apply for a mineral patent, which transfers fee simple title to the claim (i.e., surface and subsurface rights) to the claim holder, making it private land. However, a moratorium on accepting patent applications has been in effect since 1994. No new federal mineral patents will be issued until the moratorium is lifted. Until patented, valid federal mining claims are typically referred to as “unpatented” mining claims.

c) Mineral Leasing Act

Nature of the lease: In general, mineral leases under the Mineral Leasing Act are awarded through a competitive bidding process managed by the BLM. However, the holder of a prospecting permit may be awarded a preferential lease outside of the competitive bidding process if the permit holder demonstrates that it has discovered a valuable deposit (in accordance with the prudent person and marketability test) within the period covered by the prospecting permit. The lessee under a federal mineral lease enjoys all rights granted under the lease to develop and extract the mineral deposits within the area covered by the lease.

Relationship with landowners - Development / Production tenements

Depending on the type of property (e.g., private land, public land, tribal land, National Forest land) and the type of project, different requirements apply to the interaction between stakeholders in the property as described throughout this chapter.

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Obligations of holder - Development / Production tenements

a) Private land

Private landowners who hold fee title to both the surface and subsurface rights may freely exercise their development rights in compliance with applicable environmental, safety, and state and local laws. The respective rights and obligations of a third-party lessee of mineral rights are generally established by contract, subject to certain limitations under applicable state dormant mineral rights statutes. For example, some states allow surface owners to terminate third-party mineral rights that have been dormant for an extended period of time (e.g., 20 years), while other states provide that the mineral rights automatically revert to the surface owner if use conditions are not met for a period of time. Similar provisions may also be set forth in the lease agreement itself.

b) General Mining Law

Holders of federal mining claims are generally required to pay an annual maintenance fee per claim and to perform a minimum amount of assessment work. Since 1992, however, the claimant may pay the annual maintenance fee (USD155 for every lode claim and USD155 for every 20 acres of placer claims or part thereof, as of 2015) in lieu of performing the annual assessment work. Failure to meet these annual requirements will result in the claims being forfeited.

c) Mineral Leasing Act

The lessee must continue to comply with the lease in all respects including, in particular, its obligation to pay the annual rent when due as well as the royalty rate stated in the lease (or the federally mandated minimum royalty if the lessee is not producing the minimum quantities contemplated by the lease). The BLM may institute proceedings to terminate the lease if the lessee does not comply with the provisions of the Mineral Leasing Act and other laws and regulations applicable to the lease, if the lessee defaults on any of the lease terms and such default continues for 30 days after written notice from the BLM, or if the lessee violates any law.

d) Federal coal leases

A key requirement of federal coal leases is that the lessee is subject to the conditions of diligent development and continued operations. Within 10 years from the date the lease was issued, the lessee must diligently develop the lease by producing the commercial quantities of coal required under the lease; otherwise, the lease will terminate at the end of such 10-year period. Once commercial quantities have been produced, the lease must remain in continued operation by annually producing commercial quantities of coal. In lieu of continued operation, the lessee may pay advanced royalties for no more than 20 years during the life of the lease. Federal regulations also establish performance standards applicable to federal coal leases.

Key Issues Title

In the United States, unlike in other countries, title to real property, including subsurface mineral rights, is established from a series of instruments (including deeds) by means of which title can be traced. There is no government guarantee of title.

Owners and acquirers of US real property interests typically seek protection against defects in title by obtaining title insurance from licensed title companies, title opinions from qualified

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lawyers, or representations and warranties and indemnification from the seller, or a combination of the foregoing.

A title insurance policy insures against the risk that the owner’s interest in the property is not valid. Once a title policy is obtained, if any break in the past chain of title is found which would invalidate the owner’s claim to ownership of the property, the title company will be responsible for any losses up to the value of the policy, which is often the purchase price of the property (but can be increased as improvements to the property are made).

When acquiring federal mineral leases from a third party, or when acquiring an ongoing mining operation on public land for example, the acquirer typically seeks to verify the title to the relevant mineral rights that are driving the transaction. In the US mining industry, this title verification typically comes in the form of a title opinion issued by a lawyer licensed to practice law in the state where the relevant real property asset is located.

The nature of the particular mining rights being acquired will dictate the type of review that the lawyer must conduct in order to issue its title opinion. For example, if the relevant asset is an unpatented mining claim, among other things, the opining lawyer will need to examine the records in the appropriate BLM state office to determine whether the claim is situated on public land that was in fact open for location of a mining claim at the time the claim was located. Depending on the volume and nature of the particular mining rights at issue, the title examination process can become quite cumbersome.

Antitrust

An acquisition of mining assets or rights can trigger a notification obligation under the HSR Act if it satisfies the applicable notification thresholds. Under the HSR Act, acquisitions valued in excess of USD76.3 million as of 2015 (this figure is adjusted annually) generally trigger a notification obligation, barring the application of an exemption.

With respect to the energy and mining industries, there are two specific exemptions in the HSR rules that bear mention. The first is commonly referred to as the “unproductive real property” exemption, which exempts from the HSR Act acquisitions of real property, including natural resources and assets incidental to the ownership of the real property, that have not generated total revenues in excess of USD5 million during the 36 months prior to the acquisition. This exemption applies irrespective of the amount of consideration being paid for the unproductive real property. The second exemption applies to acquisitions of carbon-based mineral reserves, subject to certain limitations depending upon the type of reserves being acquired. Acquisitions of up to USD500 million in reserves of oil, natural gas, or shale or tar sands, or to USD200 million in coal reserves are exempt from the HSR Act’s notification requirements.

In the event that a transaction triggers a notification obligation under the HSR Act, each party must notify the relevant US antitrust agencies and receive HSR clearance prior to closing the transaction. After receipt of any HSR notifications from the parties, the US antitrust agencies have an initial 30-day period to review the transaction and evaluate whether it presents a potential competitive concern. If such a concern is identified, then the initial period can be extended to allow for a more thorough investigation, which typically lasts several months.

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