Getting your permits in China (August 29, 2008)

Hong Kong — Miners intending to enter China’s vast mining and mineral exploration scene need to know the ropes when it comes to the country’s minerals regulatory regime.

All mineral resources in China are owned by the state under the Mineral Resources Law, which came into force on New Year’s Day in 1997, and the Ministry of Land and Resources (MLR) is responsible for supervising and administering mining and mineral exploration nationwide, though there is a further level of control locally.

Before a company can begin exploration or mining activities, it must obtain an exploration licence or a mining permit, as the case may be. However, sometimes further permits are needed — for example, a gold operating permit must also be obtained for gold projects.

Exploration right fees are calculated based on the size of the exploration area and are payable annually. The annual rate for the first to third year of exploration is RMB100 ($15.47) per sq. km. of exploration area. From the fourth year of exploration onwards, the rate rises each year by RMB100 per sq. km. of exploration area, up to an annual maximum rate of RMB500 per sq. km.

For mining rights, the fee rate is RMB1,000 per sq. km. of mining area per year.In accordance with the Administration Regulation for Collection of Mineral Resource Compensation Fee, which became effective as of July 3, 1997, mining permit holders must also pay mineral resource compensation fees, based on a percentage of their sales revenue.

Exploration permit

The Administrative measures on registration of tenement of mineral resources exploration and survey outlines how to apply for an exploration licence.

The following documents must be submitted to the MLR or its local branch: an application form for registration and a drawing or map indicating the scope of the blocks for which the applicant is applying; a copy of the certificate validating the qualification of the exploration unit; a working plan and a contract or documents showing that the exploration unit and project are entrusted by the state; and proof of the source of project funding.

After reviewing these documents, the relevant authority must make a decision within 40 days and notify the applicant. If the application is approved, the applicant must then pay his exploration right fee.

The maximum period for the first term of the exploration licence is three years, which can be extended by successive two-year renewal periods.

Exploration permit holders have rights to: carry out exploration in the designated area and within the prescribed time; set up apparatus for power supply, water supply and communication channels without prejudice to any original equipment; access the exploration area and its adjacent areas; temporarily use the land in accordance with the needs of the exploration project; have priority in obtaining the mining right of the mineral resources as specified on the exploration permit and the exploration right of other newly discovered minerals within the designated exploration area; the right to transfer the exploration right to any third party upon fulfillment of the prescribed minimum expenditure and upon government approval; and sell the mineral products extracted from the surface of the land in the exploration area, except for those mineral products which are required by the State Council to be sold to designated entities.

On the obligation side of the coin, an exploration permit holder must: start and end the exploration work within the term of the exploration permit; carry out work in accordance with the plan and to ensure that there are no unauthorized mining activities in the designated area; carry out integrated exploration and assessment activities on the paragenetic and associated mineral resources; and submit an exploration report of the mineral resources to the relevant government authority for approval.

Mining permit

A company wishing to move on to a mining permit must apply for one in accordance with the Administrative Measures on Registration of Mineral Resources Exploitation, and submit the following documents to MLR or its local branch: an application form and a drawing or map indicating the scope of the mining area; a certificate validating the qualification of the applicant; a plan for developing and using the mineral resources; approval documents for establishing the mining enterprise; and an environment-influence evaluation report.

In a similar fashion, the MLR must make a decision within 40 days, and if approved, the successful applicant must pay his fees.

For a large-scale mine, the initial term of the mining permit may be as long as 30 years; for a middle-scale mine, 20 years; and for a small-scale mine, 10 years. Again, the mining permits may be extended just before their expiration date.

When it comes to getting a gold operating permit added to a regular mining permit, miners must obey the Provisions on the Administration of Gold Operating Permit, and submit the following documents to the National Development and Reform Commission (NDRC): an application form for exploiting gold minerals; a map indicating the scope of the mining area; file records or the approval documents regarding the ore reserves report; an environment-influence evaluation report approved by competent environmental-protection authorities; the contract and the articles of association of the company and the approval for establishing the company, if the applicant is a company limited by shares; and the awards rendered by relevant authorities in respect of any boundary dispute in the mining area.

The NDRC must determine the application within 20 days of receiving the documents, and gold operating permits are generally issued for five to 15 years, depending on the size of the mine. These permits may also be extended.

For a mining permit holder, the rights include the ability to: mine in the designated area and within the term prescribed under the permit; set up production facilities and amenities within the designated area; sell the mineral products, except for minerals required by the State Council to be sold to designated entities; and acquire the land-use rights based on the requirement of its production and construction.

At the same time, a mining permit holder is obliged to: carry out mining activities in the designated area and within the term of the permit; effectively protect and reasonably extract the mineral resources and integrate the use of the mineral resources; pay tax and fees; comply with laws and regulations relating to labour safety, soil and land conservation, land rehabilitation and environment protection; and submit a report on the use of mineral resources to the relevant government authority.

— The author is a lawyer at the Hong Kong office of Dorsey & Whitney, and has over 20 years of experience in corporate finance in Hong Kong. He sits on a number of securities regulatory committees in Hong Kong, and advised Sino Gold Mining on its secondary listing on the Hong Kong Exchange, which raised US$120 million, as well as Zijin Mining on its Honk Kong listing.

He can be reached at tel. +852 2105 0234 or richardson.david@dorsey.com